Insurance – Blog Archive

How Can the Community Association Collect From Insurance Policies Insuring the Sponsor, General Contractor, Subcontractors, and Design Professionals?

Donald B. Brenner on July 27, 2020

Category: Community Associations, Insurance

Liability insurance policies insuring sponsors, general contractors, subcontractors, and design professionals are confusing and loaded with complex terminology that make them difficult to understand. Yet, it is these policies that hold the key to the ability of a community association to recover damages from design and construction deficiencies. Rather than making your eyes glaze over by going through a lengthy analysis of the arcane language of these policies, here, in a nut shell, stripped of the legal jargon, are the basic concepts you need to know:

Business, Interrupted

John Randy Sawyer on May 12, 2020

Category: Insurance, News

The economic situation for small businesses in America is dire. Following the widespread social distancing and stay-at-home orders, 7.5 million small businesses are now at risk of closing their doors permanently within the next several months if the coronavirus pandemic restrictions continue.

The situation has business owners searching for ways to keep their operations afloat. The CARES Act, for example, promises more small business support in its new aid package. This relief, however, has been slow to make its way to business owners.

Dealing with the Unexpected: Filing an Insurance Claim

John S. Prisco on August 29, 2019

Category: Insurance, Litigating Claims

It’s that moment that no homeowner wants to have. You just returned from vacation and were in the midst of stowing the suitcases under the house in your crawlspace. As you were exiting the crawlspace, something caught your eye—a wet spot on the concrete slab floor. It wasn’t a puddle, but it was clearly moisture.

Hoping for something minor, you began to poke around. During your search, you discovered that a portion of insulation in between the floor boards was soaked. While you removed what you thought was the problem, you saw a water leak dripping down a vertical pipe in between your walls.

Unfortunately, every homeowner will have to deal with a situation like this at one time or another. Fortunately, we have insurance for these very situations, however, knowing what to do and how to handle this situation will make a world of difference to both your mental health and to your wallet.

How You Can Mitigate Construction Disputes with Contractors

John S. Prisco on June 5, 2019

Category: Insurance, Litigating Claims
Tag: Construction Defect, construction dispute, find a contractor, home improvement

Having construction work or renovations done on your home is certainly an exciting, but undoubtedly stressful time. In fact, the process from selecting a suitable (and experienced) contractor to completion of the project can be downright daunting at times. As a homeowner myself, who coincidentally is going through this very process as we speak, I know the difficulties of sifting through countless potential contractors, negotiating prices, and coordinating schedules and the like. As daunting as it may seem, there are certain steps a homeowner can take at the outset that will mitigate potential pitfalls during construction, ensure your project is constructed properly, mitigate construction disputes, and alleviate unnecessary stress.

Bayview Condominium Construction Defect Case Successfully Settled for $3.1 Million

sstark on October 20, 2016

Category: Insurance, Litigating Claims, News

Stark & Stark Shareholders Thomas J. Pryor and Donald B. Brenner have successfully settled the Bay View Condominium construction defect case for $3.1M. Shareholder Randy Sawyer, along with Associates Gene Markin, John Prisco, and Tara Speer were all part of the team effort that achieved this settlement.

The case involved design and construction defect claims which caused damage to common elements from water infiltration through and around brick and other exterior cladding systems, plus roofs, windows and a plaza over a parking garage. Stark & Stark is particularly proud of this result because the case involved challenging insurance coverage issues related to the lack of proof of consequential damage to sheathing and framing.

Insurers of General Contractors Can No Longer Hide Behind Business Risk in Refusing to Defend Their Insureds in Construction Defect Litigation

Gene Markin on July 22, 2015

Category: Case Studies, Community Associations, Insurance, Litigating Claims
Tag: Business Risk, CGL, Commercial General Liability, Cypress Point

Generally speaking, a contractor’s commercial general liability (“CGL”) policy is designed to cover personal injury or property damage caused by an accident resulting from the contractor’s work. The policy is not meant to be a guarantee of the contractor’s work and therefore does not cover damages to the work itself – instead, these are known as “business risk” damages. The concept that is inherent in every agreement for the performance of construction work is the risk that the work will be done improperly.

By selecting a particular contractor, the owner has to make a business judgment as to the qualifications and reliability of the selected contractor, and therefore assumes the risk that the work will be done incorrectly. If the work is done improperly and needs to be corrected, the contractor, and ultimately the owner, bears the burden of repairing or fixing that faulty work. The contractor’s insurance is not a performance bond guaranteeing the work; instead, the commercial general liability insurance is designed to cover any unexpected damages that arise from the contractor’s work, such as damage to other property caused by the faulty work.

