New Jersey Law

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Case Watch: NJ Appellate Division Remands Case for Further Consideration of the “Your Work” Exclusion in CGL Policies.

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In a recent unpublished decision of the New Jersey Appellate Division, 313 Jefferson Trust, LLC v. Mercer Insurance Company, et al., the court considered the “your work” exclusions contained in a comprehensive general liability insurance (CGL) policy issued to a contractor, Tricomitas, and remanded the case to determine whether work done by subcontractors of the insured, fall within the exceptions contained in the “your work” exclusion. Jefferson Trust claimed that Tricomitas did not comply with the contract because the concrete slab that it had poured had numerous deficiencies including voids, lack of rebar, and being uneven. Tricomitas initially filed a lawsuit against Jefferson Trust for breach of contract for payment; Jefferson Trust answered and counterclaimed alleging defective workmanship. Jefferson obtained a default against Tricomitas on the counterclaim. After a proof hearing the trial court entered judgment for consequential damages including, interest charges, taxes, and sewer and water costs for the 25 weeks of delay. The cost of all the repairs, including the additional professional fees totaled $685,899.99. Jefferson Trust then sued the insurer for Tricomitas, Mercer Insurance Company, claiming that Mercer was on notice of Tricomitas’ negligence and that it had wrongfully denied coverage. The trial judge in the coverage action found that some of the damages were for “consequential damages” which are covered in accordance with the seminal decision of the New Jersey Supreme Court in Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979). Although there were numerous issues addressed on appeal, the primary issue was whether the trial court properly considered the “your work” exclusions in determining the damages covered under the policy.

The policy involved was a standard CGL policy which is designed to protect against liability to third parties for property damage, and bodily injury caused by an occurrence. Property damage is defined in the policy as “direct physical injury to tangible property, including loss of use of such property … or … loss of use of tangible property that is not physically injured … at the time of the occurrence causing the loss.” Although Tricomitas had constructed a defective concrete slab Jefferson did not replace the slab, but shored it up with a steel frame and then constructed the originally planned three-story building on top. The appellate court noted that while the construction was completed, the trial court had not made any findings that “tangible property was directly injured or if not physically injured, that the property suffered a loss of use.” Under the “your work” exclusion, a party is not covered for damage to the work of the insured or for the cost to correct the defective work. The “your work” exclusion, however, has two exceptions: the first is that the work had not been abandoned or completed when the damage occurred; the second is that the damaged work, or work out of which the damage arises, was performed by or on behalf of a subcontractor. Although no subcontractors were named as defendants in any of the lawsuits involved in the matter, it was conceded that some subcontractors were used for some of the work. Since the record was not clear as to what work was done by Tricomitas and what was done by the subcontractor, the appellate court remanded the case for a determination as to the work that was done on the project by subcontractors.

This is a particularly interesting case to watch both because it continues the exploration of the “your work” exclusion, which has previously been addressed by the New Jersey Supreme Court in Weedo, and more recently in Cypress Point Condominium Association v. Adria Towers, LLC, 26 N.J. 403 (2016). In Cypress Point, the Court held that the exception to the exclusion applied to claims for water damage resulting from the alleged faulty workmanship performed by subcontractors. The court noted that these exceptions were designed to provide general contractors with at least some insurance coverage for damage caused by the faulty workmanship of their subcontractors to the work of the insured. The question in the Jefferson case appears to be whether the work of the subcontractors caused damage to the slab, thus potentially providing coverage for the work required to correct the deficiencies. Jefferson Trust is a case for insurers to keep on their radar for possible further analysis of the “your work” exclusion.

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