Tred Eyerly | Insurance Law Hawaii | November 15, 2017
The New Jersey Superior Court, Appellate Division, adopted the continuous trigger for establishing which insurers were on the risk for construction defect claims. Air Master & Cooling, Inc. v. Selective Ins. Co. of Am., 2017 N.J. Super. LEXIS 144 (N.J. Super. Ct., App. Div. Oct. 10, 2017).
The insured, Air Master, worked as a subcontractor on the construction of a condominium building. Air Master performed HVAC work in the building between November 2005 and April 2008. Air Master’s work consisted of installing condenser units on rails on the building’s roof, and also HVAC devices within each individual unit.
Starting in early 2008, some of the unit owners began to notice water infiltration and damage in their windows, ceilings, and other portions of their units. On April 29, 2010, an expert consultant, Jersey Infrared Consultants, performed a moisture survey of the roof for water damage. A report identified 111 spots on the roof damaged by moisture from water infiltration. The report noted it was impossible to determine when moisture infiltration occurred. The expert recommended that these damaged areas of the roof be removed and replaced.
Two unit owners and the condominium association each sued the developer and other defendants for property damage and remediation costs. The three lawsuits were consolidated. Third-party complaints were filed against Air Master and other subcontractors. Air Master sought defense and indemnity from its various insurers who had issued a succession of CGL policies. Air Master was insured by Penn National for the policy period form June 22, 2004 through June 22, 2009. Selective Insurance Company of America insured Air Master from June 22, 2009 through June 22, 2012.
Penn National defended the third party complaint, but Selective disclaimed coverage. Selective argued that the property damage had already manifested before its policy period began.
Air Master sued Selective for declaratory judgment. Selective moved for summary judgment. The motion judge decided on reconsideration that the continuous trigger doctrine applied. But the court ruled that Selective was not liable for coverage or a duty to defend because damage to the building had manifested before Selective’s policy period began in June 2009. The judge rejected Air Master’s argument that the CGL coverage period continued until damages attributable to the insured were discovered, or reasonably could have been discovered.
On appeal, the appellate division noted that no reported decisions in the state addressed the appropriate manner for identifying the date of manifestation of property damage that progressively advanced within a multi-unit building for purposes of third-party liability claims under a CGL policy.
The court held that a continuous trigger theory of CGL coverage applied to claims for third-party, progressive property damage in construction defect cases. The progressively-worsening nature of a variety of construction defects, such as water infiltration or mold, supported the application of the continuous trigger doctrine.
The court, however, rejected Air Master’s theory that the end date for a continuous trigger should be delayed until it first appeared, or reasonably could be known, that the damage was attributable to the conduct of the specific insured. It would be unwise to delay the coverage trigger date to a date by which there was sufficient information to link an insured’s faulty conduct to the progressive injury. Such an attribution analysis could be highly fact-dependent, and difficult to resolve when an insured made a request for defense and indemnification after being sued. By contrast, using a date of initial manifestation that was common to all parties – regardless of which contractor or subcontractor was “at fault” for the occurrence – promoted efficiency and certainty.
Finally, on the limited record presented, the court could not determine when the property damage due to water infiltration in the building had sufficiently manifested to comprise the “last pull” of the coverage trigger. Air Master urged that the May 2010 report provided an appropriate demarcation of the time of manifestation. By contrast, Selective argued that the point of manifestation happened much earlier when residents had first noticed and reported water infiltration in their units, prompting remedial investigations. There were genuine issues of material fact concerning when the water infiltration problems on the roof first became known, or reasonably could have been know.
Therefore, summary judgment in favor of Selective was vacated and the case remanded for further proceedings.