A-0BELMONT CONDOMINIUM ASSOCIATION, INC v. ARROWPOINT CAPITAL CORPORATION ROYAL SURPLUS LINES INSURANCE COMPANY, ROYAL & SUN ALLIANCE INSURANCE COMPANY ARROWOOD SURPLUS LINES INSURANCE COMPANY and NATIONAL INDEMNITY COMPANY - and WATERFRONT MANAGEM

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

BELMONT CONDOMINIUM

ASSOCIATION, INC.,

Plaintiff-Appellant,

v.

ARROWPOINT CAPITAL CORPORATION,

ROYAL SURPLUS LINES INSURANCE

COMPANY, ROYAL & SUN ALLIANCE

INSURANCE COMPANY, ARROWOOD

SURPLUS LINES INSURANCE COMPANY,

and NATIONAL INDEMNITY COMPANY,

Defendants-Respondents,

and

WATERFRONT MANAGEMENT CORPORATION, and

COMMERCE CONSTRUCTION MANAGEMENT, LLC,

Defendants.

____________________________________________

Argued May 11, 2015 Decided July 21, 2015

Before Judges Sabatino, Guadagno and Leone.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1848-11.

Eileen A. Lindsay argued the cause for appellant.

Kevin E. Wolff argued the cause for respondents Arrowpoint Capital Corp., Royal & Sunalliance Insurance Company, Royal Surplus Lines Insurance Company, and Arrowood Surplus Lines Insurance Company (Coughlin Duffy, LLP, attorneys; Mr. Wolff, on the brief).

John T. Coyne argued the cause for respondent National Indemnity Company (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Diana M. Hendry and Mr. Coyne, on the brief).

PER CURIAM

Plaintiff Belmont Condominium Association, Inc. successfully sued Monroe Station Associates, LLC ("Monroe"), the general contractor, because the condominiums had water infiltration after construction. Belmont Condo. Ass'n, Inc. v. Geibel, 432 N.J. Super. 52, 70 (App. Div.), certif. denied, 216 N.J. 366 (2013). Monroe subsequently assigned to plaintiff its rights under insurance policies issued by defendants Arrowpoint Capital Corporation, Royal Surplus Lines Insurance Company, Royal & Sun Alliance Insurance Company, Arrowood Surplus Lines Insurance Company, and related entities (collectively "Arrowpoint"), and defendant National Indemnity Company ("National"). Plaintiff sued Arrowpoint and National (collectively "defendants").1 Plaintiff appeals from the trial court's April 19, 2013 orders denying its cross-motion for summary judgment on its declaratory judgment claim, and granting summary judgment to defendants.

A trial court must grant a summary judgment motion if "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). On appeal we employ the same summary judgment standard. Townsend v. Pierre, 221 N.J. 36, 59 (2015). We must hew to our "de novo" standard of review. Ibid.

Plaintiff argues that the trial court improperly held there was no coverage under commercial general liability ("CGL") insurance policies issued by defendants. The trial court ruled that consequential damage caused by water infiltration due to faulty workmanship by subcontractors was not covered because there was no "property damage" caused by an "occurrence," as defined by the policies. The trial court reached this conclusion despite the policies' inclusion of an exception providing that the "Your Work" exclusion "does not apply if the damaged work or the work of which the damage arises was performed on your behalf by a subcontractor" ("subcontractor's exception").

On July 9, 2015, another panel of this court decided Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., __ N.J. Super. __ (App. Div. 2015). In Cypress Point, this court faced the identical issue of whether consequential damages caused by water infiltration due to faulty workmanship by subcontractors was not covered because there was no "property damage" caused by an "occurrence." Id., slip op. at 4. This court interpreted CGL policies which followed the 1986 standard CGL form ("1986 ISO form") issued by the Insurance Services Office, Inc. ("ISO"). Id. at 4-5. This court ruled

We hold that the unintended and unexpected consequential damages caused by the subcontractors' defective work constitute "property damage" and an "occurrence" under the policy. We base this holding in part on the developer's reasonable expectation that, for insurance risk purposes, the subcontractors' faulty workmanship is to be treated differently than the work of a general contractor. We reach that conclusion by viewing the policy as a whole and distinguishing Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979), and Firemen's Insurance Co. of Newark v. National Union Fire Insurance Co., 387 N.J. Super. 434 (App. Div. 2006)[.]

