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Appellate Division Applies the Continuous Trigger Theory to Insurance Coverage Plans For Construction Defects

The Appellate Division recently issued an opinion addressing trigger of coverage issues for construction defect claims. In Air Master & Cooling, Inc. v. Selective Insurance Company of America which was approved for publication on October 10, 2017, the court applied the continuous trigger theory of insurance coverage for third party liability claims that involve progressive damage to property caused by alleged defective construction work. Most importantly, the court concluded that the end period or “last pull” of the trigger occurs when the essential scope in nature of the property damage first becomes known or should have been known. The Appellate Division carried forward the theories that have been applied by the New Jersey Courts for over 20 years as to how insurance policies apply when there is a progressive damage to property. The seminal case from the New Jersey Supreme Court, Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994) applied the continuous theory for insurance claims that arose from asbestos-related products. The theory recognizes that because certain harm such as asbestos-related diseases or injuries, develops progressively over time, “the date of the occurrence should be a continuous period from exposure to manifestation.”

In Air Master, a subcontractor was hired to perform HVAC work in a mostly residential condominium building. The condenser units were installed by Air Master between November 2005 and April 2008. At some point in 2008 unit owners began noticing water infiltration and damage in their windows, ceilings and other areas of their units. Following investigation and remedial measures, an expert consultant hired by the Condominium Association performed a moisture survey of the roof for water damage. The expert issued a report on May 3, 2010 identifying water damage on the roof and recommended that the damaged areas be removed and replaced. That report noted that it was impossible to determine when the moisture infiltration occurred, and raised a potential link between the infiltration of water from the roof and the damages to the individual units in the floors below.

The Condominium Association and unit owners sued the project developer and other defendants, Air Master was added along with other subcontractors. Air Master, therefore, sought coverage from the various companies that insured Air Master during the years between the installation and the discovery of the contamination. Two of the insurers, Selective Insurance Company and Harleysville, disclaimed coverage contending that the property damage had already manifested before their respective policies began. Then National, which had insured Air Master during the time it had performed the work on the property, assumed the defense subject to a reservation of rights. Harleysville obtained summary judgment as it issued a policy commencing in June 2012 long after the damages had been discovered. Selective, which issued a policy commencing in 2009, also argued that the water damage had manifested before the beginning of its coverage period. The trial court agreed and granted summary judgment. The Appellate Division followed general coverage principles for progressive injury as enumerated in Owens-Illinois and concluded that the insurers that had issued coverage for the periods during the period of the initial alleged faulty installation until such time as the damage to the property were or should have been discovered would be responsible to provide defense and indemnity under the insurance policies. The Appellate Panel rejected the argument from Air Master that the trigger period extends until there is proof that the property damage is proven to be “attributable” to faulty conduct of the insured. The court did not agree, concluding that coverage is tied to the damages, not proof of liability.

The court ultimately remanded the matter back to the trial court for further findings with respect to the date when the damages were manifested, that is, when they were known or should have been known.

This is a significant case in that it clarifies the applicability of the continuous trigger in the context of a construction defect. It further confirms that the trial courts must focus on the facts as to when the injury or damage was actually known or should have been known, not when there is proof of liability.
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