AIR MASTER & COOLING, INC. VS. SELECTIVE INSURANCECOMPANY OF AMERICA(L-6861-14, ESSEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5415-15T3
AIR MASTER & COOLING, INC.,
Plaintiff-Appellant,
APPROVED FOR PUBLICATION
v.
October 10, 2017
SELECTIVE INSURANCE COMPANY
APPELLATE DIVISION
OF AMERICA,
Defendant-Respondent,
and
HARLEYSVILLE INSURANCE COMPANY,
Defendant.
_________________________________
Argued September 25, 2017 – Decided October 10, 2017
Before Judges Sabatino, Whipple and Rose.
On appeal from Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-6861-
14.
Sharon K. Galpern argued the cause for
appellant (Stahl & DeLaurentis, PC, attorneys;
Ms. Galpern, on the briefs).
Todd J. Leon argued the cause for respondent
(Hill Wallack, LLP, attorneys; Mr. Leon, of
counsel and on the brief; Victoria J. Airgood,
on the brief).
The opinion of the court was delivered by
SABATINO, P.J.A.D.
This declaratory judgment action poses several fundamental
legal issues concerning property damage coverage under a
Commercial General Liability ("CGL") insurance policy. The
coverage issues arise out of lawsuits brought by a condominium
association and unit owners to remediate construction defects
within a residential building. The insured, Air Master & Cooling,
Inc. ("Air Master"), had performed work as a subcontractor on the
roof and elsewhere in the building. The construction defects
concern property damage resulting from, among other things, the
apparent progressive infiltration of water within the building.
After Air Master was named as a third-party defendant in the
underlying construction defects cases, it sought a defense and
indemnity from Selective Insurance Company of America
("Selective"). Selective was one of a series of different insurers
that had issued CGL policies to Air Master over successive policy
periods.
The trial court granted summary judgment to Selective in the
declaratory judgment action, agreeing with the insurer that the
property damage to the building already had manifested before
Selective's policy period commenced. In appealing from that
ruling, Air Master raises several legal issues, some of which are
either completely novel or which have not been definitively
addressed under New Jersey law.
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For the reasons explained in this opinion, we hold, first,
that a "continuous trigger" theory of insurance coverage may be
applied in this State to third-party liability claims involving
progressive damage to property caused by an insured's allegedly
defective construction work. Second, we hold that the "last pull"
of that trigger – for purposes of ascertaining the temporal end
point of a covered occurrence – happens when the essential nature
and scope of the property damage first becomes known, or when one
would have sufficient reason to know of it. Third, we reject Air
Master's novel argument that the last pull of the trigger does not
occur until there is expert or other proof that "attributes" the
property damage to faulty conduct by the insured.
Applying these principles, we vacate summary judgment and
remand for further development of the record and for
reconsideration of the coverage issues. We do so because the
present factual record is insufficient to determine with clarity
when the essential nature and scope of the water infiltration
damage was sufficiently known, or reasonably could have been known,
as to, respectively, (1) the individual condo units and (2) the
roof. In making that assessment with an enhanced factual record,
the trial court shall be particularly guided by the manifestation
analysis set forth in Winding Hills Condominium Association, Inc.
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v. North American Specialty Insurance Co., 332 N.J. Super. 85, 88-
93 (App. Div. 2000).
I.
The limited record provided on appeal presents the following
relevant chronology. The insured, Air Master, worked as a
subcontractor on the construction of a seven-story, 101-unit,
mostly-residential condominium building in Montclair. The
construction manager hired Air Master to perform HVAC1 work in the
building, which Air Master conducted between November 2005 and
April 2008. As described in the record, Air Master's work
consisted of installing condenser units on rails on the building's
roof, and also HVAC devices within each individual unit.
Starting in early 2008, some of the unit owners began to
notice water infiltration and damage in their windows, ceilings,
and other portions of their individual units. According to a
November 4, 2010 story published in a local newspaper, unit owner
Carlton Schultz, a fifth-floor resident, noticed by February 2008
the presence of leaks in his walls and windows. In addition, the
story reported that another resident on the same floor, Raniya
Kassem, noticed similar damage to her unit by July 2008. The
newspaper story indicated that "[w]orkers eventually began to
1
HVAC commonly refers to heating, ventilation, and air
conditioning. See, e.g., State v. Perini Corp., 221 N.J. 412, 419
(2015).
