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Steinbauer v. East Coast Acquisitions, LLC

A-0807-06T3 (N.J. Super. App. Div. 2007) (Unpublished)

INSURANCE — Where physical damage, such as a water leak from a broken pipe, occurs during a property insurance policy’s coverage period, but the damage triggered by initial incident is not discovered until after the policy period, the policy still must answer for all such claims because the damage was sustained during the policy period even though it manifested itself later.

A homebuyer contracted for the purchase of a condominium unit from a seller who had acquired it at a foreclosure sale. The condominium unit was previously damaged as a result of a broken water pipe and was rehabilitated by the seller. The homebuyer found out that the unit had sustained water damage and that, as a result, it sustained mold damage. The seller agreed to remediate the mold damage. After the closing, the homebuyer was told by a plumber (who came to install a dryer vent) that there was mold in the adjacent crawl space. The crawl space was part of the building’s common elements.

The homebuyer sued a number of parties including its seller and the condominium association for failure to remediate the mold. The association’s insurance company refused to defend or indemnify the association because it claimed that damage had not occurred during the policy period. The association brought a third-party claim against its insurance company seeking a declaration that the insurance company had a duty to indemnify and defend it. The insurance company argued that it was only after the homebuyer moved in that she sustained the damage, by which time the policy had expired. The association argued that the policy was an occurrence policy and that coverage could have extended beyond the expiration of the policy. The lower court ordered the insurance company to defend and indemnify the association. It found that the policy covered occurrences that took place during the term of the policy and that the water damage was an occurrence that took place during the term.

In the appeal brought by the insurance company, the Appellate Division noted that when the language of an insurance contract is clear and unambiguous, it is to be enforced as written, but if any language is ambiguous and can be read to favor either the insured or the insurer, it is to be construed in favor of the insured. It agreed with the lower court’s finding that the water pipe break was the event, or the occurrence, that took place during the coverage period and that the mold damage discovered by the homeowner after the policy had expired resulted from that event. The Court pointed out that an occurrence, for purposes of insurance indemnification, is when the aggrieved party sustained the damage. It found that the damage from the water leak occurred during the term of the policy and therefore affirmed the lower court’s order that the insurance company had to defend and indemnify the condominium association.

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