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Page 468 DEFENSE COUNSEL JOURNAL–October 2012replacement, but which is otherwisecomplete, will be treated as completed. 5A state-by-state review of thedecisions on this subject reveals a broadspectrum of interpretations spanning thegap from those which find that defectiveconstruction is never an “occurrence”(therefore, regardless of the extent ofdamage beyond the insured’s own workproduct, the claim is not covered), tothose which find not only that defectiveconstruction is an “occurrence” but thatthe business risk exclusions areambiguous and do not bar coverage forrepair and replacement of the insured’sown work product. Those positions definethe extremes, while the overwhelmingmajority of decisions within the twoextremes may be harmonized into adistinct set of broad principles.The true majority rule as toconstruction defects is that claims ofdefective construction, standing alone, donot meet the element of fortuity necessaryto constitute an accident and are thereforenot covered. However, where the work inquestion was performed by the insured’ssubcontractor, the damage is eitherconsidered “accidental from thestandpoint of the insured” or fits withinthe subcontractor exception to the “yourwork” exclusions. Similarly, to the extentthe insured’s defective work results indamage to other property not the subjectof the insured’s work, that damage is alsogenerally covered. Leading decisions ofeach state are summarized in Appendix Ifollowing this article.A. Defective Construction isNever an “Occurrence”The Supreme Court of New Jerseyfirst recognized the requirement of afortuity analysis as a bedrock principle ofinsurance law in 1979 in what was andremains a landmark case, Weedo v. Stone-E-Brick. 6 Weedo involved a contractorwho installed stucco on the side of itscustomer’s house. The stucco latercracked and peeled. The homeownerssued the contractor, Stone-E-Brick, forthe cost of removing and replacing thedefective stucco. The New JerseySupreme Court was thus faced with thequestion of whether defectiveconstruction, standing alone, constitutesan “occurrence.” The court held that itdid not.The Weedo court distinguishedbetween the kinds of risks faced by atypical contractor, namely: 1) the risk thathis work will not meet the customer’sexpectation, thereby exposing him toliability in contract; and 2) the risk thatsome mistake on his part may result inbodily injury or property damage to athird party. In this regard, the courtnoted:While it may be true that thesame neglectful craftsmanshipcan be the cause of both abusiness expense of repair and aloss represented by damage topersons and property, the twoconsequences are vastly differentin relation to sharing the cost of5 Insurance Services Office, Form CG 00 0112 04.6 405 A.2d 788 (N.J. 1979).