Consider a roofer hired to install a new roof on a building. Once completed, the roof is the roofing contractor’s “work.” If the roofer installs the wrong type of shingles, but does everything else correctly, the only “damage” to speak of would be to the roof shingles themselves, i.e. the roofer’s work. The cost of replacing the shingles is therefore that “business risk” not covered by insurance.

The “Continuous Trigger” Theory and Construction Defect Actions: Cypress Point Condominium Association v. Selective Way Insurance Co.

John S. Prisco on July 14, 2015

Category: Case Studies, Insurance, Litigating Claims
Tag: Construction Defect, Continuous Trigger, Cypress Point

A New Jersey trial court granted summary judgment in favor of Selective Insurance Company holding that the “continuous trigger” theory does not provide insurance coverage subsequent to the manifestation of damages that arose from a subcontractor’s negligence in the construction of a condominium development. The issue arose in the matter of Cypress Point Condominium Association v. Selective Way Insurance Company, et al., Docket No. HUD-L-936-14, 2015 N.J. Super. Unpub. LEXIS 721 (N.J. Super., Hudson Cnty. Mar. 30, 2015) (“Cypress Point”).

“The ‘continuous trigger’ theory holds that an occurrence occurs under an insurance policy each time damage accrues over a continuous period of time, from ‘exposure to manifestation’.” Cypress Point, at *12. Courts developed the “continuous trigger” theory to counter scientific uncertainties surrounding initial manifestations of damages typically at issue in environmental, toxic tort, and delay manifestation property damage claims. Id.

In Cypress Point, the Cypress Point Condominium Association (the “Association”) filed a Declaratory Judgment Action against Selective Way Insurance Company (“Selective”) seeking a declaratory judgment that Selective owed a duty to indemnify its insured, MDNA Framing, in connection with an underlying construction defect action filed by the Association. The Association filed an amended complaint in the underlying action on June 12, 2012, bringing claims against MDNA Framing, which was contracted to perform framing and window installation work in connection with the construction of the Cypress Point condominium development. Construction of the development commenced in 2002 and was substantially completed in 2004. Subsequent to the completion of construction, unit owners began to experience water infiltration around the interior windows. The Association’s liability expert found numerous defects related to MDNA Framing’s work, including missing flashings, a lack of a continuous water management system, and improper sealant application around the windows. The Association’s liability expert issued his initial report opining on these deficiencies on June 30, 2012.

Ruling Affirms Construction Defect Plaintiff’s Entitlement to Counsel Fees in Confirming Coverage Available to Defendant Contractor

Thomas J. Pryor on May 21, 2015

Category: Insurance
Tag: Construction Defect

A unanimous New Jersey Supreme Court opinion has affirmed the rights of an aggrieved plaintiff to recover counsel fees incurred in prosecuting relief through a declaratory judgment; enforcing a duty to defend owed by a general liability carrier to a contractor defendant in a construction defect action.

In Occihifinto v. Olivo Constructionn, Inc., et als, the plaintiff hired a masonry contractor to perform work on an addition to plaintiff’s warehouse. Plaintiff sued the mason and the mason’s general liability carrier (Mercer) refused to defend or indemnify, instead filing a declaratory judgment action. Plaintiff aggressively prosecuted relief against the carrier in the declaratory judgment action, acting as a surrogate for the insured masonry contractor.

Although the trail court and Appellate Division ruled otherwise, the Supreme Court unanimously affirmed the aggrieved plaintiff’s entitlement to recover his counsel fees under R.4:42-9 (a) (6), which provides for an award of counsel fees in “an action upon a liability or indemnity policy of insurance in favor of a successful claimant.”

The Supreme Court determined the plaintiff was a successful claimant by vindicating his position in the declaratory judgment action; establishing the carrier’s duty to defend the mason. The award of counsel fees was allowed to stand, even though the plaintiff was unsuccessful in establishing liability in the underlying litigation.

This is not only the correct outcome, but should embolden and inspire aggrieved plaintiffs to take aggressive action in declaratory judgment actions spawned by underlying defect claim litigation. Insured defendant contractors are often disinclined to aggressively defend their position or lack the incentive and resolve of the underlying plaintiff; whose ability to recover is contingent upon gaining access to available insurance proceeds, often as the singular means to obtain relief.

This ruling is soundly based upon the express language of the rule, which provides for this remedy, consistent with the practical realities presented by these types of actions. Where the obligation to carry the burden of prosecuting what would otherwise be the insured’s rightful position to otherwise vindicate is foisted upon the underlying plaintiff, logic dictates that the court avail the plaintiff of the basic relief otherwise available to the insured.