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suspect that some of the leaks resulted from improper drainage
from the balcony above Kassem's condo," and the workers "tried
making some adjustments to that balcony to halt that flow." The
article further reported that leaks had been discovered in common
area stairwells and the building's parking garage. The project's
general contractor and developer began to respond to the problems,
and certain investigations and remedial measures were commenced.
Eventually, on April 29, 2010, an expert consultant, Jersey
Infrared Consultants ("Jersey Infrared"), performed a moisture
survey of the roof for water damage, as documented in a May 3,
2010 report. The report identified 111 spots on the roof damaged
by moisture from water infiltration. The expert recommended that
these damaged areas of the roof be removed and replaced.
With respect to the timing of these conditions, the Jersey
Infrared report stated that "it is impossible to determine when
moisture infiltration occurred." The report raised a potential
link of the water infiltration that the consultant had discovered
on the roof to the previously-detected water problems on the floors
below, noting that "[t]he absence of leaks in some areas [of the
roof] may be due to the travel of moisture on the deck to another
location where it could leak into the building."
Schultz, Kassem, and the condominium association each sued
the project's developer and other defendants for property damage
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and the costs of remediation. The three lawsuits were
consolidated. The defendants, in turn, brought third-party
complaints against Air Master and multiple other subcontractors
that had worked on the project. Air Master then sought defense
and indemnity from its various insurers that covered it under a
succession of CGL policies.
In particular, Air Master was insured by Penn National
Insurance Company ("Penn National") for the policy period from
June 22, 2004 (or 2005) 2 through June 22, 2009. Air Master
thereafter had a policy with Selective covering June 22, 2009
through June 22, 2012. Finally, Air Master had a policy from
Harleysville Insurance Company ("Harleysville") covering June 22,
2012 through June 22, 2015.
Both Selective and Harleysville disclaimed coverage, denying
that they had any duty to defend or indemnify Air Master against
the property damages claims. They argued that the property damage
had already manifested before their respective policy periods
began.
Penn National, which insured Air Master during the November
2005 to April 2008 time frame when it performed the work on the
2
The documentation in the record is inconsistent as to the start
year of Penn National's coverage. In any event, the analysis of
Selective's potential coverage is not affected by whether Penn
National's policy began in 2004 or 2005.
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building, assumed the defense of the third-party complaints,
subject to a reservation of its rights. Meanwhile, Harleysville
moved for and obtained summary judgment because its policy did not
commence until June 2012, long after the leaks had materialized. 3
That left open the coverage issues with respect to the middle
carrier in the time sequence, Selective.
Selective's CGL policy states, in relevant part, that the
insurer is to provide coverage for bodily injury or property damage
that occurs "during the policy period." In addition, the policy
defines an "occurrence" as "an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions." Further, the policy defines "property damage" as
"physical injury to tangible property, including all resulting
loss of use of that property. All such loss of use shall be deemed
to occur at the time of the physical injury that caused it."
Property damage also is defined to encompass "loss of use of
tangible property that is not physically injured." Similarly,
"[a]ll such loss of use shall be deemed to occur at the time of
the 'occurrence' that caused it."
Air Master filed this declaratory judgment action against
Selective and Harleysville in the Law Division in September 2014.
3
That ruling as to Harleysville, which was made by a different
Law Division judge, is not being appealed by Air Master.
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After limited discovery, including apparently interrogatory
responses and document exchanges, Selective moved for summary
judgment.
Selective argued that it is not responsible for water damage
that had materialized or manifested before the beginning of its
coverage period in June 2009. In opposition, Air Master countered
that under a continuous-trigger theory, coverage by all applicable
insurers continues until the "last pull" of the trigger of an
injury occurs. According to Air Master, manifestation does not
happen until it becomes known, or reasonably knowable, that such
damage is "attributable" to the work of the insured. Based on
those assertions, Air Master argued that, at the very earliest,
the last "pull" of the coverage trigger here was in May 2010, when
Jersey Infrared issued its roof moisture report.
