The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims. In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy. In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.
This is problematic for both the homeowner and the insured. For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment. For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.
In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself. At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies. The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy. The Court held that such damages are covered holding:
“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”
The importance of this holding is significant. First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work. Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.