Cypress Point Condominium Association, inc v. Adria Towers, Llc(076348)

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)

Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., et al. (A-13/14-15) (076348)

Argued April 25, 2016 -- Decided August 4, 2016

SOLOMON, J., writing for a unanimous Court.

In this appeal, the Court determines whether rain water damage caused by a subcontractor’s faulty
workmanship constitutes “property damage” and an “occurrence” under a property developer’s commercial general
liability (CGL) insurance policy.

This dispute arose from the construction of Cypress Point, a luxury condominium complex in Hoboken.
Co-defendants Adria Towers, LLC, Metro Homes, LLC, and Commerce Construction Management, LLC
(collectively, the developer) served as the project’s developer and general contractor, and subcontractors carried out
most of the work. During construction, the developer obtained four CGL policies from Evanston Insurance
Company, covering a four-year period, and three from Crum & Forster Specialty Insurance Company, covering a
subsequent three-year period (collectively, the policies). The policies, which are modeled after the 1986 version of
the standard form CGL policy promulgated by the Insurance Services Office, Inc. (ISO), provide coverage for
“those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property
damage’ . . . caused by an ‘occurrence’ that takes place in the ‘coverage territory’ . . . [and] . . . occurs during the
policy period.”

Under the policies, “property damage” includes “[p]hysical injury to tangible property including all
resulting loss of use of that property,” while an “occurrence” is defined as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” The policies also contain an exclusion, for
“Damage to Your Work” (the “your work” exclusion), which eliminates coverage for “‘[p]roperty damage’ to ‘your
work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” Notably, this
exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on [the
insured’s] behalf by a subcontractor.”

After completion of the complex, several residents began experiencing problems, such as roof leaks and
water infiltration around windows in units and common areas. Plaintiff the Cypress Point Condominium
Association (the Association) brought an action against the developer and several subcontractors, alleging faulty
workmanship during construction and claiming various consequential damages. Ultimately, a question arose as to
whether the Association’s claims were covered by the insurers’ CGL policies. Subsequently, the insurers moved for
summary judgment, arguing, in part, that they were not liable because the subcontractors’ faulty workmanship did
not constitute an “occurrence” that caused “property damage” as defined by the policies. The trial court agreed and
granted the motion.

In a published decision, Cypress Point Condominium Association, Inc. v. Adria Towers, L.L.C., 441 N.J.
Super. 369, 373 (App. Div. 2015), the Appellate Division reversed, holding that, under the plain language of the
CGL policies, the unintended and unexpected consequential damages caused by the subcontractors’ faulty
workmanship constituted “property damage” and an “occurrence.” The Court granted the insurers’ petitions for
certification. 223 N.J. 355 (2015).

HELD: The consequential damages caused by the subcontractors’ faulty workmanship constitute “property
damage,” and the event resulting in that damage – water from rain flowing into the interior of the property due to the
subcontractors’ faulty workmanship – is an “occurrence” under the plain language of the CGL policies at issue here.

1. Since there is no genuine issue of material fact before the Court, it reviews de novo the trial court’s conclusion
that the insurers were not obligated to defend and indemnify the developer against the Association’s claims. The
Court has long recognized that the general principles governing the interpretation of insurance policies must be
analyzed under the rules of contract law. When interpreting the meaning of a provision in an insurance contract,
courts look first to its plain language. If the terms of the provision are clear, it will be enforced as written. If the
provision is subject to more than one reasonable interpretation, a court will look to extrinsic evidence to aid in its
interpretation. With respect to insurance contracts specifically, if the policy’s controlling language supports two
meanings, the interpretation favoring coverage should be applied. (pp. 13-16)
2. A CGL policy protects business owners against liability to third-parties. The most commonly purchased CGL
policy is based on a standard form issued by the ISO. The ISO promulgated standard form CGL policies in 1973
and again in 1986. The 1986 policy, which was used here, defines an “occurrence” in a way that does not directly
include “property damage,” stating that an “occurrence” is “an accident, including continuous or repeated exposure
to substantially the same general harmful conditions.” Unlike the 1973 ISO policy, the 1986 policy also includes a
significant exception to the “your work” exclusion clause, which eliminates coverage for “‘property damage’ to
‘your work’ arising out of it or any part of it.” The exception, which has never been directly addressed by this
Court, provides that the exclusion “does not apply if the damaged work or the work out of which the damage arises
was performed on your behalf by a subcontractor.” (pp. 16-19)

3. The seminal New Jersey cases addressing whether construction defects are covered under CGL policies
construed the 1973 ISO standard form CGL policy. The issue was first addressed in Weedo v. Stone-E-Brick, Inc.,
81 N.J. 233 (1979), under which the Court found that the replacement or repair of faulty goods and works is a
business expense, to be borne by the insured, and that CGL policies did not indemnify insureds where the claimed
damages are the cost of correcting the alleged defective work. Building on these principles, the Appellate Division
in Firemen’s Insurance Co. of Newark v. National Union Fire Insurance Co., 387 N.J. Super. 434 (App. Div. 2006),
held that claims against an insured general contractor for the cost of replacing materials installed by subcontractors
did not qualify as covered “property damage” caused by an “occurrence.” The panel distinguished the case from
Weedo, explaining that damage for breach of contractual warranty is limited and an expected cost of doing business,
whereas liability for damage to a person or property is unpredictable and almost limitless. The CGL policy is
designed to ensure against the latter risk. (pp. 19-23)

4. Since this Court has never addressed the question of coverage for consequential damages caused by faulty
workmanship under the 1986 ISO standard form CGL policy, review of other state and federal decisions is
instructive. The Supreme Court of Florida has held that a subcontractor’s defective work can constitute “property
damage” caused by an “occurrence” under the 1986 policy, noting that an interpretation precluding recovery for
damages caused by a subcontractor’s defective work would undermine the subcontractor exception to the “your
work” exclusion. The Fourth Circuit Court of Appeals held that the 1986 policy provides coverage for damages
caused by a subcontractor’s faulty workmanship, but not for the cost of replacing and/or repairing the faulty
workmanship itself. These cases, while not controlling, represent a strong recent trend of interpreting the term
“occurrence” to encompass unanticipated damage to nondefective property resulting from poor workmanship. (pp.
23-28)

5. Turning first to the question of whether the policies here provide an initial grant of coverage, the Court concludes
that the post-construction consequential damages, which resulted in loss of use of the affected areas by residents,
were covered “property damage” under the terms of the policies. In order to address the threshold question of
whether the subcontractors’ faulty workmanship and resultant damages constitute an “occurrence” triggering an
initial grant of coverage, the Court must give meaning to the term “accident,” which is not defined in the policies.
Based on the plain meaning of the term and case law interpreting it in the context of homeowner’s policies, the
Court finds that “accident” encompasses unintended and unexpected harm caused by negligent conduct. In other
words, under the Court’s interpretation of the term “occurrence” in the policies, consequential harm caused by
negligent work is an “accident.” Therefore, because the result of the subcontractors’ faulty workmanship –
consequential water damage to the completed and nondefective portions of Cypress Point – was an “accident,” it is
an “occurrence” under the policies and is provided an initial grant of coverage. (pp. 28-34)

6. Since the Association’s claims are covered under the policies’ general insuring agreement, the Court next
examines the pertinent exclusions and, if applicable, any exceptions. Standing alone, the “your work” exclusion,
which precludes coverage for “property damage” to “your work,” eliminates coverage for water damage to the
completed sections of Cypress Point. However, the exception to this exclusion, which was added to the 1986 ISO
standard form CGL policy, narrows the exclusion by expressly declaring that it does not apply if the damaged work
or work out of which the damage arises was performed by a subcontractor. Thus, because the water damage here is
alleged to have arisen out of faulty workmanship performed by subcontractors, it is a covered loss. (pp. 34-39)

The judgment of the Appellate Division is AFFIRMED and the matter is REMANDED to the trial court
for proceedings consistent with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, PATTERSON, and
FERNANDEZ-VINA join in JUSTICE SOLOMON’s opinion. JUDGE CUFF (temporarily assigned) did not
participate.