In her initial written decision dated June 10, 2016, the
motion judge granted summary judgment to Selective on the ground
that the continuous-trigger theory of coverage does not apply in
New Jersey to first-party claims. See Winding Hills, supra, 332
N.J. Super. at 90-93 (articulating this distinction between first-
party and third-party claims). Air Master moved for
reconsideration. It persuaded the motion judge to change her mind
and recognize that the present litigation involves, in fact, third-
party liability claims against Air Master and thus the continuous-
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trigger doctrine does apply. The motion judge corrected herself
on this discrete point in her August 5, 2016 written decision on
reconsideration.
Nonetheless, the motion judge still ruled that Selective is
not liable for coverage or a duty to defend Air Master in this
case, because she conclusively found that the damage to the
building had manifested before Selective's policy period began in
June 2009. The judge rejected Air Master's argument that the CGL
coverage period continues until damages "attributable" to the
insured have been discovered, or reasonably could have been
discovered. As the judge noted in her written decision, "[t]here
is no indication in the [Selective] Policy or in the case law that
manifestation requires a separate analysis [of attribution] for
each potentially liable insured." Discerning no questions of
material fact were present, the judge added that "[i]t is not
meaningfully contested that damage manifested at [the condo
building] prior to Air Master's policy with Selective," and, hence,
"Selective owes no duty to Air Master." (Emphasis added).
This appeal ensued.
II.
A.
Air Master argues this court should recognize, as a predicate
matter, that continuous-trigger principles should govern third-
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party liability coverage analysis in construction defect cases
that involve progressive property damage, such as water
infiltration. Next, Air Master contends that continuous-trigger
principles extend coverage to all insurance policies in effect
from the time of the insured's work on the construction project
through the time by which it was known, or there was sufficient
reason to know, that the manifested property damage was
attributable to the insured's work.
Based on these predicates, Air Master contends that summary
judgment in this case should be reversed because it was not until
May 2010, when Jersey Infrared's roof study was issued, that
property damage attributable to Air Master's work on the roof was
first ascertained.
Air Master contends that it is not subject to an earlier
manifestation date tied to the discovery of the leaks in the condo
units below the roof, because it allegedly "had no involvement
with windows, walls, or balconies which are the 2008 damage areas."
In considering these arguments, "we review the trial court's
grant of summary judgment de novo under the same standard as the
trial court." Templo Fuente De Vida Corp. v. Nat'l Union Fire Co.
of Pittsburgh, 224 N.J. 189, 199 (2016). That familiar summary
judgment standard is whether the record, viewed in a light most
favorable to the non-moving party, shows that "there is no genuine
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issue as to any material fact challenged and that the moving party
is entitled to a judgment or order as a matter of law." Ibid.(quoting R. 4:46-2(c)); see also Brill v. Guardian Life Ins. Co.
of Am., 142 N.J. 520, 540 (1995). Moreover, in insurance coverage
cases, "[t]he interpretation of contracts and their construction
are matters of law for the court subject to de novo review." Duddy
v. Gov't Emps. Ins. Co., 421 N.J. Super. 214, 217-18 (App. Div.
2011) (citing Sealed Air Corp. v. Royal Indem. Co., 404 N.J. Super.
363, 375 (App. Div.), certif. denied, 196 N.J. 601 (2008)).
Ordinarily, in construing the meaning of insurance policies,
courts look to the literal terms of the policies, and enforce
those terms if they are plain and unambiguous. Templo Fuente,
supra, 224 N.J. at 200. However, in the context of CGL coverage,
our Supreme Court has considered public policy factors when
construing and applying such contractual provisions, including,
as here, language that defines covered occurrences as losses that
transpire "during" a policy period.
In the seminal case of Owens-Illinois, Inc. v. United
Insurance Co., 138 N.J. 437, 454-56 (1994), the Supreme Court
adopted the continuous-trigger theory for property damage
insurance claims that arose from the installation of asbestos-
related products. As Justice O'Hern's opinion in Owens-Illinois
explained, the most frequently offered theories defining a
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"trigger" of coverage recognized in other jurisdictions are: (1)
the "exposure" theory; (2) the "manifestation" theory; and (3) the
"continuous-trigger" theory. Id. at 449-50.4
The exposure theory deems the trigger date of an occurrence
that causes bodily injury to be "the date on which the injury-
producing agent first contacts the body." Id. at 450 (quoting
Developments in the Law – Toxic Waste Litigation, 99 Harv. L. Rev.
