After the second policy had expired, the homeowners of five of the homes said that they discovered that some of the wood in the walls of their homes was rotting. The homeowners eventually filed complaints against BMC, which in turn filed complaints against TRH.

In its complaints, BMC alleged that the manner in which TRH had constructed the doors and windows of the homes had permitted water to infiltrate inside of the walls, causing the alleged damage.

TRH failed to respond to any of BMC's complaints and BMC eventually obtained default judgments against TRH, which the court found partly responsible for the damage.

TRH, which went out of business in or about 2005, did not satisfy those judgments.

BMC asked Selective to pay the judgments in accordance with the policies it had issued to TRH, but Selective refused.

Selective then filed a complaint seeking a declaratory judgment that it did not have a duty to indemnify or defend TRH for the complaint filed by one of the homeowners.

In response, BMC filed a counterclaim seeking a declaratory judgment that the Selective policies provided coverage for the damages caused by TRH's allegedly defective work.

After the close of discovery, both parties filed competing motions for summary judgment. Among other things, Selective argued that there was no evidence that either BMC or the homeowners actually had been damaged when either policy it had issued to TRH had been in effect.

Relying on one of its expert's reports, BMC countered that there was conclusive evidence that damage to the property had occurred during the policy periods.

Among other things, engineer Thomas R. Kulp, BMC's expert, stated that improper flashing around the doors and windows had caused water to infiltrate through the stucco and stone cladding on the homes. He claimed that water had infiltrated as soon as the homes had been constructed, and had become trapped inside the walls. According to Mr. Kulp, within four to six weeks of infiltration, mold had developed.

In a certification submitted in support of BMC's motion and in opposition to Selective's motion for summary judgment, Mr. Kulp noted that all of the subject homes had been completed well within the period TRH's insurance policies with Selective had been in effect.

The trial court framed the issue as whether the infiltrated water had caused actual damage when the policies had been in effect. The trial court recognized that it was BMC's position that the damage had occurred when mold had formed four to eight weeks after water had infiltrated, and that such infiltration had begun once each home had been constructed.

The trial court, however, concluded that the law governing the Selective insurance policies did not mandate coverage “when the wrongful act itself is committed[,] which [here] is the installation of the windows[,]” but at “the time when the complaining party . . . was actually damaged.” The trial court acknowledged that Mr. Kulp's report “clearly identified and provided evidence that the mechanism for the water intrusion was there,” but then determined that his report had failed to provide evidence of “any water intrusion, when it occurred, or even if mold developed.”

The trial court determined that no actual damage had been sustained during either policy period, ruled that Selective did not have to provide coverage for the alleged damage, and granted Selective's motion and denied BMC's motion.

BMC filed a motion for reconsideration, essentially contending that the trial court had overlooked key evidence.

The trial court reconsidered the evidence, but again found that there was no evidence of any actual damage occurring during the policy periods, and denied the motion. In addition, the trial court held that because the damage had been discovered after both policies had expired, Selective did not have to provide coverage.

BMC appealed, maintaining that the damage had occurred during either one of the policy periods.

For its part, Selective contended that the damage had not occurred until the problems caused by the allegedly deficient workmanship had been discovered.

The Selective Policies

Each Selective policy provided:

1.b. This insurance applies to . . .

“property” damage only if:  

(1) The . . . “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and   

(2) The . . . “property damage” occurs during the policy period.  

The policies also provided:

12. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. . . .  

15. “Property damages” means: 

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  

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. 

The appellate court reversed and vacated the portion of the trial court's order that granted summary judgment in favor of Selective.

In its decision, the appellate court explained that the time of an occurrence was “not the time the wrongful act was committed but the time when the complaining party was actually damaged.”

It then reasoned that BMC, through its expert, had provided evidence that the mold and rot had formed during a policy period. In the appellate court's view, the evidence provided in Mr. Kulp's report “raised a genuine, material issue of fact” that was sufficient to defeat Selective's motion for summary judgment, at least with respect to Selective's claim that the actual damage had not occurred during the policy period.

Thus, the appellate court ruled, the trial court had erred when it failed to recognize on BMC's motion for reconsideration that it had overlooked the significance of probative, competent evidence.

Accordingly, the appellate court vacated the part of the trial court's order that granted Selective summary judgment, concluding that there was a question of fact whether actual damages had been sustained during the policy periods.

The case is Selective Ins. Co. of America v. TRH Builders, Inc., No. A-1015-15T3 (N.J. Ct.App. Sep. 11, 2017). Attorneys involved include: The Killian Firm, PC, attorneys for appellant (Ryan Milun and Eugene Killian, Jr., on the brief); Hill Wallack, LLP, attorneys for respondent (Todd J. Leon, of counsel and on the brief; Jonathan D. Pavlovcak, on the brief).