2
 SUPREME COURT OF NEW JERSEY
A-13/14 September Term 2015
076348

CYPRESS POINT CONDOMINIUM
ASSOCIATION, INC.,

Plaintiff-Respondent,

v.

ADRIA TOWERS, L.L.C.; D.
LOUREIRO MASONRY CONTRACTOR;
DEAN MARCHETTO ASSOCIATES,
P.C.; PEREIRA CONSTRUCTION,
L.L.C.; AMERICAN
ARCHITECTURAL RESTORATION;
METRO HOMES, L.L.C.; COMMERCE
CONSTRUCTION MANAGEMENT,
L.L.C.; WATERFRONT MANAGEMENT
SYSTEMS, L.L.C.; NCF GLAZING
& ERECTING, INC.; and MDNA
FRAMING, INC.,

Defendants,

and

WEATHER-TITE,

Defendant/Third-Party
Plaintiff,

and

PEREIRA CONSTRUCTION, L.L.C.;
and AMERICAN ARCHITECTURAL
RESTORATION,

Third-Party Defendants,

and

EVANSTON INSURANCE COMPANY,

Defendant/Third-Party

1
 Plaintiff-Appellant,

and

NATIONAL INDEMNITY COMPANY,

Third-Party Defendant,
and

CRUM & FORSTER SPECIALTY
INSURANCE COMPANY,

Third-Party Defendant-
Appellant.

Argued April 25, 2016 – Decided August 4, 2016

On certification to the Superior Court,
Appellate Division, whose opinion is
reported at 441 N.J. Super. 369 (App. Div.
2015).

Elliott Abrutyn argued the cause for
appellant Evanston Insurance Company (Morgan
Melhuish Abrutyn, attorneys; Mr. Abrutyn and
Thomas G. Rantas, on the briefs).

Gary S. Kull argued the cause for appellant
Crum & Forster Specialty Insurance Company
(Carroll McNulty Kull and Hardin, Kundla,
McKeon & Poletto, attorneys; Mr. Kull and
John S. Favate, of counsel; Mr. Kull, Mr.
Favate, Denise Marra DePekary, and Arthur A.
Povelones, Jr., on the briefs).

Mark M. Wiechnik argued the cause for
respondent (Ansell Grimm & Aaron, attorneys;
Breanne M. DeRaps, on the letter brief).

John Randy Sawyer argued the cause for
amicus curiae Community Association
Institute (Stark & Stark, attorneys; Mr.
Sawyer and Gene Markin, on the brief).

2
 Timothy P. Law, Jay M. Levin, and Jill N.
Priscott submitted a brief on behalf of
amicus curiae United Policyholders (Reed
Smith, attorneys).

John P. DiBiasi submitted a brief on behalf
of amici curiae Associated General
Contractors of America and Associated
Construction Contractors of New Jersey
(Lewis & McKenna, attorneys; Patrick J.
Wielinski, a member of the Texas Bar, of
counsel).

Michael A. Barrese and Bethany L. Barrese
submitted a brief on behalf of amicus curiae
Turner Construction Company (Saxe
Doernberger & Vita, attorneys; Gregory D.
Podolak, a member of the Connecticut Bar, of
counsel).

Carlton T. Spiller, Ellen A. Silver, and
Steven B. Gladis, submitted a brief on
behalf of amici curiae National Association
of Home Builders, New Jersey Builders
Association, and Leading Builders of America
(Greenbaum, Rowe, Smith & Davis, attorneys).

JUSTICE SOLOMON delivered the opinion of the Court.

In this appeal, we are called upon to determine whether

rain water damage caused by a subcontractor’s faulty workmanship

constitutes “property damage” and an “occurrence” under a

property developer’s commercial general liability (“CGL”)

insurance policy.1 Here, a condominium association sued its

developer/general contractor for damage to the interior

1 CGL policies protect business owners against liability to third
parties, encompassing a wide variety of potential claims. 3
Jeffrey E. Thomas, New Appleman on Insurance, Law Library
Edition § 16.02[3][a][i], LexisNexis (2015).
3
structure, residential units, and common areas of the

condominium complex, which was allegedly the result of defective

work performed by subcontractors. The condominium association

also sued the developer’s CGL insurers, seeking a declaration

that claims against the developer were covered by the policies.

The trial court granted summary judgment to the insurers,

finding that there was no “property damage” or “occurrence,” as

defined and required by the policies, to trigger coverage. The

condominium association appealed, and the Appellate Division

reversed, concluding that “consequential damages caused by the

subcontractors’ defective work constitute[d] ‘property damage’

and an ‘occurrence’ under the polic[ies].”

We affirm the judgment of the Appellate Division and hold

that the consequential damages caused by the subcontractors’

faulty workmanship constitute “property damage,” and the event

resulting in that damage –- water from rain flowing into the

interior of the property due to the subcontractors’ faulty

workmanship –- is an “occurrence” under the plain language of

the CGL policies at issue here.

I.

We begin with a review of the pertinent facts that gave

rise to the instant dispute, which arose from the construction

of Cypress Point, a luxury condominium complex in Hoboken

consisting of fifty-three residential units.

4
 Construction of Cypress Point began in 2002 and was

substantially completed in 2004. During construction, co-

defendants Adria Towers, LLC (“Adria Towers”), Metro Homes, LLC

(“Metro Homes”),2 and Commerce Construction Management, LLC

(“Commerce Construction”)3 (collectively, “the developer”) served

as the project’s developer and general contractor and hired

subcontractors to carry out a substantial majority of the work.

Adria Towers also controlled the Cypress Point Condominium

Association (“the Association” or “plaintiff”) until the fall of

2004, when control of the Association transferred to the unit

owners of Cypress Point’s condominiums.4

During construction of Cypress Point, the developer was

issued four CGL policies by Evanston Insurance Company

(“Evanston”) covering the time period from May 30, 2002 to July

15, 2006, and three by Crum & Forster Specialty Insurance

2 According to the complaints filed with the trial court, Metro
Homes “is a corporation which was the co-sponsor, co-developer
and/or general contractor that created, coordinated, designed
and constructed the Association’s building, units and common
elements.”

3 According to the complaints filed with the trial court,
Commerce Construction “is a construction/project management firm
that was responsible for overseeing the construction of the
Association’s building, units, and common elements.”

