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ALERT: Insurers May Have to Cover Loss for Old Construction Defects in New Jersey

In a recent, unpublished opinion, Bardis, et al. v. Cumberland Insurance Group, et al., 2014 N.J. Super. Unpub. LEXIS 2414 (App. Div. Oct. 8, 2014), the Superior Court of New Jersey held that depending on the case facts, homeowners’ insurers may have to cover loss for old construction defects and/or improper construction methods (typically excluded loss) if it falls under the definition/classification of “hidden decay” (covered loss).
 
On December 26, 2009, homeowners, Alexander and Monica Bardis (“Bardis” and/or “Plaintiffs”) sustained a loss when a basement wall in their old, single-family home collapsed. The basement was added approximately twenty years earlier. The Bardis subsequently filed a property loss claim with their homeowner’s insurer, Cumberland Insurance Group (“Cumberland” and/or “Defendant”). Cumberland determined that based on its investigation the property loss was not the result of a peril or cause of loss covered by the Bardis’ policy. The claim was specifically declined because the damages sustained were a result of surface and subsurface ground water, weight of ice, sleet, snow and collapse. 
 
Plaintiffs filed the subject lawsuit asserting the basement wall collapsed due to hidden decay and chimney weight deterioration, which is a covered loss under their insurance policy. Defendant asserted that Plaintiffs’ claim is barred because the loss in question is excluded from the policy of insurance.  The trial court granted summary judgment in favor of Defendant. The trial court found that there was no coverage under Plaintiffs’ homeowner’s insurance policy for the collapsed basement wall allegedly caused by “hidden decay.” The court also rejected Plaintiffs’ argument that “hidden defects” allegedly resulting from the faulty construction and/or improper construction methods (which occurred 20 years prior) means the same as “hidden decay” and thereby should be a covered loss under the policy. 
 
On appeal, Plaintiffs argued that although the policy did not define “hidden decay” the trial court erred by interpreting the term too narrowly to exclude hidden construction defects, and by refusing to accord the plain and ordinary meaning of the term. The appellate court agreed with Plaintiffs. The appellate court found the policy did not define “hidden defects” or “hidden decay.” Relying on the Merriam-Webster definition for decay, which encompasses a gradual decline in strength, the appellate court held that the undefined policy term of “hidden decay” should include the definition of a gradual decline in strength, thus to give it its ordinary meaning. Per the appellate court, this approach is consistent with the principles of construing insurance contracts according to the reasonable expectations of the insured. The appellate court found that, arguably, Plaintiffs could have reasonably expected that their homeowner’s insurance policy would cover a gradual decline in strength of their basement wall, followed by its sudden collapse, after it stood for over twenty years. 
 
The Appellate court found that the actual cause of loss could have been covered, as a “hidden decay,” or it could have been a loss specifically excluded from coverage, as an improper construction methods.  Based upon this fact issue, coupled with the insured’s likely reasonable expectation of coverage for the collapse of a basement wall, the appellate court found a dispute as to the cause of the collapse and available coverage. As such, the appellate court remanded the matter back to the trial court finding there was a question of fact regarding causation and ultimately coverage, which would need to be decided by the trier of fact. 
 
*This case was not handled by Zarwin Baum attorneys. 
 

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