Owners of new homes, condos or townhouses in New Jersey at some point may have suspected that their home builders were aware of the improper constructions which foreshadow significant problems in the home due to construction defects. Construction defect ranging from improperly installed roofs, faulty plumbing and electrical, and leaky stucco are far too common occurrences that give owners of those homes the sense that the builder was on some level aware that the work was not being done correctly. Those suspicions led homeowners to pursue construction default claims, and they have been confirmed in a recent court decision. The South Carolina Supreme Court, in Crossman v. Harleysville Ins., recently determined that property damage caused by faulty workmanship and related construction defects is not accidental, and therefore is not covered by the builder’s insurance policy. The court found that in most cases, property damage due to a construction defect is not only foreseeable by most builders, but is generally expected and sometimes intended by builders who are more concerned with finishing on time or increasing their margin. 

This decision, while insulting to builders, is potentially a disaster for condominiums and homeowners associations that depend upon the developer or sponsor’s insurance policies to pay for the damage caused by construction defects. In many cases, developers create a separate company for each development they build, each of which typically have no assets, employees, bank accounts or income and leaves insurance policies as the only potential source of recovery for most associations. The court’s decision makes it much more difficult to recover from these policies, and could leave an association with no way to pay for the costly repairs of damages that they must undertake. Ironically, in this instance not only does the insolvent builder misrepresent the quality of the construction, but it also further hurts its customers and associations by leaving them without a means of reimbursement for damages caused by poor construction quality that jeopardizes its insurance coverage.