In Cypress Point Condo. Ass’n. v. Selective Way Ins. Co., 2015 N.J.
Super. Unpub. LEXIS 721 (March 30, 2015), the New Jersey Law Division
dismissed a declaratory judgment action filed against an insurer for a
framing contractor, holding that coverage was not afforded under the
continuous trigger theory because the injury manifested prior to the
inception of the policy.
The case arose out of a construction defect
action initiated by Cypress Point Condominium Association (“Plaintiff”),
against contractors who performed work on the construction project.
The
project began in 2002 and was substantially completed in 2004. MDNA
Framing was responsible for installation of windows on the project.
After the residents moved in, they began experiencing water infiltration
through the windows. According to Plaintiff’s expert, the water
infiltration was a result of lack of flashing and other workmanship
related issues.
In 2012 plaintiff added MDNA Framing to the litigation but the insured
did not file an Answer and in December 2012 default was entered against
MDNA Framing. Selective Way Insurance Company (“Selective”) issued a
policy to MDNA Framing for the period of August 27, 2012 through August
27, 2013.
The policy was cancelled on November 9, 2012, for non payment.
Plaintiff notified Selective that a proof hearing would be heard by the
Court in September 2013. Selective refused to defend or indemnify MDNA
Framing because there was no occurrence during the policy period. At the
proof hearing a judgment in excess of $900,000 was entered against MDNA
Framing.
In March 2014, Plaintiff filed a declaratory judgment complaint against
Selective seeking a declaration that Selective indemnify MDNA Framing
under the policy. In December 2014, both parties filed motions for
summary judgment which were denied, leading to motions for
reconsideration by both sides.
In its motion for reconsideration,
Selective sought a declaration that (1) Plaintiff was not entitled to
coverage under the “continuous-trigger” theory because the damage at
issue initially manifested prior to the Selective policy going into
effect, (2) Plaintiff lacked standing under the Uniform Declaratory
Judgment Act, (3) Plaintiff was not entitled to coverage pursuant to the
“known loss doctrine,” and (4) Plaintiff had not suffered consequential
damages compensable under the Selective policy.
Plaintiff on the other hand argued that (1) it had standing under the
Uniform Declaratory Judgment Act because it had a default judgment
against MDNA Framing, (2) there was an “occurrence” during the Selective
policy, and (3) it was entitled to coverage under the
“continuous-trigger” theory because property damage continuously accrued
when the Selective policy was in effect.
Finding that the continuous trigger theory applied to claim for damage
by a third party, the Court held that no coverage was afforded under the
Selective policy because the injury initially manifested prior to the
effective date of the Selective policy. In reaching its decision, the
Court noted that the manifestation trigger theory applies to first-party
insurance actions and the “continuous-trigger” theory applies to
third-party insurance action.
In this regard, the explained that under
New Jersey law, an occurrence occurs under an insurance policy each time
damage accrues over a continuous period of time, from ‘exposure to
manifestation’ for toxic torts, environmental contamination, and delay
manifestation property damage claims.” Under the continuous trigger
theory, progressive damage or injury can be an occurrence within each of
the years from exposure to initial manifestation of an injury. After
initial manifestation, there is no occurrence affording coverage to an
insured for the alleged damages.
Because the undisputed material facts established that the water damage
first manifested prior to the effective date of the Selective policy,
coverage was not afforded under that policy. In support of its decision,
the Court relied upon prior Appellate Division decision in Selective
Way Ins. Co v. Ogren, 2010 N.J. Super. Unpubl. LEXIS 2979 (App. Div.
2010).
The Court rejected Plaintiff’s argument that the definition of
“occurrence” required Selective to indemnify MDNA Framing for damages
accruing continuously during the policy period. The Court granted
Selective’s Motion for Summary Judgment on the foregoing grounds and did
not reach the remainder of Plaintiff’s arguments.