Pulling the Continuous Trigger: Insurance Policies and Progressive Property Damage in New Jersey
When a property owner claims damages due to defective construction, the first step for a contractor is to notify its commercial general liability (CGL) insurance carrier for coverage. In most instances, this process is straightforward. However, the process becomes more complicated where the damage occurs over time, during which the contractor may have had various CGL policies.
In the recent case of Air Master & Cooling, Inc. v. Selective Insurance Co. of America (Air Master), the Superior Court of New Jersey, Appellate Division, provided clarification on coverage in a construction defect case involving progressive property damage. Between 2005 and 2008, Air Master worked as a subcontractor on the construction of a condominium building, tasked with installing condenser units on the roof. In 2008, multiple unit owners began noticing water infiltration in their windows and ceilings. In 2010, a consultant produced a report identifying moisture on the roof.
Some residents and the condominium association brought a lawsuit against the developer who joined Air Master. Air Master sought defense and indemnity from insurers that covered it under a succession of CGL policies: Penn National (June 2004-June 2009); Selective (June 2009-June 2012); and Harleysville (June 2012-June 2015). Penn National undertook to defend Air Master, while Selective and Harleysville argued they had no duty to defend or indemnify, as the property damage manifested itself before their policy periods. Harleysville was dismissed, leaving open the question of whether Selective was obligated to defend and indemnify.
Selective moved for summary judgment, arguing that it was not responsible because the water damage manifested before June 2009. Air Master argued that the court should adopt a “continuous trigger” approach to coverage where all policies are triggered until the point that it becomes reasonably known that the damage is attributable to the insured’s work. The court ruled in Selective’s favor, holding that the water damage manifested itself before June 2009.
When Air Master appealed, the Appellate Division decided two issues: 1) whether the continuous trigger theory applies to third-party claims for progressive property damages as a result of defective construction; and 2) if so, when does the “last pull” of the continuous trigger occur. Regarding the first issue, the court noted that New Jersey courts previously endorsed the continuous trigger theory in asbestos and environmental contamination cases. The court cited to the New Jersey Supreme Court case, Potomac Insurance Co. v. PMA Insurance Co., which approved the continuous trigger theory in the construction context in a dispute pertaining to contribution of costs between insurers that had issued policies in two successive years. After explaining that the policy underlying the continuous trigger theory is to increase insurance coverage for progressive injury situations, the court held the continuous trigger theory applicable for progressive property damages caused by defective construction.
Regarding the second issue, the court rejected Air Master’s argument that the end date for the continuous trigger should be delayed until it becomes reasonably known that the damage is attributable to the insured’s work. Instead, the court held that the “last pull of the trigger” occurs on the date of initial manifestation of the property damage caused by the defective construction.
After considering these issues, the court sent the case to the trial court for the parties to conduct discovery as to what information was known about the construction defects and whether that information could have reasonably been known before Selective’s policy period.
Under Air Master, we now know that New Jersey courts will apply a continuous trigger approach to coverage in the construction defect context. Therefore, all policies through the time that the property damage manifests itself could be implicated. The court did not expressly address when the initial “pull” of the trigger occurs. Based upon Penn National’s undertaking to defend Air Master, it appears that the initial pull occurs as of the date that the work is performed. The New Jersey Supreme Court’s decision in Potomac also suggested the same. However, because the courts have never expressly addressed this issue, the timing of the initial pull remains an open question.
While Air Master is helpful for contractors by providing additional insurance coverage for property defect claims, it may be a double-edged sword. The adoption of the continuous trigger theory may cause plaintiffs to bring claims more frequently knowing that there are more policies to contribute towards settlement. If multiple CGL policies are triggered but one or more refuse to provide coverage, then the contractor would be responsible for its share of defense and indemnity costs. Because this is a recent decision, its effect is uncertain. Nevertheless, in the event that you, as a contractor, are named in a complaint alleging defects in construction work in New Jersey, you should place all carriers on notice from the date of performance until the date that the damage may have manifested itself.