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Pennsylvania National Mutual Casualty Insurance Company v. Parkshore Development Corporation

2008 WL 4276917 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

INSURANCE — Faulty workmanship, in and of itself, is not an occurrence under a commercial general liability policy and an occurrence only exists when faulty workmanship causes damage to the property other than to the work done by the insured.

A condominium complex was newly constructed. One year later, the condominium association notified the developer/general contractor that the condominium’s windows had not been caulked properly and were leaking. The developer hired a subcontractor to do recaulking. Several years later, the association filed suit against the developer and the subcontractor for damages relating to numerous problems relating to wet crawl spaces and water infiltration into the walls. The developer sought a defense from, and indemnity from, its commercial general liability insurer. The insurer disclaimed coverage, claiming that the action did not meet the governing insurance policy definitions of “occurrence” and “property damage.”

The insurer sued, seeking a declaration from the Court that it had no duty to defend or indemnify the developer in the association’s lawsuit. Specifically, the insurer alleged, by way of a motion for summary judgment, that the association’s allegations of faulty workmanship did not constitute an occurrence and the association’s claims against the developer under the New Jersey Consumer Fraud Act (CFA) were not claims for property damage under the insurance policy.

The Federal District Court held that a claim for faulty workmanship, in and of itself, is not an occurrence under a commercial general liability policy as it does not involve a risk considered to be an accident. The Court noted that under New Jersey case law, an “occurrence” exists when faulty workmanship causes damage to property other than the work done by the insured. In this case, the damage was limited to the developer’s work product, the condominiums. Therefore, the Court found there was no occurrence triggering the insurance policy’s coverage for claims of breach of contract and negligence, breach of implied warranties, and failure of remediation.

As to the claims brought under the CFA, the Court found that it was unclear what damages the association claimed to have suffered as a result of the association’s alleged violation of the CFA (e.g., allegations that the developer made representations as to the quality of the condominium units and its failure to provide units which conformed to these representations). Therefore, the Court found that it could not dispose of those claims by way of summary judgment.

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