1458, 1579-81 (1986)). Alternatively, the manifestation theory
entails ascertaining the point in time when an injury or disease
first presented or manifested itself. Ibid. Lastly, the
continuous-trigger theory recognizes that, because certain harms
such as asbestos-related diseases will progressively develop over
time, "the date of the occurrence should be the continuous period
from exposure to manifestation." Ibid. Under such a continuous-
trigger approach, "all the insurers over that period [are] liable
for the continuous development of the disease." Id. at 450-51.
4
The Court also mentioned "two other less-frequently followed
theories[:]" (1) the injury-in-fact or damage-in-fact approach,
which holds that the time of the "actual injury or damage producing
event" triggers coverage, and (2) the "double-trigger" theory,
which holds that "injury occurs at the time of exposure and the
time of manifestation, but not necessarily during the intervening
period." Id. at 451. We need not discuss these alternatives
here, in light of the continuous-trigger theory adopted by the
Court in Owen-Illinois for the progressive injury claims in
question. Id. at 458-59.
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The Court in Owens-Illinois endorsed the application of the
continuous-trigger coverage doctrine in the specific context of
asbestos-disease coverage cases, largely because that approach has
the effect of maximizing coverage. Id. at 458-59. Unlike the
manifestation theory, the continuous-trigger approach requires
multiple successive insurers up to the point of manifestation to
cover a loss. Id. at 451. Hence, more aggregate coverage is
available to pay meritorious claims. The continuous-trigger
approach also encourages insurers to monitor progressively-
developing risks and to charge appropriate premiums for those
risks. Ibid.Analytically, the continuous-trigger theory shares the same
coverage endpoint as the manifestation theory, i.e., the date when
the harm has sufficiently become apparent to trigger a covered
occurrence. The difference between the two approaches is that the
manifestation theory confines coverage to the CGL insurer that
happens to be on the risk at the time when the manifestation
occurs, whereas the continuous-trigger theory will aggregate
coverage from all insurers that were on the risk from the date of
first exposure through the manifestation date.
Here, for example, if the property damage started during Penn
National's policy period, but progressively advanced or worsened
through Selective's policy period up to the time of
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"manifestation," then both Penn National and Selective would be
liable to provide a defense and coverage to Air Master, subject
to potential allocation or apportionment between the carriers.
Although the use of the continuous-trigger doctrine is most
readily justified in the context of progressive bodily injury, the
Court in Owens-Illinois noted that the doctrine also can sensibly
be applied to property damage that progresses after the time of
initial exposure. "Like a person exposed to toxic elements, the
environment does not necessarily display the harmful effects until
long after the initial exposure." Id. at 455. For that reason,
the Court held in Owens-Illinois that "claims of asbestos-related
property damage from installation through discovery or remediation
(the injurious process) trigger the policies on the risk throughout
that period." Id. at 456 (emphasis added).
Since 1994 when Owens-Illinois was decided, case law has
extended the continuous-trigger theory beyond the asbestos context
to other progressive forms of third-party injuries. These include,
for example, environmental contamination cases; see, e.g., Carter-
Wallace v. Admiral Ins. Co., 154 N.J. 312, 321 (1998), and Quincy
Ins. Co. v. Borough of Bellmawr, 172 N.J. 409, 411-12 (2002); and
cases involving harmful exposure to substances, such as food
flavorings containing the toxic chemical diacetyl; see, e.g.,
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Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J. Super. 241,
260-63 (App. Div. 2008), certif. denied, 199 N.J. 133 (2009).
Notably, the Court in Owens-Illinois declined to articulate
what exactly is the "end" point, or the "last pull" of the coverage
trigger, for a progressively-developing injury. Owens-Illinois,
supra, 138 N.J. at 456. That question was later answered, however,
by this court in Polarome, supra, 404 N.J. Super. at 266-69.
