EIFS litigation is no stranger to New Jersey. EIFS (or “exterior insulation and finish system”) – a popular, post-World War II building system that resembles stucco while simultaneously providing watertight exterior insulation – originated in Europe and migrated to American homes in the late 1960s and early 1970s. According to The New York Times, it was utilized in the construction of “countless homes built in New Jersey,” which meant that the state was deeply affected when it became evident that, installed in a certain way, EIFS trapped water behind its siding and led to crumbling wall sheathing and rampant mold. Nationwide lawsuits ensued and, while a class action settlement was eventually reached with the largest EIFS manufacturer in 2003, New Jersey courts – at every level – returned to EIFS litigation again and again.
The New Jersey Appellate Division recently addressed EIFS in Crum & Forster Ins. Co. v. The Breese Corp.. In an earlier suit, Lakeside at North Haledon Condominium Association (“Lakeside”) alleged that The Breese Corporation (“Breese”) “negligently installed the stucco and an external insulation and finish system (EIFS).” Breese’s insurer – Crum & Forster – then brought this lawsuit, seeking a judgment that it was not required to provide insurance coverage in light of an exclusion in the relevant policy that stated it did not apply to EIFS.
Despite the allegations lobbed in the underlying construction lawsuit and the long history of EIFS litigation generally, the coverage dispute centered largely around one surprisingly fundamental question: What is EIFS?
During a three-day hearing, an expert for the insurance company testified that EIFS is comprised of four elements: “(1) insulation board; (2) attached by adhesive or by mechanical means to the substrate; (3) covered with a base coat with reinforcing mesh; and (4) a top finish coat.” According to the expert, “the ASTM [American Society for Testing and Materials] defined a substrate as the surface to which an EIFS is adhesively or mechanically attached, and that a substrate is not limited to a particular material or product.” The insurer argued that the EIFS installed by Breese at Lakeside satisfied all four elements – and, thus, that the exclusion applied.
Lakeside disputed that contention on a number of fronts, including via its own expert who asserted that EIFS is defined both by its form and by its function. According to Lakeside’s expert’s inspection of the building, the “insulation board” in this instance was actually a “foam trim” installed over stucco – added for aesthetic purposes only and not to keep out water.
As summarized by the lower court judge, “[t]he core dispute between the parties is whether the rigid board insulation utilized on the project was merely an aesthetic and architectural detail . . . or part of a system of exterior cladding serving a utilitarian function regarding weather proofing and insulation, with or without an aesthetic component.” Ultimately, examining ASTM definitions and exploring the “competing and often contradictory expert opinions,” the judge sided with the insurer, defining this system as EIFS despite the fact that it did not provide waterproofing or insulation (or, at least, despite the fact that it was not designed for this purpose on this particular project). And the Appellate Division affirmed.
Ultimately, whatever product choices owners and contractors made for exterior systems, attention must still be paid to some of the lingering effects of decades of EIFS litigation – including relevant insurance policy exclusions and the possibility that, even if not installed for its functional purpose, EIFS may still be EIFS.