Ashley Smith – August 19, 2013
New Jersey insureds seeking coverage for negligent repair efforts after SuperStorm Sandy could be out of luck. The Superior Court of New Jersey, Appellate Division, recently found in Margalit v. Woods Restoration Services, LLC and Chubb Insurance Company of New Jersey,1 an exclusion in the insurance policy for “faulty planning, construction or maintenance” was applicable to exclude coverage for negligent construction.
In Margalit, the plaintiffs discovered a leak in the radiant heat system, which included piping laid within the concrete slab. The homeowners made a claim to their insurer, Chubb. The policy required Chubb to pay the reasonable cost of removing and replacing the concrete slab to allow access to the plumbing, and the repairs and replacement necessary to restore the house to the condition it was in prior to the leak.
The Margalits hired a general contractor to perform the work and Chubb made payments of approximately $190,000 pursuant to the contractor’s estimates. However, because of the general contractor’s negligent and faulty work, the plaintiffs were left with $149,000 of unfinished work and approximately $350,000 to repair the work negligently completed.
In the complaint against Chubb, the Margalits alleged that “[t]he scope of work approved by Chubb to replace the radiant heat system and repair the damage was insufficient to accomplish the replacement of the radiant heat system and repair of the damage.”
In response, Chubb argued that the “faulty planning, construction or maintenance” exclusion applied. This exclusion bars coverage for “any loss caused by the faulty acts, errors or omissions of [the insured] or any other person in planning, construction or maintenance.” The exclusion defines “construction” as including “materials, workmanship, and parts or equipment used for construction or repair.”
The Margalits presented evidence that the general contractor was negligent, and argued that as a result, the amounts paid by Chubb were insufficient. Ultimately, the Court found that the faulty workmanship exclusion applied:
Our concern is with the application of the faulty workmanship exclusion. This exclusion bars coverage for ‘any loss caused by the faulty acts, errors or omissions of…any…person in…construction[,]’ the definition of which specifically includes ‘workmanship.’
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The only evidence of causation for these claims was the negligence or poor workmanship of [the general contractor] and its subcontractors…Both the claims and the supporting evidence thus fell squarely within the faulty workmanship exclusion.
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Therefore, even giving plaintiffs the benefit of all favorable inferences, the claim presented to the jury was barred by the faulty workmanship exclusion and the evidence was insufficient to support a verdict against Chubb.
This faulty workmanship exclusion could have an impact on New Jersey homeowners seeking coverage from their insurers for negligent repairs and reconstruction after SuperStorm Sandy. Homeowners should make sure they hire competent and skilled contractors to avoid this coverage dilemma.
1 Margalit v. Woods Restoration Services, LLC, 2013 WL 3744068 (Sup. Ct. N.J. July 18, 2013).