The insured in Polarome, a product manufacturer, sought CGL
coverage after it had been named as a defendant in multiple
lawsuits alleging serious progressive bodily injury as to persons
who had inhaled diacetyl, a chemical used as a flavoring in the
company's product. Id. at 250. One such claimant, Kuttner, had
been exposed to diacetyl at his workplace through 1991, and the
other claimant, Blaylock, had been exposed through 2001. Id. at
256. Both claimants' exposure at work ended before the insurers'
policies came into effect. Ibid.
Applying a continuous-trigger theory, we concluded in
Polarome that the "last pull" of the coverage trigger did not
occur for the claimants' progressive, indivisible injuries until
the point of "the initial manifestation of [their] toxin-related
disease." Id. at 272. For claimant Kuttner, that manifestation
occurred by October 1993, by which point he had been diagnosed
with obstructive lung disease and his bodily injury had thus become
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manifest. Id. at 257. For Blaylock, the "last pull" was deemed
to be manifest by March 2002, when he reasonably could have been
clinically diagnosed for bronchiolitis obliterans, following a
lung biopsy that had been performed the previous month. Ibid.
Summarizing the key timing principles in Polarome, we stated
that "the last pull of the trigger occurs with the initial
manifestation of a toxic-tort personal injury." Id. at 268. "It
is only the undetectable injuries at and after exposure and prior
to initial manifestation that are progressive and indivisible[,]
such that the occurrence of an injury cannot be known." Ibid.
None of the reported decisions in our state to date have
specifically addressed the key issues presented here, which
involve the appropriate manner for identifying the date of
manifestation of property damage that progressively advances
within a multi-unit building for purposes of third-party liability
claims under a CGL policy.
B.
Having stated this overall analytical framework, we turn
first to the threshold question of whether a continuous-trigger
theory of CGL coverage sensibly applies to claims for third-party,
progressive property damage in construction defect cases. We
conclude that it does. Indeed, the motion judge correctly presumed
as much in her decision on reconsideration.
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As we have already noted, our Supreme Court has endorsed the
continuous-trigger doctrine in certain factual contexts for
reasons of public policy, by treating all insurance policies in
effect during the aggregate trigger period to be "activated and .
. . be called on to respond to a loss." Quincy, supra, 172 N.J.
at 417. The doctrine was fashioned to address the difficulties
of establishing with scientific certainty when the harmful effects
of a progressive disease or injury have occurred. Winding Hills,
supra, 332 N.J. Super. at 90-91. The doctrine promotes the
availability to the general public of coverage in such progressive
injury situations. Id. at 91.
As an equitable matter, the continuous-trigger doctrine is
not fundamentally unfair to insurers that were on the risk during
policy periods as an injury progressed to the point of ultimate
manifestation. Such insurers simply would be bearing a portion
of the aggregate coverage burden that had accumulated while the
yet-to-be-manifested harm worsened.
In at least one case, the Supreme Court implicitly approved
the use of continuous-trigger coverage principles in a
construction defect context. See Potomac Ins. Co. v. PMA Ins.
Co., 215 N.J. 409, 422 (2013). There, the Court was presented
with the question of whether an insurer may assert, against a co-
insurer, a claim for costs incurred in defending litigation over
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construction defects in a school roof. The property damage to the
roof had manifested over a period of years, during which time the
insured was insured by successive carriers. Id. at 413-15.
Relying on its prior opinions in Owens-Illinois, supra, 138 N.J.
at 478-80, and Carter-Wallace, supra, 154 N.J. at 317, the Court
found that a continuous-trigger analysis in that particular
setting was appropriate. Id. at 425. In doing so, the Court
observed that the Owens-Illinois methodology had been applied to
"a variety" of disputes between policyholders and insurers. Ibid.Although Potomac Insurance specifically concerned the
allocation of past defense costs incurred in a construction case
by a common policyholder of several insurers, we discern no
principled reason to refrain from applying continuous-trigger
principles to cases like the present one, where issues of both
past and future defense costs and indemnification are implicated.
The public policies favoring a continuous-trigger approach in
progressive injury matters are likewise germane here. Property
damage within a building can be latent and undetected, behind
walls and above ceiling tiles, and can gradually worsen and advance
over time. Indeed, as the Supreme Court very recently observed,
albeit in a somewhat different context, in The Palisades at Fort
Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, __
N.J. __, __ (2017) (slip op. at 34), "[m]any construction defects
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will not be obvious immediately." The progressively-worsening
nature of a variety of construction defects, such as water
infiltration or mold, logically support the application of the
continuous-trigger doctrine. We thus endorse the doctrine's use
in this context.5
C.