[Id. at 5.]

In Cypress Point, this court distinguished Weedo and Firemen's particularly because those cases construed ISO's 1973 standard CGL form (the "1973 ISO form"), and because only the cost of replacing the defective work was at issue. Id. at 12-16, 18-19, 22. This court also rejected the "misplaced" reliance on Firemen's by an unpublished case in the Court of Appeals for the Third Circuit. Id. at 21-22 (declining to follow Pa. Nat'l Mut. Cas. Ins. Co. v. Parkshore Dev. Corp., 403 F. App'x 770 (3d Cir. 2010)).

This court added that the 1986 ISO form's "addition of the subcontractor's exception is of critical importance when determining whether the subcontractors' faulty workmanship causing consequential damages amounts to 'property damage' and an 'occurrence' under the policy." Id. at 17. We ruled that the subcontractor's exception created a "reasonable expectation" that "consequential damages caused by the subcontractors' faulty workmanship constituted 'property damage' and an 'occurrence.'" Id. at 20. This court pointed out that its holding followed the interpretation of the 1986 ISO form adopted by the majority of courts nationwide. Id. at 20-22.

We are persuaded by and adopt the opinion in Cypress Point. We also find it dispositive of plaintiff's appeal from the grant of summary judgment in favor of defendants. Their CGL policies are derived from the 1986 ISO form, and include language identical to the language of the pertinent provisions in the CGL policies in Cypress Point. See id. at 9-10, 16-17. The trial court here similarly cited the interpretation of the 1973 ISO form in Weedo and Firemen's, and relied on Firemen's and Parkshore. As in Cypress Point, plaintiff here seeks to recover the consequential damages to other portions of the property. See id. at 6. Cypress Point convincingly rejects the contrary arguments raised by defendants and accepted by the trial court. We follow Cypress Point and hold that unintended and unexpected consequential damages caused by the subcontractors' defective work constitute "property damage" and an "occurrence" under the CGL policies issued by defendants.

In addition, plaintiff argues it can recover the cost of repairing the defective work. The trial court did not address that argument. On remand, the trial court shall consider this issue in light of the language of the policies and the rationales of this court's opinion in Cypress Point.

In Cypress Point, we observed that

concluding that plaintiff met the definitions of "property damage" and "occurrence" under the policy does not automatically mean that insurance coverage exists. We do not reach the question of whether plaintiff is entitled to insurance coverage under the policy. The insurers contended before the judge that even if there were "property damage" and an "occurrence" under the policy, plaintiff's claims would otherwise be excluded. The judge never reached those issues, and we decline to do so here.

[Id. at 23.]

Here, National argues there are numerous outstanding coverage issues that must be addressed, including whether the "property damage" occurred prior to its policy period. Arrowpoint argues that the "Your Work" exclusion applies. Arrowpoint also argues there are issues of fact about whether the "Owned Property" and "Ongoing Operations" exclusions apply, and whether the "property damage" occurred during its policy period. The trial court declined to address whether any of the exclusions apply, and did not reach those other arguments.

As in Cypress Point, we do not decide whether plaintiff is ultimately entitled to insurance coverage under the policies. On remand, the insurers may raise those arguments, and other arguments not inconsistent with Cypress Point, to show "that plaintiff's claims are otherwise excluded under the terms of the policy." Id. at 7, 24. Plaintiff also may renew its cross-motion for summary judgment on its declaratory judgment claim, which the trial court denied as a consequence of its grant of summary judgment to defendants but did not otherwise address.2

We vacate the trial court's April 19, 2013 orders, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction.

1 Plaintiff has dismissed its claims against the remaining defendants in this litigation.

2 Defendants may renew on remand the argument, not reached by the trial court, that plaintiff lacks a valid assignment of Monroe's bad-faith and extra-contractual claims.