4 When a condominium is developed, the condominium association is
initially controlled by the developer; as units are sold,
control of the association must transfer from the developer to
the unit owners. N.J.S.A. 46:8B-12.1.
5
Company (“Crum & Forster”), covering the time period from July

15, 2006 to July 15, 2009 (collectively, “the policies”). The

policies, which are modeled after the standard form CGL policy

promulgated by the Insurance Services Office, Inc. (“ISO”),5

provide coverage for “those sums that the insured becomes

legally obligated to pay as damages because of ‘bodily injury’

or ‘property damage’ . . . caused by an ‘occurrence’ that takes

place in the ‘coverage territory’ . . . [and] . . . occurs

during the policy period.”

Pursuant to the terms of the policies, “property damage”

includes “[p]hysical injury to tangible property including all

resulting loss of use of that property.” An “occurrence” is

defined as “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.”

The policies also contain “[v]arious provisions [that] . .

. restrict coverage[,]” including an exclusion for “Damage to

Your Work” (“the ‘your work’ exclusion”), which eliminates

coverage for “‘[p]roperty damage’ to ‘your work’ arising out of

5 “ISO is an influential organization within the insurance
industry that promulgates standard form insurance policies,
including CGL policies, that insurers across the country use to
conduct their business.” Christopher C. French, Construction
Defects: Are They ‘Occurrences’?, 47 Gonz. L. Rev. 1, 5 n.7
(2011-12) (citing U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.
2d 871, 879 n.6 (Fla. 2007)). Most CGL insurance policies in
the United States are written on standard forms developed by ISO
and made available with state insurance regulators. Ibid.

6
it or any part of it and included in the ‘products-completed

operations hazard.’”6 Notably, this exclusion “does not apply if

the damaged work or the work out of which the damage arises was

performed on [the insured’s] behalf by a subcontractor.”7

(Emphasis added).

After completion of the condominium complex and transfer of

control to the Association, several condominium owners began

experiencing problems, such as roof leaks and water infiltration

at the interior window jambs and sills of the residential units.

The Association also became aware of damage caused by water

intrusion into the common areas and interior structures of

Cypress Point. As a result, the Association brought an action

against the developer and several subcontractors. It alleged

faulty workmanship during construction, including but not

limited to, defectively built or installed roofs, gutters, brick

facades, exterior insulation and finishing system siding,

6 Under the policies, “products-completed operation hazard”
“[i]ncludes all ‘bodily injury’ and ‘property damage’ occurring”
off-site and/or after the project is deemed “completed.”
7 The policies define “[y]our work” as “[w]ork or operations
performed by you or on your behalf . . . and . . . [m]aterials,
parts or equipment furnished in connection with such work or
operations.” “Your work” includes “[w]arranties or
representations made at any time with respect to the fitness,
quality, durability, performance or use of ‘your work’ . . . and
. . . [t]he providing of or failure to provide warnings or
instructions.”

7
windows, doors, and sealants. The Association claimed

consequential damages, consisting of, among other things, damage

to steel supports, exterior and interior sheathing and

sheetrock, and insulation, to Cypress Point’s common areas,

interior structures, and residential units (“the consequential

damages”).8

After the Association filed suit, Adria Towers requested

that Evanston defend and indemnify it against the Association’s

claims. When Evanston refused, and Adria Towers failed to file

a declaratory judgment action against Evanston, the Association

filed an amended complaint, seeking a determination whether its

claims against the developer were covered by Evanston’s CGL

policies. Evanston subsequently filed an amended answer to the

Association’s complaint, denying any obligation to defend and

indemnify the developer, as well as a third-party complaint

against Crum & Forster, alleging that if Evanston did owe such

an obligation, the rights and responsibilities under the Crum &

Forster CGL policies should also be adjudicated.

8 In the complaint, which was amended several times between 2010
and 2012 to add claims and parties, the Association asserted
claims of negligence, breach of express warranties, breach of
implied warranties, negligent misrepresentation, violations of
the Planned Real Estate Development Full Disclosure Act, and
breach of contract.

8
 Evanston and Crum & Forster (collectively, “the insurers”)

filed motions for summary judgment, arguing, among other things,

that they were not liable because the subcontractors’ faulty

workmanship did not constitute an “occurrence” that caused

“property damage” as defined by the policies. The trial court

agreed, concluding that faulty workmanship does not constitute

an “occurrence” and that the consequential damages caused

therefrom were not “property damage” under the terms of the

policies because the damage arose entirely from faulty work

performed by or on behalf of the developer. Accordingly, the

trial court granted Evanston’s motion for summary judgment and

dismissed Crum & Forster’s motion for summary judgment as moot.

The Association filed a motion for reconsideration, which was

denied.

In a published opinion, the Appellate Division reversed the

trial court’s grant of summary judgment in favor of the

insurers, holding that “unintended and unexpected consequential

damages [to the common areas and residential units] caused by

the subcontractors’ defective work constitute ‘property damage’

and an ‘occurrence’ under the [CGL] polic[ies].” Cypress Point

Condo. Ass’n, Inc. v. Adria Towers, L.L.C., 441 N.J. Super. 369,

373 (App. Div. 2015). The panel found that, under the plain

language of the CGL policies, the damages alleged in the

Association’s claim satisfied the policies’ definitions of

9
“property damage” and “occurrence.” Id. at 375-77. The panel

also distinguished two prior New Jersey cases relied upon by the

trial court in finding for the insurers, 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), “because they (1) involved only replacement costs

flowing from a business risk, rather than consequential damages

caused by defective work; and (2) interpreted different language

than the policy language in this appeal,” which was based on the

1986 standard CGL form rather than the 1973 version at issue in

Weedo and Firemen’s. Cypress Point, supra, 441 N.J. Super. at

377.

Thereafter, we granted the insurers’ petitions for

certification. 223 N.J. 355 (2015).

II.

The pertinent contentions of the parties are as follows.

The insurers urge this Court to overturn the Appellate

Division’s finding that the policies provided coverage for the

Association’s claims against the developer. Citing Weedo and

Firemen’s, the insurers argue that the panel’s holding conflicts

with established law that CGL policies are only intended to

provide coverage for damage caused by faulty workmanship to

other property and not to the project itself, as was the case

here. In doing so, the insurers assert, the panel improperly

10
shifted the risks inherent in constructing a building from the

developer and general contractor, who are in the best position

to control a subcontractor’s work, to their insurers.

The insurers further contend that the Appellate Division

failed to apply the correct definition of “accident” as it

relates to a covered “occurrence” under the policies. According

to the insurers, a subcontractor’s faulty workmanship does not

have the fortuity element required for the faulty workmanship to

constitute an “accident,” and is therefore not an “occurrence”

under the terms of the policies. In other words, damage to any

portion of the project caused by defective construction is not

accidental because it is one of the normal, frequent, and

predictable consequences of the construction business.

Relatedly, the insurers assert that the panel

inappropriately invoked the “subcontractor exception” to the

“your work” exclusion to trigger coverage for the Association’s

claims against the developer. According to the insurers, there

was no coverage because faulty workmanship is not “property

damage” or an “occurrence” under the terms of the policies and,

therefore, the panel should not have considered whether the

policies’ exclusions, let alone exceptions to those exclusions,

apply here.