We next consider Air Master's novel conceptual argument that
the end date for a continuous trigger should be delayed until it
first appears, or reasonably could be known, that the damage is
"attributable" to the conduct of the specific insured. Air Master
contends that such an attribution requirement is consistent with
the public policies underlying the continuous-trigger doctrine.
It asserts that adding such a requirement would have the coverage-
maximizing impact of extending the aggregate period of coverage
to the point in time when a manifested injury could be reasonably
linked to the particular conduct of an insured.
We agree that the trial court sensibly rejected this
attribution argument, for several reasons. First, we note that
Air Master does not cite to any published opinions – nor could we
5
In any event, as we shall discuss in Part II (C) and (D), infra,
even if a "manifestation trigger" approach is followed here instead
of a continuous-trigger approach, the same pivotal questions
concerning the trigger "end date" need to be resolved for this
case.
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find one – in which courts have engrafted such an attribution
element upon continuous-trigger analysis.6
Second, we concur with the trial court and Selective that it
would be unwise to delay the coverage trigger date to a date by
which there is sufficient information to link an insured's faulty
conduct to the progressive injury. Such an attribution analysis
could be highly fact-dependent, and difficult to resolve when an
insured makes a request for defense and indemnification after
being named in a complaint. The attribution analysis would require
a defendant-specific determination of when each defendant
reasonably could have been deemed to be at fault in contributing
to the progressive harm. Those sorts of defendant-specific
inquires could easily spawn lengthy and expensive collateral
discovery and motion practice. Indeed, in this very case, more
than two dozen subcontractors were named as third-party
defendants, and it would be a colossal undertaking to conduct a
defendant-by-defendant analysis of when the property damage first
6
The two unpublished opinions cited by Air Master in support of
recognizing an attribution element are not binding authority. See
R. 1:36-3. In any event, those opinions are not particularly
helpful to Air Master because the court concluded in both cases
that coverage was inapplicable, since the property damage had been
attributed to the insured before the insurance company's policy
period had begun. Hence, in both unpublished cases cited by Air
Master, the date of initial manifestation – which the trial judge
here found and we agree is the correct "last pull" date – obviously
preceded the date of attribution.
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became attributable to each of them. By contrast, using a date
of initial manifestation that is common to all parties – regardless
of which contractor or subcontractor may be "at fault" for the
occurrence – promotes efficiency and certainty.
In effect, Air Master is attempting, by analogy, to import
to this present coverage realm the "equitable tolling" doctrine
developed for and applied in the statute-of-limitations context.
Under such equitable tolling principles (also known as the
"discovery rule"), injured plaintiffs may be granted additional
time to file suit until the point in time that they have reason
(1) to know they are injured and (2) to attribute that injury to
the fault of a particular defendant. See, e.g., Lopez v. Swyer,
62 N.J. 267 (1973).
This analogy fails, however, because the policy
considerations that justify the equitable tolling of statutes of
limitations for plaintiffs do not pertain to insured defendants
who have potentially caused a progressive injury. Plaintiffs who
have sustained such injuries often lack fault of their own. They
also typically have less access to information than do defendants
to identify the causes of the inflicted harm.
Statutes of limitations do not need to be coterminous with
insurance coverage periods. Indeed, it is not uncommon, when
equitable tolling is applied, for a plaintiff to file suit years
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after an injury had manifested, if the plaintiff had no reason to
know until that later point in time what party(ies) were
responsible for that harm. See, e.g., Kendall v. Hoffman-La Roche,
Inc., 209 N.J. 173, 185-86 (2012) (applying tolling to allow a
plaintiff who allegedly had been injured by the effects of taking
a drug to extend her time to file suit by approximately four
years).
It would be unfair and inappropriate to use statute-of-
limitations equitable tolling concepts to impose coverage and
defense obligations upon insurers that issued "occurrence-based"
policies years after an injury had clearly been manifested.