This should give insurance carriers otherwise inclined to shirk their rightful responsibility to provide a defense or indemnity under a general liability policy in the construction defect context, to think twice before arbitrarily seeking to avoid responsibility. Given the additional consequence of exposure to counsel fees, one can only hope that insurance carriers will be more circumspect in determining when and whether to reserve their rights, or seek to deny coverage. At a minimum, this ruling should serve to level the playing field in this arena, balancing the scales decidedly in favor of an aggrieved plaintiff.

Federal Court Remands Insurance Coverage Construction Issues For Disposition In Pending State Court Action

Thomas J. Pryor on March 16, 2015

Category: Insurance

In a recent decision in Kane Builders, Inc. v. Continental Casualty Company, the United States District Court in New Jersey remanded back to state court the determination of whether Continental owed the builder defense and indemnity in connection with an underlying construction defect case which had been playing out in state court.

As is typical in these matters, the insurance carrier filed a declaratory judgment action in federal court notwithstanding the pendency of a then existing state court construction defect action instituted against Kane Builders, its insured. The underlying plaintiff asserted claims for damages for alleged defective building construction and other claims. The insured instituted claims in the state court action, also, putting in play whether Continental, its insurance carrier providing covered coverage under a general liability policy, was obligated to provide the builder with a defense and indemnity in the pending state court action.

The District Court ruled that logic dictated having the state court judge, who was overseeing the construction action, also address the coverage issues between the builder defendant and its carrier. Judicial economy was thus served by avoiding duplicative, piecemeal litigation. The District Court was unimpressed and held that the federal forum held “no special call,” under the circumstances.

We have seen it is typical in these circumstances for insurance carriers to want to litigate coverage issues in federal court, presumably because carriers see it as a more hospitable forum. As was the case here, logic dictates that coverage issues be adjudicated alongside construction defect and other underlying claims typically filed, as in this case, in the state court. This case demonstrates that federal judges are willing to remand matters back to state court under these circumstances.

It is not uncommon in construction defect “transition” litigation to have declaratory judgment actions filed by one or more defendants during the pendency of the litigation, as insurance coverage issues are of significance in these matters and carriers don’t always readily acknowledge their obligations to provide defense and indemnity, depending upon the language of the policy or policies at issue.

Defendants in these cases should not be bashful about putting coverage issues in play and we have seen that many courts are willing to also acknowledge the rights of the underlying plaintiff in these matters (often a Condominium Association) to advance coverage claims when, for example, the insured defendant builder or subcontractor is either no longer in business or lacking sufficient motivation to pursue its own carrier more aggressively.

We have argued successfully that while a judgment against a carrier during the pendency of an underlying construction defect claim can be premature, a determination as to whether coverage is afforded can and sometimes should be made while the underlying case is ongoing, assuming sufficient facts are available, or the court is in a position to make a coverage determination. The rules do not prevent this, procedurally, although insurance carriers often oppose claims by the underlying plaintiff directly against the carrier based upon case law which we have seen is sometimes not directly supportive of the positions advanced. This is an interesting issue, which tends to rear its head reasonably often in these cases.

Ambiguities in Insurance Policies Must be Interpreted in Favor of the Insured

Tara A. Speer on March 10, 2015

Category: Insurance
Tag: denied claim, insurance coverage, Insurance Policies

It is no secret that insurance policies are famous for containing convoluted language. The average insured likely has no clue what is and is not covered. Little solace can be found in referring to the conspicuous “Definitions” section; ultimately no more than a trap to trick unsuspecting policyholders into believing that any ambiguities that arise will be easily rectified. Insurance is big business and carriers don’t want to have to pay claims. At the end of the day, coverage is all about semantics and carriers use the complicated wording of their policies to create plausible ways to deny claims otherwise assumed to be covered. Carriers bank on the fact that many insureds either don’t know the law (and will simply accept the carrier’s interpretations) or can’t afford to fight the carrier in court. Carriers save significant dollars each year because some insureds don’t pursue questionable coverage denials. Radical change is not likely on the horizon. Some good news, however, is that there is a body of policyholder-friendly case laws in New Jersey on the issue of ambiguity.

A recent unpublished decision out of the U.S. District Court for the District of New Jersey reaffirmed the long-standing principal that ambiguities in insurance policies must be construed in favor of the insured. In Gregory Packaging, Inc., v. Travelers Prop. Cas. Co. of Am., the Court found that a shutdown of the insured’s factory caused by the discharge of an unsafe amount of ammonia constituted a “direct physical loss or damage” to the property; a condition precedent to coverage. The carrier argued that a physical change of, or alteration to, the property, is necessary to trigger coverage. The Court disagreed and found that an accident that renders a building unfit for occupancy, and in need of remediation, amounts to a direct physical loss. Here, the release of ammonia physically transformed the air, rendering the facility dangerous. Accordingly, the Court determined that coverage cannot be denied on the basis that there was not a “direct physical loss.”

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