Defective Construction Can Be A Covered Occurrence In New Jersey – The End Of Weedo?

Perhaps no case has generated as many citations and commentary (more than 1,880 citations, including 440 cases) on the subject of liability coverage for "construction defects" as Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A.2d 788 (1979). For more than 35 years, courts in many jurisdictions have relied on Weedo in ruling that improper, non-conforming, defective construction (faulty workmanship by contractors) is a normal, construction-related "business risk" that is not covered by a contractor's general liability policy. However, courts slowly began to recognize that Weedo and its progeny construed policy language that was replaced in 1986 by a new policy form providing products completed operations hazard ("PCOH") coverage for damage caused by a negligent subcontractor. Now, two new decisions in New Jersey have limited Weedo to its facts (and the form of policy at issue then) by recognizing that defective construction is an insured "occurrence" that can be covered by a general liability policy. These cases signal the "death knell" for Weedo.

In two, straight-forward, clear decisions, the Appellate Division of the Superior Court of New Jersey issued rulings that appropriately limited the outcome in Weedo. The New Jersey cases are Cypress Point Condo. Ass'n, Inc. v. Adira Towers, L.L.C., Docket No. A-2767-13T1, 2015 WL 4111890, (N.J. App. Div. July 9, 2015) and Belmont Condo. Ass'n, Inc. v. Arrowpoint Capital Corp., Docket No. A-4187-12T4, 2015 WL 4416582 (N.J. App. Div. July 21, 2015). Both appellate courts recognized that the standard form of CGL policy in effect when Weedo was decided (ISO's 1973 policy form) contains a broad exclusion for the defective construction "work" of both general contractors and subcontractors, which the New Jersey Supreme Court characterized as an uninsured "business risk." Unlike the 1973 ISO form, the 1986 policy form contains a "subcontractor" exception to the "your work" exclusion that extends coverage when the insured is sued for property damage caused by a negligent subcontractor.

While these are the first two New Jersey appellate decisions holding that defective construction can be a covered "occurrence," these certainly are not the first cases to recognize that Weedo, when properly considered in light of the 1973 policy form at issue in that case, does not stand for the proposition that faulty workmanship, a/k/a "defective work," can never be a covered "occurrence." Nevertheless, as noted by a Texas...