Adopting such an approach would likely escalate premiums, or, even
worse, deter insurers from writing such new CGL policies
altogether, lest they be entangled in covering losses that had
manifested long ago. We decline to adopt a novel theory that
would, in effect, transform CGL occurrence-based policies into
instruments that would be more akin, if not identical, to "claims-
made" policies.7 The latter are based upon entirely different
underwriting considerations.
7
See Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304,
310-11 (1985) (explaining the difference between an "occurrence"
liability insurance policy, in which coverage applies to negligent
or omitted acts happening during the policy period even if the
claim is not presented until sometime later, and a "claims made"
policy, in which coverage applies if the negligent or omitted act
is discovered and brought to the insurer's attention during the
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Hence, we reject Air Master's attribution theory as unsound
and unsupported in the law.
D.
We now address the most pivotal aspect of this appeal, namely
the determination of when the property damage due to water
infiltration in the condominium building had first sufficiently
"manifested" to comprise the "last pull" of the coverage trigger.
In approaching this issue, we are guided by the illustrative
analysis of Judge Pressler in her opinion in Winding Hills, supra,
332 N.J. Super. at 85. Although Winding Hills was a first-party
case applying the manifestation theory of coverage, the core
question of what constitutes manifestation in a progressive,
continuous-trigger construction defect setting involves a similar
task in identifying the appropriate end date.
The facts in Winding Hills concerned, as here, a multi-unit
condominium project with construction defects that emerged over a
period of time. In November 1989, the condominium association in
that case retained an engineering consultant, Trinity Dynamics
("Trinity"), to evaluate the project's buildings in connection
policy period, regardless of when the act occurred); see also
Templo Fuente, supra, 224 N.J. at 200-03.
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with a review of the sufficiency of its capital reserve funding.
Id. at 88. During that initial undertaking, Trinity discovered
structural deficiencies within two of the buildings, which it
reported to the association. Ibid. The association then retained
Trinity in June 1990 to undertake an expert analysis "to determine
the extent and cause of the deficiencies." Ibid.
Trinity delivered an extensive report to the association in
January 1991. Ibid. That expert report delineated how
deficiencies in the project's on-site drainage system had led to
structural failures in the buildings' foundations. Ibid. The
report theorized that the detected foundation problems could have
stemmed from improper backfill, subsurface soil erosion, or
underground springs. Ibid. Thereafter, the association hired
another engineering company, Becht, to remediate the foundation
problem. Id. at 88-89. Becht issued a report to the association
in June 1993, reporting further structural distress caused
primarily by water infiltration. Id. at 89.
Given this chronology, the trial judge in Winding Hills fixed
the date of manifestation for insurance coverage purposes as of
January 1991, the month when Trinity's expert report was issued.
Id. at 89-90. This court affirmed that determination. Ibid.
As Judge Pressler noted, "[w]hile it might have been arguable
that [the association] should have been charged with notice of the
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loss as early as 1989 when Trinity first reported to it that there
were foundation problems, we do not see how there can be any other
conclusion, respecting the effect of the 1991 report." Id. at 89-
90. She added, "[c]ertainly the later Becht report, which
uncovered additional problems, cannot reasonably impugn the extent
of [the association's] awareness of the essential difficulties in
January 1991." Id. at 90 (emphasis added). Consequently, the
panel in Winding Hills held that the issuance of Trinity's expert
report in 1991 delineating the "essential" nature of the harm –
and not its initial discovery that preceded it in 1989-90 – was
the appropriate trigger date to use for coverage analysis. Ibid.
The opinion in Winding Hills did not define "essential," as
that term was used within its discussion. We presume the panel
contemplated a meaning consistent with standard dictionary
definitions for "essential," i.e., "constituting or part of the
nature of something," "inherent," or "basic." See Webster's II
New College Dictionary 384 (2001 ed.); see also Black's Law
Dictionary 663 (10th ed. 2014) (defining "essential" as "relating
to or involving the essence or intrinsic nature of something[,]"
"[o]f utmost importance[,]" or "basic and necessary").
In the present insurance context involving the "essential"
manifestation of an injury, we regard the term to connote the
revelation of the inherent nature and scope of that injury. On
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one end of the spectrum, manifestation cannot be merely tentative
(as Trinity's original observations of structural problems in
Winding Hills apparently were). See Winding Hills, supra, 332
N.J. Super. at 88-89. Nor must the manifestation be definitive
or comprehensive (as apparently was Becht's later report, after
it had remediated the structural harm). Ibid. The critical term
"essential," as used in this coverage context, should be understood
and applied consistent with such concepts.
