New Jersey insurance policy will include ‘malpractice’

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Assemblyman Gary S. Schaer of the New Jersey 36and District introduced a bill, AB 1075, that would require all commercial liability insurance policies issued in New Jersey to include “manufacturing fault” in the definition of “the occurrence.”

The proposed bill “provides that a commercial general liability insurance policy shall not be issued, issued, performed or renewed in this state, commencing on the effective date of the bill, unless the policy does not contain an event definition that includes:

  • an accident, including continuous or repeated exposure to substantially the same harmful general conditions; and

  • material damage or bodily injury resulting from poor workmanship.”

The proposed bill was tabled on January 11, 2022 and must go through the committee review process as a first step. A substantially similar bill, NJ A3401, was introduced by Assemblyman Schaer on February 25, 2020. The previous bill was referred to the Assembly’s Financial Institutions and Insurance Committee, but did not failed to be adopted.

The proposed bill is the next logical step after the New Jersey Supreme Court’s landmark decision in Cypress Point Condo. Assn. against Adria Towers, LLC226 New Jersey 403 (2016), delivered by the Court on August 4, 2016. The issue in Cypress Point was whether rainwater damage caused by a subcontractor’s poor workmanship constituted “property damage” caused by an “event” to trigger Commercial General Liability (“CGL”) policy coverage. ) of the promoter of the co-ownership. Cypress Point, a condominium association, has brought an action against Adria Towers, the developer and general contractor of the project, its insurers and various sub-contractors hired by Adria Towers, alleging poor workmanship during construction, which resulted in consequential damages to the common items and unit owner property.

After construction was completed, unit owners began experiencing roof leaks and water seepage in their units and common areas. The association alleged that consequential damage to the common elements and the property of the owner of the unit was caused by rainwater leaking inside the property due to faulty workmanship during construction. . At issue was the language contained in the CGL Policy of the 1986 ISP Standard Form issued to the developer, which defined an “event” as “an accident, including continued or repeated exposure to substantially the same harmful terms and conditions”. Looking at the association’s claims in conjunction with the 1986 FAI Standard Form definition of “event”, the Court ruled that consequential damages caused by the subcontractors’ poor performance constituted “property damage” and that water leaking into the property due to poor workmanship of the subcontractors was an “event” triggering coverage under the subject CGL policies.

In arriving at its decision, the Court concluded that the term “accident” contained in the policy was not defined. After reviewing the policy and the relevant case law, the Court concluded that “the term ‘accident’ in the subject policies encompasses[ed] unintended and unexpected harm caused by negligent conduct”. Having defined “accident”, the Court turned to the crucial question of whether “the consequential water damage to completed and non-defective parts of Cypress Point resulting from the poor performance of subcontractors was foreseeable”. At this point, the Court noted that “no one is claiming[ed] that the subcontractors intentionally performed substandard work that led to the water damage.

Accordingly, the Court held that

“According to our interpretation of the term ‘event’ in the policies, consequential damage caused by negligent work is an ‘accident’. Therefore, since the result of the poor execution of the subcontractors here – the consequential water damage to the completed and non-defective parts of Cypress Point – was an “accident”, it is an “event”. under the policies and is therefore covered as long as the other parameters established by the policies are respected.

In so ruling, the Court’s decision in Cypress Point resolved decades of conflicting and conflicting lower court rulings in New Jersey. The proposed bill introduced by Assemblyman Gary S. Schaer would codify the court’s decision as part of the legal requirements that insurers must meet to issue policies in New Jersey. It is unclear whether the bill will gain traction in the Legislature this time around and go through the committee process. If you want to follow the progress of the bill, you can follow it here.

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