Weedo v. Stone-E-Brick, Inc.
1979 N.J. LEXIS 1261, 405 A.2d 788, 81 N.J. 233 (1979)
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Rule of Law:
A comprehensive general liability (CGL) insurance policy does not cover the cost of repairing or replacing an insured's own faulty workmanship. Such costs are considered a "business risk" to be borne by the insured, whereas CGL policies are intended to cover tort liability for damage the faulty work causes to other property or persons.
Facts:
- Stone-E-Brick, Inc., a masonry contractor, was insured under a Comprehensive General Liability (CGL) policy issued by Pennsylvania National Mutual Insurance Company.
- Stone-E-Brick entered into a contract with Calvin and Janice Weedo to apply stucco to the exterior of their home.
- After completion, the stucco work proved to be defective, exhibiting cracks and other signs of faulty workmanship.
- The Weedos were required to remove the defective stucco and replace it with a new material.
- In a separate project, Stone-E-Brick performed roofing and gutter work as a subcontractor on a house being built for the Gellas family.
- After the Gellas home was completed, it was discovered that Stone-E-Brick's workmanship was defective.
- In both cases, the damages sought against Stone-E-Brick were limited to the cost of remedying the faulty work itself.
Procedural Posture:
- Homeowners (Weedos and Gellases) filed separate lawsuits against Stone-E-Brick, a contractor, for damages resulting from defective workmanship.
- Stone-E-Brick sought defense and indemnification from its CGL insurer, Pennsylvania National Mutual Insurance Company, which denied coverage.
- Stone-E-Brick filed third-party complaints against Pennsylvania National in both actions, seeking a judicial declaration that coverage existed.
- In the Weedo case, the trial court granted summary judgment in favor of the insurer, Pennsylvania National.
- In the Gellas case, the trial court granted summary judgment in favor of the insured, Stone-E-Brick.
- On a consolidated appeal, the Appellate Division found coverage for the insured in both cases, holding that the policy was ambiguous.
- The Supreme Court of New Jersey granted certification to review the Appellate Division's judgment.
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Issue:
Does a comprehensive general liability insurance policy, which contains standard exclusions for damage to the insured's own products and work, cover the cost of repairing or replacing the insured's own defective workmanship when no damage to other property has occurred?
Opinions:
Majority - Clifford, J.
No. A comprehensive general liability policy does not provide coverage for the cost of correcting an insured's own faulty workmanship. The policy's plain language and underlying purpose distinguish between two types of risk: the uninsurable 'business risk' that the contractor's work may be substandard, and the insurable risk that the contractor's completed work will cause accidental injury or damage to other property. The cost of replacing or repairing defective work is a contractual obligation and a normal business expense, not an insurable 'occurrence' of property damage. The standard 'work performed' and 'insured's products' exclusions, here exclusions (o) and (n), are unambiguous and specifically bar coverage for property damage to the insured's own work. The exception to the contractual liability exclusion (exclusion (a)) does not grant coverage; it merely clarifies that warranty-based claims are not automatically excluded, but they must still qualify for coverage under the policy's general terms and not be barred by other specific exclusions.
Dissenting - Pashman, J.
Yes. The policy should be interpreted to provide coverage because its provisions are ambiguous from the perspective of an average policyholder. While a legal expert might harmonize the various exclusion clauses, an average contractor would be confused by the apparent contradiction between exclusion (a), which seems to provide coverage for breaches of warranty, and exclusions (n) and (o), which take it away. Insurance contracts are contracts of adhesion and any ambiguity must be construed against the insurer and in accordance with the reasonable expectations of the insured. A reasonable insured could construe the policy as providing coverage for the cost of repairing faulty work, and therefore the insurer should be held liable.
Analysis:
This decision solidifies the 'business risk' doctrine as a cornerstone of CGL policy interpretation in New Jersey. It establishes a clear and influential precedent distinguishing between uninsurable contract-based claims for faulty workmanship (the cost of making good on a promise) and insurable tort-based claims for consequential property damage or bodily injury. The court's methodical analysis of how exclusion clauses function—subtracting from coverage independently rather than creating ambiguity when read together—provides a framework that discourages insureds from treating liability insurance as a performance bond. This ruling has significantly shaped how courts and insurers approach construction defect claims, reinforcing the principle that CGL policies are not intended to guarantee the quality of an insured's work.