Finally, the insurers ask us to follow authority from other

jurisdictions, which they claim supports the proposition that

11
CGL policies do not provide coverage for faulty workmanship that

causes damage to any portion of the work that the insured was

obligated to deliver. See, e.g., Columbia Ins. Grp., Inc. v.

Cenark Project Mgmt. Servs., 2016 Ark. 185 (Ark. 2016).

The Association, conversely, asserts that the Appellate

Division’s ruling in favor of coverage for the consequential

damages caused by a subcontractor’s faulty workmanship is in

line with both judicial precedent and the plain language of the

policies. Citing to Weedo, Firemen’s, and S.N. Golden Estates,

Inc. v. Continental Casualty Co., 293 N.J. Super. 395 (App. Div.

1996), the Association contends that our courts have

consistently found that, while a construction defect itself is

not covered under a CGL policy, the damage caused as a

consequence of the defect is covered. Thus, plaintiff argues

that consequential damages stemming from faulty workmanship

constitute a covered “occurrence” under the terms of the

policies, and that the Appellate Division’s holding supporting

such an interpretation should not be disturbed.

The Association also notes that the Weedo and Firemen’s

decisions were based on the 1973 ISO form CGL policy, whereas

the instant case involves the 1986 ISO form CGL policy, which

contains a subcontractor exception to the “your work” exclusion

that was not included in the 1973 ISO form. The Association

argues that the existence of the subcontractor exception implies

12
that the policies’ definition of an “occurrence” includes

construction defect claims, because interpreting the contract

otherwise would render the subcontractor exception meaningless.

Finally, this Court granted leave to appear as amicus

curiae to five entities or groups of entities: Associated

General Contractors of America and Associated Construction

Contractors of New Jersey; the Community Association Institute;

the National Association of Home Builders, New Jersey Builders

Association, and Leading Builders of America; Turner

Construction Company; and United Policyholders. All five amici

support the Association’s positions.

III.

A.

We begin our discussion of the law applicable to this

appeal by noting that we review the trial court’s grant of

summary judgment de novo under the same standard as the trial

court. Mem’l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512,

524 (2012). That standard commands that summary judgment be

entered “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). When no issue of fact exists, and only a question of law

13
remains, this Court affords no special deference to the legal

determinations of the trial court. Manalapan Realty, L.P. v.

Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Because

there is no genuine issue of material fact before us, we review

de novo the trial court’s conclusion that the insurers were not

obligated to defend and indemnify the developer against the

Association’s claims.

B.

With that standard in mind, we turn to the general

principles governing the interpretation of insurance policies,

which we have long recognized must be analyzed under the rules

“of simple contract law,” Kampf v. Franklin Life Ins. Co., 33

N.J. 36, 43 (1960), requiring us “to read the document as a

whole in a fair and common sense manner,” Hardy ex rel. Dowdell

v. Abdul-Matin, 198 N.J. 95, 103 (2009).

Well-settled contract law provides that “[c]ourts enforce

contracts based on the intent of the parties, the express terms

of the contract, surrounding circumstances and the underlying

purpose of the contract.” Manahawkin Convalescent v. O’Neill,

217 N.J. 99, 118 (2014) (citations and internal quotation marks

omitted). Thus, “[w]hen the terms of an insurance contract are

clear, it is the function of a court to enforce it as written

and not to make a better contract for either of the parties.”

Kampf, supra, 33 N.J. at 43 (citation omitted). It follows that

14
“[i]n attempting to discern the meaning of a provision in an

insurance contract, the plain language is ordinarily the most

direct route,” Chubb Custom Ins. Co. v. Prudential Ins. Co. of

Am., 195 N.J. 231, 238 (2008), and that when “the language of a

contract is plain and capable of legal construction, the

language alone must determine the agreement’s force and effect,”

Manahawkin, supra, 217 N.J. at 118 (citations and internal

quotation marks omitted). However, “[w]hen the provision at

issue is subject to more than one reasonable interpretation, it

is ambiguous, and the ‘court may look to extrinsic evidence as

an aid to interpretation.’” Templo Fuente de Vida Corp. v.

Nat’l Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 200

(2016) (quoting Chubb Custom, supra, 195 N.J. at 238).

As to insurance contracts specifically, “the general rule

of construction [is] that if the controlling language of a

policy will support two meanings, one favorable to the insurer

and the other to the insured, the interpretation favoring

coverage should be applied.” Butler v. Bonner & Barnwell, Inc.,

56 N.J. 567, 575 (1970) (citing Mazzilli v. Accident & Cas. Ins.

Co., 35 N.J. 1, 7 (1961)); see also Doto v. Russo, 140 N.J. 544,

556 (1995) (noting that “New Jersey courts often have construed

ambiguous language in insurance policies in favor of the insured

and against the insurer”). Moreover, “[w]hile specific words may

not be ambiguous, the context in which they are used may create

15
an ambiguity. The court’s responsibility is to give effect to

the whole policy, not just one part of it.” Arrow Indus.

Carriers, Inc. v. Cont’l Ins. Co. of N.J., 232 N.J. Super. 324,

334 (Law Div. 1989) (citing Boswell v. Travelers Indem. Co., 38

N.J. Super. 599, 604 (App. Div. 1956)).

C.

Having reviewed our jurisprudence on the interpretation of

insurance policies, we turn to CGL policies, generally, with a

special emphasis on the CGL policy at issue here. A CGL policy

“protects business owners against liability to third-parties.”

3 Jeffrey E. Thomas, New Appleman on Insurance, Law Library

Edition § 16.02[3][a][i], LexisNexis (2015) (Appleman). The

policy was first developed in the 1940s as “the result of a

voluntary effort in the insurance industry to address the

misunderstanding, coverage disputes, and litigation that

resulted from the unique language used by each liability

insurer.” U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871,

877-78 (Fla. 2007) (citations omitted). In 1966, the ISO CGL

policy was “broadened to cover ‘occurrences,’ which included

coverage for both ‘accidents’ and ‘continuous exposure to

conditions.’ This change permitted coverage for accidental

events that were not abrupt and short-lived, such as seepage and

long-term exposure to hazardous substances.” Appleman, supra, §

16.02[3][a][iv].

16
 The most commonly purchased CGL policy is the standard form

CGL policy, which “is revised every few years by the [ISO].”

Id. at § 16.02[3][a][iii]. Although not required to do so, most

insurers prepare their CGL policies based on the ISO’s standard

forms. Id. at § 16.02[3][a][iv].

Since 1966, the ISO has promulgated two standard form CGL

policies, one in 1973 and another in 1986. As the Appellate

Division aptly noted, there are important differences between

the 1973 and 1986 standard form CGL policies which are of

particular importance in the instant dispute. “First . . .[t]he

1973 ISO [policy] defines ‘occurrence’ as ‘an accident . . .

which results in . . . property damage neither expected nor

intended from the standpoint of the insured’” while the 1986 ISO

“policy defines ‘occurrence’ as ‘an accident, including

continuous or repeated exposure to substantially the same

general harmful conditions.’” Cypress Point, supra, 441 N.J.

