Cooper Levenson attorney presents on panel at National Construction Defect Conference in Ft. Lauderdale, Fla. – Nov. 17th

“Do Builders Have ‘Right to Repair’ Before Taken to Court?”

Atlantic City, N.J. October 7, 2016 – The Right to Repair Act, initiated to avoid time-consuming, expensive lawsuits, will be reviewed in a panel discussion at the 2nd Annual National Construction Defect Conference, November 16-18, 2016 at the Ritz-Carlton, 1 North Fort Lauderdale Beach Boulevard, Fort Lauderdale, Fla. Cooper Levenson’s R. Scott Rasmussen, Esq. will present on the Act, which requires homeowners to notify builders about construction defects before they can start legal proceedings.

The Right to Repair Act panel discussion will take place on Thursday, November 17 at 2:15 p.m. It will cover the differences in statutes across the U.S., address the ‘final four’ (California, Florida, Nevada and Arizona), and discuss the case of McMillin Albany, LLC vs. Superior Court. CLE credit is available for all states.

Participating in the panel are: Moderator Luke Ryan, Esq., Shinnick & Ryan LLP, San Diego, Calif.; Glenn T. Barger, Esq., Chapman, Glucksman, Dean, Roeb & Barger, Los Angeles, Calif.; John J. Kelley, AIC, Sr. Technical Claims Specialist II, Conference Defect Group, Commercial Insurance – Special Liability, Liberty Mutual Insurance, Orange, Calif.; R. Scott Rasmussen, Esq., Cooper Levenson, Las Vegas, Nev.; Carolyn Luken, Manager, Construction Defect, Environmental & Surety Claims, Crum & Forster, Morristown, N.J.; and Stephen L. Weber, Esq., Kasdan Lippsmith Weber Turner LLP, Phoenix, Ariz.

Based in Cooper Levenson’s Las Vegas office, R. Scott Rasmussen has extensive experience working with construction defects, employment law, insurance defense, insurance coverage, business litigation, products liability litigation, commercial litigation, premises liability, mechanics liens, corporate law and international law. He has successfully defended builder rights against construction defect claims.

Cooper Levenson is a full service law firm since 1957, with 75 attorneys and New Jersey offices in Atlantic City and Cherry Hill. The firm has regional offices in Bear, Del. and Las Vegas. For more information, visit www.cooperlevenson.com.

New Jersey Supreme Court Finds General Contractor/Developer Liability Coverage Exists for a Subcontractor’s Faulty Workmanship

On August 4, 2016, a unanimous New Jersey Supreme Court determined that water damage caused by a subcontractor’s faulty workmanship constitutes “property damage,” and an “occurrence” under the general contractor/developer’s general liability insurance policy.

In Cypress Point Condominium Association v. Adria Towers, LLC the Condominium Association sued its developer/general contractor for damages. The Condominium Association also sued the developer’s commercial general liability policy carriers, seeking a declaration that the claims against the developer were covered.

The Supreme Court affirmed the Appellate Division’s determination that consequential damages caused by the subcontractor’s faulty workmanship, resulting in water damage, constituted an occurrence and property damage under the language of the 1986 CGL policy language.

Facts of the Case

Cypress Point was a fifty-three residential unit condominium development that was built between 2002 and 2004. The developer and general contractor hired subcontractors to carry out a substantial majority of the work. The developer was insured by four consecutive CGL policies covering a time period between May 30, 2002 and July 15, 2006. The policies contained the standard CGL language containing the policy definitions of “property damage,” and an “occurrence.” The policy also included standard exclusions for “damage to your work.” This exclusion contained an exception that stated that the exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on the insured’s behalf by a subcontractor.”

After completion of the work and transfer of control to the Association, several homeowners began experiencing roof leaks and water infiltration through the windows. After the Association filed suit, the owner/developer requested that their respective insurers defend them.

The Ruling

The Supreme Court agreed with the Appellate Division, distinguishing prior case law and found that “consequential damages caused by the subcontractor’s faulty workmanship constitute property damage,” and that that this damage constitutes an “occurrence” under the plain language of the CGL policies. The Court distinguished the prior 1973 ISO form finding that the exclusion to the 1986 form expressly declares that the exclusion does not apply when the work was performed by a subcontractor.

Practical Implications of the Ruling

The Cypress Point decision is a victory for Condominium Associations, general contractors, developers, and policy holders seeking coverage for faulty workmanship of their respective subcontractors. At a minimum, insurers will be required to defend general contractors/developers where the pleadings allege damage to the interior units or structure of the building itself. Prior practice resulted in an outright denial of coverage, or defense under a reservation of rights. This decision will likely result in the continuing practice of defense under reservation of rights until an exact breakdown of consequential versus “workmanship” damages is analyzed.

While the Supreme Court provides a framework for coverage analysis, practical implications require attorneys, consultants and/or experts to distinguish between workmanship damages, i.e., cost to repair the defective work performed by the subcontractor which is not covered, and consequential damages caused by those defects, i.e., water damage, mold, damage to interior units. As an example, in a typical stucco case, the insurers may argue that the cost to remove and replace defectively installed stucco is “workmanship” and is not covered. However, repair/replacement of water damaged sheathing, drywall, and hardwood floors and interior units would be the natural consequence of that water damage, and would be covered. However, the analysis is not usually that straightforward.

What happens if masonry veneer must be removed in order to repair the structurally damaged or water-damaged sheathing/drywall? Is removal of the exterior masonry necessary in order to address the consequential damage to the structure? This analysis is best performed by consultants/experts/attorneys in an attempt to determine what is a “consequential damage,” and what is “workmanship.” While Cypress Point has addressed the two coverage issues raised in property damage construction litigation, other possible exclusions such as the EIFS exclusion, mold exclusion and other manuscripted exclusions continue to be contested in the General Liability policies. However, the Supreme Court’s determination is beneficial to Condominium Associations, homeowners, developers, and contractors to help cover repair/replacement damages for commercial and residential property owners, as well as developers and contractors. As coverage issues also drive settlement/resolution of construction litigation, this decision should streamline and make resolution of these cases more efficient and cost-effective.