|
Commercial Property |
Increased Cost Of
Construction Coverage |
|
State Uniform Construction
Code Act |
Proximate Cause |
DEB Associates (DEB) owned an eight-story office building in New Jersey that
Greater New York Mutual Insurance Company (GNY) insured. A windstorm in
December 2003 damaged the north side of the building’s seventh floor.
Specifically, the brick façade was blown away and the perimeter wall and
windows were damaged. When local code officials inspected the damage, they
discovered that steel fasteners known as “angle irons” were not used to secure
the floor to the walls. The officials investigated further and discovered that
angle irons had not been used at all in the entire building. (The building had
been constructed between 1970 and 1972, prior to the 1975 adoption of the State Uniform
Construction Code Act, which required use of angle irons.) As a result of
the inspection, the municipal code officials required that the building be
vacated and brought up to current code standards before a certificate of
occupancy could be issued. The cost of the repairs was approximately $500,000.
The GNY policy included “Increased Cost of Construction Coverage” as
follows: “a. If a Covered Cause of Loss occurs to the covered Building
property, we will pay for the increased cost to: (1) Repair or reconstruct damaged
portions of that Building property; and/or (2) Reconstruct or remodel undamaged
portions of that Building property whether or not demolition is required, when
the increased cost is a consequence of enforcement of building, zoning or land
use ordinance or law.”
GNY agreed to pay for the repairs to the seventh floor, but not for repairs
to the rest of the building. When DEB sued GNY, a judge found that, but for the
seventh floor collapse, repairs to the other floors would not have been
necessary. It concluded that coverage existed for all of the repairs. GNY appealed.
On appeal, GNY argued that the connection between the wind damage to the
seventh floor and the order to repair the rest of the building was not
sufficient for coverage to apply. It also argued that there was no coverage
“where damage to one portion of a building caused code officials to require
repairs to separate, undamaged portions of the building.” DEB argued that there
was always coverage as long as there was a “covered cause of loss.” It also
argued, in the alternative, that there was a sufficient connection between the
damage to the seventh floor and the requirement to repair the remaining floors for
coverage to apply.
The Superior Court of New Jersey, Appellate Division, addressed both
arguments. It adopted a “proximate cause” approach, holding that there was
coverage “where the insured risk was the last step in the chain of causation
set in motion by an uninsured peril, or where the insured risk itself set into
operation a chain of causation in which the last step may have been an excepted
risk.” The court then concluded that there was a direct connection between the
damage to the seventh floor and the additional work required to repair the
building and that the policy provided coverage. It affirmed the lower court's
decision in favor of DEB.
DEB Associates vs. Greater New York Mutual Insurance Company-Superior
Court of New Jersey, Appellate Division-June 1, 2009-970 Atlantic Reporter 2d
1074