Super. at 379 (internal citations omitted). Thus, “‘[p]roperty

damage,’ . . . is not directly included in the policy’s

definition of ‘occurrence.’” Id. at 379-80. “Second and most

importantly, the 1986 ISO [policy] includes a significant

exception to an exclusion not contained in the 1973 ISO

[policy].” Id. at 380.

The exception in the 1986 ISO CGL policy, which has never

been directly addressed by this Court, is found under the “your

17
work” exclusion clause of the policy. As outlined above, the

1986 standard form CGL policy eliminates coverage for “‘property

damage’ to ‘your work’ arising out of it or any part of it . .

.”9 However, the policy’s exception to this exclusion, included

in the form by the ISO for the first time in 1986, provides that

the “your work” exclusion “does not apply if the damaged work or

the work out of which the damage arises was performed on your

behalf by a subcontractor.” Appleman, supra, §§ 18.03[12][a],

[d].

In creating the subcontractor exception to the “your work”

exclusion, it has been noted that the ISO was motivated by an

agreement between policy holders and insurers

that the CGL policy should provide coverage
for defective construction claims so long as
the allegedly defective work had been
performed by a subcontractor rather than the
policyholder itself. This resulted both
because of the demands of the policyholder
community (which wanted this sort of coverage)
and the view of insurers that the CGL was a
more attractive product that could be better
sold if it contained this coverage.

[Christopher C. French, Construction Defects:
Are They ‘Occurrences’?, 47 Gonz. L. Rev. 1,
8-9 (2011-12) (citation omitted).]

9In the 1973 ISO Form, the “your work” exclusion was worded
slightly differently: “[t]his insurance does not apply . . . to
property damage to work performed by or on behalf of the named
insured arising out of the work or any portion thereof, or out
of materials, parts or equipment furnished in connection
therewith.” Weedo, supra, 81 N.J. at 241.
18
Moreover, the ISO itself addressed the addition of the

subcontractor exception in a July 1986 circular, which

“confirm[ed] that the 1986 revisions to the standard CGL policy

. . . specifically ‘cover[ed] damage caused by faulty

workmanship to other parts of work in progress; and damage to,

or caused by, a subcontractor’s work after the insured’s

operations are completed.’” U.S. Fire, supra, 979 So. 2d at 879

(citing ISO Circular, Commercial Gen. Liab. Program Instructions

Pamphlet, No. GL-86-204 (July 15, 1986)).

D.

We now turn to New Jersey’s case law pertinent to

interpreting CGL policies. In doing so, we note that the

seminal cases considering whether construction defects are

covered under such policies construed versions of the standard

form ISO policy that predated the 1986 version used here.

This Court first addressed the issue of whether a standard

CGL policy covers construction defects in Weedo, supra, which is

regularly cited by both state and federal courts as the leading

case on the issue. French, supra, 47 Gonz. L. Rev. at 22-24;

see also Fireman’s, supra, 387 N.J. Super. at 442 (noting that

“[t]he seminal case regarding insurance coverage for a

contractor’s defective work is Weedo”). In Weedo, two sets of

homeowners sued a masonry contractor, Stone-E-Brick, for claims

arising out of faulty workmanship and defective construction

19
work. Weedo, supra, 81 N.J. at 235-36. In their complaints,

the homeowners sought damages to cover the cost of correcting

the construction defects. Ibid. Stone-E-Brick, in turn,

requested that its CGL insurer defend and indemnify it against

both complaints, but the insurer refused, asserting that CGL

policies exclude coverage for claims of faulty construction that

require repair or replacement of a contractor’s work. Id. at

236.

The policy at issue in Weedo was the 1973 version of the

standard form CGL, which contained exclusions for “business

risks” to the “‘insured products’ (exclusion ‘(n)’) and ‘work

performed’ (exclusion ‘(o)’),” and read as follows:

* * * This insurance does not apply

(n) to property damage to the named insured’s
products arising out of such products or any
part of such products;

(o) to property damage to work performed by or
on behalf of the named insured arising out of
the work or any portion thereof, or out of
materials, parts or equipment furnished in
connection therewith.

[Id. at 240-41.]

After engaging in an extensive discussion of the nature and

purpose of “business risk” exclusions within CGL policies, and

determining that “[t]he consequence of not performing well is

part of every business venture[, and that] the replacement or

repair of faulty goods and works is a business expense, to be

20
borne by the insured-contractor in order to satisfy customers,”

the Weedo Court rejected Stone-E-Brick’s claim for coverage.

Id. at 238-41. In doing so, the Court held that CGL policies

did not indemnify insureds “where the damages claimed are the

cost of correcting the [alleged defective] work itself[,]” id.

at 235, but did not address whether the alleged faulty

workmanship constituted a covered “occurrence” under the 1973

standard form CGL policy. See id. at 237 n.2 (noting that

because insurer “conceded . . . that but for the exclusions in

the policy, coverage would obtain,” Court would “not address the

validity of one of the carrier’s initially-offered grounds of

non-coverage, namely, that the policy did not extend coverage

for the claims made even absent the exclusions”). Rather, the

homeowners’ claims seeking compensation for the repair and

replacement of the insured’s faulty work was specifically

excluded and, therefore, the CGL insurer was not obligated to

provide coverage. Id. at 241 (stating that “given the precise

and limited form of damages which form the basis of the claims

against the insured, either exclusion is, or both are,

applicable to exclude coverage”).

Building on the principles enunciated in Weedo, the

Appellate Division in Fireman’s, supra, held that claims against

an insured general contractor for the cost of replacing sub-

standard condominium firewalls installed by subcontractors did

21
not qualify as covered “property damage” caused by an

“occurrence” under the 1973 ISO standard form CGL policy. 387

N.J. Super. at 446, 449. In reaching that conclusion, the panel

noted that Weedo had distinguished between “two kinds of risks,

one of which is excluded by the standard CGL policy and one of

which is not”: (1) “‘business risk,’ . . . the risk that the

contractor’s work may be faulty and may breach express or

implied warranties”; and (2) “the risk of injury to people and

damage to property caused by faulty workmanship.” Id. at 442-43

(citing Weedo, supra, 81 N.J. at 239) (internal quotation marks

omitted). “[T]he key distinction,” according to the Firemen’s

panel, “is the predictability of the harm: damage for breach of

contractual warranty is limited and is an expected cost of doing

business; liability for injury or damage to a person or property

is potentially ‘almost limitless’ and is ‘entirely

unpredictable.’ The policy is designed to ensure against the

latter risk.” Id. at 443 (citing Weedo, supra, 81 N.J. at 239-

40). Thus, because “the alleged damage was the cost of

replacing sub-standard firewalls [and not] that the firewalls

caused damage to the rest of the building or to any other person

or property,” the panel found that, under Weedo, the CGL insurer

was not obligated to indemnify the insureds. Id. at 443, 445,

449 (“While Weedo addressed ‘business risk’ in the context of

whether certain exclusions applied, the Weedo principle has been

22
extended to the threshold issue of whether the risk was within

the scope of the standard insuring clause.”).

E.