Here, Air Master likens Jersey Infrared's May 2010 expert
report, which delineated the nature and extent of the rooftop
moisture damage, to Trinity's expert report in Winding Hills.
Ibid. Air Master urges that the May 2010 report provides an
appropriate demarcation of the time of manifestation. By contrast,
Selective urges that the point of manifestation happened much
earlier in 2008, when residents Schultz and Kassem had noticed and
reported water infiltration in their units, prompting remedial
investigations.
The sparse record in this case provides an insufficient basis
to resolve the manifestation question. Apparently no depositions
were taken in this declaratory judgment action of persons who
might have knowledge of what information was known at what times
about the building's construction defects, and whether that
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information had emerged or could reasonably have been known before
or after Selective's policy period began in June 2009.8
We decline to treat the news article containing hearsay
statements that some unit owners had observed water problems in
their units as early as 2008 as conclusive proof that the
progressive injury had sufficiently "manifested" by that time. 9
If such original complaints were analytically dispositive, then
Trinity's preliminary discovery in 1989-90 of structural defects
in Winding Hills would have been deemed by the court to have
established the date of manifestation in that case. Instead, the
issuance of Trinity's later January 1991 report delineating the
nature and extent of the problems comprised the proper date of
manifestation. Winding Hills, supra, 332 N.J. Super. at 88-89.
8
We do note that the appellate record alludes to (but does not
contain) two expert reports ("the Desman reports") issued by a
different consultant in May and July 2010. Since those reports
post-date the May 2010 Jersey Infrared study, and are within
Selective's policy period, we need not concern ourselves with
their contents at this time, although they may have some relevance
on remand depending on what they may say about the chain of events.
9
We reject Selective's argument that Air Master has "conceded"
the accuracy of the unsworn statements made in the news article.
Air Master expressly denied the article's accuracy in its summary
judgment motion filings. In addition, the unsworn hearsay
statements made in the article by unit owners and unidentified
"workers" are not presented in a form prescribed by Rule 1:6-6.
See Mazur v. Crane's Mill Nursing Home, 441 N.J. Super. 168, 179-
80 (App. Div. 2015). See also N.J.R.E. 805 (concerning embedded
hearsay statements cited for their truth).
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By further comparison, we note that the dates of the patients'
initial lung symptoms in Polarome were not dispositive of the
trigger end date. Polarome, supra, 404 N.J. Super. at 256-57.
Rather, the times of the clinical diagnosis of Kuttner and the
biopsy test results of Blaylock were deemed to have been the points
of manifestation. Id. at 257.
Here, we cannot tell with any confidence what, if any, other
information about the building defects was or reasonably could
have been revealed between the time of the unit owners' complaints
to the time of the start of Selective's policy in June 2009. This
case must be remanded to ascertain that vital information.
The temporal analysis in this case is complicated further
because it appears that the water infiltration problems identified
on the roof might not have been detected until the May 2010 expert
report by Jersey Infrared. The newspaper article cited by
Selective does not mention any water damage on the roof. To be
sure, it generally would not be surprising that a leaky roof could
be responsible for water damage observed on residential floors
below. Even so, there appear to be genuine issues of material
fact concerning when the water infiltration problems on the roof
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first became known, or reasonably could have been known.10 See R.
4:46-2.
For these many reasons, we vacate summary judgment in favor
of Selective and remand for further proceedings, guided by the
legal principles set forth in this opinion. The trial court shall
have discretion to reopen discovery to explore the critical factual
issues we have spotlighted, followed by appropriate renewed motion
practice or, if warranted to enable witness credibility findings,
an evidentiary hearing. We do not retain jurisdiction.
Vacated and remanded.
10
This also raises a possible factual question to address on remand
as to whether the damage to the roof and its replacement is harm
that is "indivisible" from the damage to the rest of the building,
or whether, conversely, the deterioration of the roof comprises
distinct property damage stemming from entirely distinct
construction defects. The May 2010 expert report issued by Jersey
Infrared is notably inconclusive on that point.
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