New York Court Confirms “Faulty Workmanship” Is Not a Fortuitous Loss Sufficient to Trigger CGL Coverage
Applying both New York and New Jersey case law, New York’s Appellate Division ruled that a commercial general liability (CGL) policy does not cover faulty workmanship, even if the parties negotiate to expand the definition of “occurrence” in the policy to include the words “event or happening,” as the requirement of a “fortuitous loss” remains a necessary element of the policy. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Turner Construction Co., 986 N.Y.S.2d 74 (N.Y. App. Div. May 15, 2014).
By way of background, defendant GSJC 30 Hudson Urban Renewal, LLC (“GSJC”) retained defendant Turner Construction (“Turner”) to serve as general contractor for a construction project in Jersey City, New Jersey. Turner, in turn, subcontracted with defendant Permasteelisa North America Corporation (“Permasteelisa”) to design and build a curtain wall. Pursuant to an Owner Controlled Insurance Program (OCIP), plaintiff National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) covered CSJC, Turner, and other on-site project subcontractors – including Permasteelisa – through a series of CGL policies and an umbrella policy (collectively referred to as the “Policy”). The Policy, as amended by a negotiated endorsement, defined “occurrence” as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”
After certain issues with the curtain wall were identified, CSJC sued Turner and Permasteelisa in New Jersey Superior Court. National Union agreed to provide a defense under a reservation of rights and, subsequently, filed an action seeking a declaratory judgment that the Policy did not cover the underlying claims against Turner and Permasteelisa because, inter alia, the claims did not constitute an “occurrence” within the meaning of the policy. Turner and Permasteelisa argued that the parties had negotiated an “expanded” definition of the term “occurrence,” which included the terms “event” and “happening,” and should therefore cover the subject loss. The motion court held that, even with the modified language, the Policy did not cover CSJC’s claims against Turner and Permasteelisa and, thus, granted National Union’s request for a declaratory judgment.
On appeal, the Appellate Division agreed with the motion court, finding that “the addition of ‘event’ or ‘happening’ to the definition of ‘occurrence’ did not alter the legal requirement that the ‘occurrence’ triggering the coverage must be fortuitous.” Stated differently, the Court wrote that “fortuity is still an essential consideration under New Jersey and New York law when determining whether there is coverage under [a CGL] policy, and a claim for faulty workmanship simply does not involve fortuity.” Accordingly, the Court affirmed the grant of summary judgment, declaring that National Union was not obligated to defend or indemnify Turner and Permasteelisa in the underlying action.