Because this Court has never addressed questions of

coverage for consequential damages caused by faulty workmanship

under the 1986 ISO standard form CGL policy, a brief review of

other state and federal decisions that have considered this

issue is instructive. See Weedo, supra, 81 N.J. at 241

(“Because of the factual similarity and the uniform wording of

the exclusionary clauses [contained in standard form CGL

policies], the reasoning in these decisions [from other

jurisdictions] is thoroughly persuasive.”).

In U.S. Fire, supra, the Supreme Court of Florida held that

a subcontractor’s defective work, which “is neither expected nor

intended from the standpoint of the [insured] contractor[,] can

constitute ‘property damage’ caused by an ‘occurrence’ as those

terms are defined in a standard form [CGL] policy.” 979 So. 2d

at 875. There, after a contractor completed construction of

several homes, the homeowners discovered that improper soil

compacting and testing by subcontractors caused damage to the

homes and the homeowners’ personal property. Ibid. The

contractor sought coverage for the damage under its CGL

policies, but the insurer denied coverage for the costs of

repairing the structural damage to the homes and only agreed to

23
indemnify the contractor for the damage caused to the

homeowners’ personal property. Id. at 876. The contractor sued

the insurer, and the dispute reached the Supreme Court of

Florida, which considered the issue of whether a 1986 standard

form CGL policy “issued to a general contractor, provides

coverage when a claim is made against the contractor for damage

to the completed project caused by a subcontractor’s defective

work.” Id. at 877.

In finding that a subcontractor’s faulty workmanship can

constitute an “occurrence” under the 1986 ISO form, the court in

U.S. Fire rejected the insurer’s argument that faulty

workmanship “can never be an ‘accident’ because it results in

reasonably foreseeable damages,” and noted that “a construction

of the insuring agreement that precludes recovery for damage

caused to the completed project by the subcontractor’s defective

work renders the . . . subcontractor exception to [the ‘your

work’] exclusion . . . meaningless.” Id. at 883, 887. The

court also rejected the insurer’s argument that “faulty

workmanship that injures only the work product itself does not

result in ‘property damage;’” observing that, “just like the

definition of the term ‘occurrence,’ the definition of ‘property

damage’ in the CGL policies does not differentiate between

damage to the contractor’s work and damage to other property.”

Id. at 888-89. Thus, the Court found that “faulty workmanship

24
or defective work that has damaged the otherwise nondefective

completed project has caused ‘physical injury to tangible

property’ within the plain meaning of the definition in the

[1986 CGL] policy.” Id. at 889.10

In French v. Assurance Co. of America, the Fourth Circuit

Court of Appeals, applying Maryland Law, held that the 1986

standard form CGL policy provides coverage for damages caused by

a subcontractor’s faulty workmanship, but not for the cost of

replacing and/or repairing the faulty workmanship itself. 448

F.3d 693, 704 (2006). French involved homeowners who sought

coverage from a general contractor’s CGL insurer after a

subcontractor’s negligently installed stucco caused moisture

damage to their otherwise properly-built house. Id. at 696.

When the CGL insurer refused to indemnify the insureds for

either the cost of replacing the stucco or the damages resulting

from the faulty workmanship, the homeowners sued. Ibid. After

acknowledging that the subcontractor exception “restored

otherwise excluded coverage for damage caused to construction

10Interestingly, and of particular relevance to this Court, the
U.S. Fire Court also explicitly distinguished its finding from
the holding in Weedo, supra, 81 N.J. 233, holding that Weedo’s
determination that there was no coverage for faulty workmanship
by a subcontractor was based on specific exclusions in the pre-
1986 ISO form, and not on the definitions of “property damage”
or “occurrence” within the policy itself. U.S. Fire, supra, 979
So. 2d at 881-82.

25
projects by subcontractor negligence,” the Court determined that

the standard form 1986 CGL policy precludes coverage to a

general contractor to replace or repair defective workmanship

performed by a subcontractor but does provide coverage for the

damages resulting from the subcontractor’s faulty workmanship.

Id. at 704, 706. Accordingly, the Fourth Circuit found that the

subcontractor exception to the “your work” exclusion required

the CGL insurer to “provide[] liability coverage for the cost to

remedy unexpected and unintended property damage to the

contractor’s otherwise nondefective work-product caused by the

subcontractor’s defective workmanship.” Id. at 706.

Although the holdings in U.S. Fire and French are not

controlling here, they are informative because they represent “a

strong recent trend in the case law [of most federal circuit and

state courts] interpet[ing] the term ‘occurrence’ to encompass

unanticipated damage to nondefective property resulting from

poor workmanship.” Greystone Constr. v. Nat’l Fire & Marine

Ins. Co., 661 F.3d 1272, 1282-83, 1286 (10th Cir. 2011)

(recognizing body of case law “generally hold[ing] that damage

caused by faulty workmanship is neither expected nor intended

from the standpoint of the policyholders and, therefore,

receives coverage so long as it does not fall under a policy

exclusion” and finding that “when a subcontractor’s faulty

workmanship causes unexpected property damage to otherwise

26
nondefective portions of the builder’s work, [CGL] policies

provide coverage”); see also Sheehan Constr. Co. v. Cont’l Cas.

Co., 935 N.E.2d 160, 169-71 (Ind.) (adopting view that 1986 CGL

policy covers property damage caused by subcontractor’s

unexpected and unintended faulty workmanship), modified on other

grounds, 938 N.E.2d 685 (Ind. 2010); Architex Ass’n v.

Scottsdale Ins. Co., 27 So. 3d 1148, 1162 (Miss. 2010) (finding

1986 CGL “policy unambiguously extends coverage to [insured

general contractors] for unexpected or unintended ‘property

damage’ resulting from negligent acts or conduct of a

subcontractor, if not excluded by other applicable terms and

conditions of the policy”); Travelers Indem. Co. of Am. v. Moore

& Assocs., Inc., 216 S.W.3d 302, 309 (Tenn. 2007) (concluding

that water damage resulting from subcontractor’s faulty window

installation constitutes “both an ‘accident’ and an ‘occurrence’

for which there is coverage under” the 1986 standard form CGL

policy); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d

1, 16 (Tex. 2007) (explaining that “claims for damage caused by

an insured’s defective performance or faulty workmanship may

constitute an ‘occurrence’ when ‘property damage’ results from

the ‘unexpected, unforeseen or undesigned happening or

consequence’ of the insured’s negligent behavior”) (citation and

quotation marks omitted); Am. Family Mut. Ins. Co. v. Am. Girl,

Inc., 673 N.W.2d 65, 70 (Wis. 2004) (holding subcontractor’s

27
faulty workmanship, which caused building’s foundation to sink,

was “property damage” caused by “occurrence”).

IV.

A.

We now turn to the merits of the instant dispute, which

requires that we determine whether the policies issued by the

insurers to the developer provide coverage for the Association’s

claims of consequential water damage caused by the

subcontractors’ faulty workmanship. In answering this question

we follow a three-step process. First, we examine the facts of

the Association’s claims to ascertain whether the policies

provide an initial grant of coverage. If so, the second step

considers whether any of the policies’ exclusions preclude

coverage. Finally, in step three, we determine whether an

exception to a pertinent exclusion applies to restore coverage.11

As previously stated, the policies at issue insure against

liability for “property damage” that “is caused by an

‘occurrence.’” “Property damage” is defined as:

a. 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; or

11The three-step analytical framework we use here is informed by
the process employed by the Wisconsin courts. See Design Basics
LLC v. J&V Roberts Inv., Inc., 130 F. Supp. 3d 1266, 1285 (Wis.
2015) (citing Am. Girl, Inc., supra, 673 N.W.2d at 73).
28
 b. Loss of use of tangible property that is not
physically injured. All such loss of use
shall be deemed to occur at the time of the
“occurrence” that caused it.

Here, the Association alleged that water infiltration,

occurring after the project was completed and control was turned

over to the Association, caused mold growth and other damage to

Cypress Point’s completed common areas and individual units.

Those post-construction consequential damages resulted in loss

of use of the affected areas by Cypress Point residents and, we

hold, qualify as “[p]hysical injury to tangible property

including all resulting loss of use of that property.”

Therefore, on the record before us, the consequential damages to

Cypress Point were covered “property damage” under the terms of

the policies.

Next, the policies define an “occurrence” as “an accident,

including continuous or repeated exposure to substantially the

same general harmful conditions.” The term “accident” is not

defined in the policies. Thus, we must first give meaning to

the term “accident” in order to address the threshold question

whether the subcontractors’ faulty workmanship, and the damages

that flowed therefrom, constitute an “occurrence” triggering an

initial grant of coverage for the Association’s claims.

When interpreting undefined terms within an insurance

policy, we “resort to the general rule that the terms in an

29
insurance policy should be interpreted in accordance with their

plain and commonly-understood meaning.” Morton Int’l v. Gen.

Accident Ins. Co., 134 N.J. 1, 56 (1993) (citation omitted);

Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990) (“[T]he

words of an insurance policy should be given their ordinary

meaning[.]”). This common-sense approach often begins with an

examination of dictionary definitions.

Merriam-Webster’s dictionary defines “accident” as “an

unforeseen and unplanned event or circumstance.” Merriam-

Webster’s Collegiate Dictionary 1419 (11th ed. 2012); see also

Black’s Law Dictionary 18 (10th ed. 2014) (explaining that

“[t]he word ‘accident,’ in accident policies, means an event

which takes place without one’s foresight or expectation. A

result, though unexpected, is not an accident; the means or

cause must be accidental.”). A leading treatise on New Jersey

insurance law tracks substantially the same language as the

dictionary definition for “accident”:

An unintended or unexpected event. An
accident is an event or condition occurring by
chance or arising from unknown or remote
causes; an unforeseen, unplanned event or
condition; a usually sudden event or change
occurring without intent or volition, through
carelessness, unawareness, ignorance, or the
like; an unexpected happening causing loss or
injury not due to fault or misconduct of the
person injured which may form the basis for
legal relief.

30
 [George J. Kenny & Frank A. Lattal, New Jersey
Insurance Law app’x A (2d ed. 2000) (citing
Prop. Cas. Co. of MCA v. Conway, 147 N.J. 322,
327 (1997) (defining “accident” for purposes
of determining whether homeowner’s insurance
policy covers parent’s vicarious liability for
child’s vandalism of school)) (additional
citations omitted).]

Although we have yet to define the term “accident” in a CGL

policy, this Court has considered the word in the context of a

homeowner’s insurance policy in two prior cases where, as here,

coverage was limited to damage caused by an “occurrence,” which

was defined as an “accident.” In Property Casualty Co., supra,

the Court found that the “ordinary meaning” of the term

“accident” is “an unintended or unexpected event.” 147 N.J. at

327, 330 (holding that homeowner’s insurance provides coverage

for parent’s vicarious liability for child’s vandalism of

school). In Voorhees v. Preferred Mutual Insurance Co., in

which the underlying action was a defamation suit brought by a

teacher against a parent, we determined “that the accidental

nature of an occurrence is determined by analyzing whether the

alleged wrongdoer intended or expected to cause an injury.” 128

N.J. 165, 183 (1992). Thus, we held that if the alleged

wrongdoer did not intend or expect to cause an injury, then “the

resulting injury is ‘accidental.’” Ibid.

Based on those guiding principles, we find that the term

“accident” in the policies at issue encompasses unintended and

31
unexpected harm caused by negligent conduct. That construction

of the term “accident” as it relates to an “occurrence” in a CGL

policy aligns with both the commonly accepted definitions of

“accident” and the legal import given to the term by both this

and other jurisdictions. See, e.g., Greystone, supra, 661 F.3d

at 1284 (finding “the term ‘accident’ . . . incorporates [both]

a ‘fortuitous event,’ and ‘an unanticipated or unusual result

flowing from a commonplace cause’”) (internal citations

omitted); Sheehan Constr., supra, 935 N.E.2d at 170 (“Implicit

in the meaning of “accident” is the lack of intentionality.”);

Travelers, supra, 216 S.W.3d at 308 (“[C]onclud[ing] that the

term ‘accident’ as used in the [1986] CGL [policy] means ‘an

unforeseen or unexpected event’ . . . consider[ed] . . . from

the perspective of the insured.”); Am. Girl, Inc., supra, 673

N.W.2d at 76 (finding “accident” and therefore “occurrence”

where “[n]either the cause nor the harm was intended,

anticipated, or expected”).

Applying our definition, we must now determine whether the

consequential water damage to the completed, nondefective

portions of Cypress Point flowing from the subcontractors’ poor

workmanship was foreseeable. Here, no one claims that the

subcontractors intentionally performed substandard work that led

to the water damage. Rather, relying on Weedo, the insurers

assert that damage to an insured’s work caused by a

32
subcontractor’s faulty workmanship is foreseeable to the insured

developer because damage to any portion of the completed project

is the normal, predictable risk of doing business. Thus, in the

insurers’ view, a developer’s failure to ensure that a

subcontractor’s work is sound results in a breach of contract,

not a covered “accident” (or “occurrence”) under the terms of

the policies. We disagree.

To begin with, defendant’s argument that a breach of

contract cannot give rise to a covered “occurrence” ignores the

question of initial coverage. Indeed, as the Wisconsin Supreme

Court highlighted in Am. Girl, Inc., supra,

[while] CGL policies generally do not cover
contract claims arising out of the insured’s
defective work or product, . . . this is by
operation of the CGL’s business risk
exclusions, not because a loss actionable only
in contract can never be the result of an
“occurrence” within the meaning of the CGL’s
initial grant of coverage. This distinction
is sometimes overlooked, and has resulted in
some regrettably overbroad generalizations
about CGL policies in our case law.

[673 N.W.2d at 76 (emphasis added).]

See also U.S. Fire, supra, 979 So. 2d at 884 (rejecting CGL

insurer’s “argument that a breach of contract can never result

in an ‘accident,’” because such an assertion “is not supported

by the plain language of the policies”).

Moreover, the insurers’ argument fails to recognize that

Weedo and its progeny were decided based upon exclusions

33
contained within the pre-1986 CGL policy, rather than an

interpretation of the policy’s terms granting coverage in the

first instance. See Travelers, supra, 216 S.W.3d at 307 (noting

that “Weedo . . . is [not] relevant to the determination of

whether there has been an ‘occurrence’ under the terms of the

‘insuring agreement’” because “[i]n Weedo, the insurer conceded

that the ‘insuring agreement’ granted coverage and asserted that

the sole issue . . . was whether the ‘exclusions’ precluded

coverage” (citing Weedo, supra, 81 N.J. at 237 n.2)) (emphasis

added); Am. Girl, Inc., supra, 673 N.W.2d at 77 (same).

In any event, under our interpretation of the term

“occurrence” in the policies, consequential harm caused by

negligent work is an “accident.” Therefore, because the result

of the subcontractors’ faulty workmanship here –- consequential

water damage to the completed and nondefective portions of

Cypress Point -- was an “accident,” it is an “occurrence” under

the policies and is therefore covered so long as the other

parameters set by the policies are met. See Weedo, supra, 81

N.J. at 249 (noting that CGL policies do “not cover an accident

of faulty workmanship but rather faulty workmanship that causes

an accident”).

B.

Having determined that the Association’s claims are covered

under the policies’ general insuring agreement, we next turn to

34
the final two steps in our analysis in which we examine the

policies’ pertinent exclusions and then, if applicable, any

exceptions to those exclusions. In doing so, our

“responsibility is to give effect to the whole policy, not just

one part of it.” Arrow Indus., supra, 232 N.J. Super. at 334

(citing Boswell, supra, 38 N.J. Super. at 604); see also Herbert

L. Farkas Co. v. N.Y. Fire Ins. Co., 5 N.J. 604, 610 (1950)

(reinforcing principal that insurance policies “must be

considered as a whole and effect given to every part thereof”).

“In addition, we must also be mindful of the corollary rule of

construction that if the clause in question is one of exclusion

or exception designed to limit the protection afforded by the

general coverage provisions of the policy, a strict

interpretation is in order.” Bello v. Hurley Limousines, 249

N.J. Super. 31, 40-41 (1991) (citing Butler, supra, 56 N.J. at

574; Mazzilli, supra, 35 N.J. at 7-8).

The policies at issue here, like those in Weedo and

Firemen’s, contain numerous exclusions eliminating coverage for

a variety of business risks including the cost of repairing

damage to the contractor’s own work –- the “your work”

exclusion. See Weedo, supra, 81 N.J. at 241; Firemen’s, supra,

387 N.J. Super. at 441. As outlined above, the “your work”

exclusion precludes coverage under the policies for “‘property

damage’ to ‘your work’ arising out of it or any part of it.”

35
Thus, under the second step of our three-part analysis, and

viewing that exclusion in isolation, the policies would seem to

eliminate coverage for the water damage to the completed

sections of Cypress Point.

However, the “your work” exclusion contains an important

exception that “narrow[s] the exclusion by expressly declaring

that it does not apply ‘if the damaged work or the work out of

which the damage arises was performed on your behalf by a

subcontractor.’” Sheehan Constr., supra, 935 N.E.2d at 171

(quoting 1986 ISO standard form CGL policy). This exception to

the “your work” exclusion was not contained in the 1976 ISO CGL

form, but unquestionably applies in this case. Accordingly, the

third and final step of our inquiry compels the conclusion that,

because the water damage to the completed portions of Cypress

Point is alleged to have arisen out of faulty workmanship

performed by subcontractors, it is a covered loss.

Indeed, as courts and commentators have acknowledged, the

1986 ISO standard form CGL policy’s inclusion of the

“subcontractor exception” “resulted both because of the demands

of the policyholder community (which wanted this sort of

coverage) and the view of insurers that the CGL [policy] was a

more attractive product that could be better sold if it

contained this coverage.” French, supra, 47 Gonz. L. Rev. at 8-

9 (citation omitted); see also Greystone, supra, 661 F.3d at

36
1287 (noting that “the evolution of CGL-policy language shows

that the current standard-form policy, which was used in the

present case, was specifically designed to provide general

contractors with at least some insurance coverage for damage

caused by the faulty workmanship of their subcontractors”);

Lamar Homes, supra, 242 S.W.3d at 12 (“By incorporating the

subcontractor exception into the ‘your-work’ exclusion, the

insurance industry specifically contemplated coverage for

property damage caused by a subcontractor’s defective

performance.”). Moreover, the ISO itself addressed the addition

of the subcontractor exception in a July 1986 circular, which

“confirm[ed] that the 1986 revisions to the standard CGL policy

. . . specifically ‘cover[ed] damage caused by faulty

workmanship to other parts of work in progress; and damage to,

or caused by, a subcontractor’s work after the insured’s

operations are completed.’” U.S. Fire, supra, 979 So. 2d at 879

(citing ISO Circular, Commercial Gen. Liab. Program Instructions

Pamphlet, No. GL-86-204 (July 15, 1986)).

Furthermore, we agree with other courts that “if the

insurer decides that this is a risk it does not want to insure,

it can clearly amend the policy to exclude coverage, as can be

done simply by either eliminating the subcontractor exception or

adding a breach of contract exclusion.” Id. at 891; Greystone,

supra, 661 F.3d at 1288 (“Insurers are of course free to amend

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CGL agreements or offer riders so as to reallocate the risk of

subcontractor negligence.”). The insurers here chose not to

negotiate away the subcontractor exception and instead issued

the developer a series of 1986 ISO standard form CGL policies

which explicitly provide coverage for property damage caused by

a subcontractor’s defective performance. Thus, the

Association’s claims of consequential damages caused by the

subcontractors’ faulty workmanship are covered not only by the

insuring agreements’ initial grant of coverage but also by the

subcontractor exception to the “your work” exclusion.

As a final note, we decline to address the issue raised by

the Appellate Division of whether the subcontractor exception in

the policies created a “reasonable expectation” that

“consequential damages caused by the subcontractors’ faulty

workmanship constituted ‘property damage’ and an

‘occurrence[,]’” in light of our finding that the policy

unambiguously provides coverage in such instances. See Di Orio

v. New Jersey Mfrs. Ins. Co., 79 N.J. 257, 269-70 (observing

that where insurance policy’s provision is not ambiguous or

otherwise misleading, courts need not consider “objectively

reasonable expectation” of average policyholder in interpreting

the policy). In any event, to the extent that the parties

interpret the term “accident” in the policy differently, thereby

raising the specter of ambiguity within the policy itself, we

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note that such ambiguities are to be read in favor of the

insured, not the insurer. See Doto, supra, 140 N.J. at 556

(noting “the importance of construing contracts of insurance to

reflect the reasonable expectations of the insured in the face

of ambiguous language and phrasing” in case addressing coverage

under commercial-umbrella liability policy (citing State v.

Signo Trading Int’l, 130 N.J. 51, 62 (1992))).

In sum, we hold that the trial court erred in entering

summary judgement in favor of the insurers because the

Association’s claims of consequential water damage resulting

from defective workmanship performed by subcontractors

constitutes both an “occurrence” and “property damage” under the

terms of the policies.

V.

The judgment of the Appellate Division is affirmed and the

matter is remanded to the trial court for proceedings consistent

with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN,
PATTERSON, and FERNANDEZ-VINA join in JUSTICE SOLOMON’s opinion.
JUDGE CUFF (temporarily assigned) did not participate.

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