LOYLE, LLC VS. GREATER NEW YORK MUTUAL INSURANCECOMPANY(L-0669-11, CUMBERLAND COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2221-15T4
LOYLE, LLC and ELYOL, INC.,
t/a LOYLE LANES BOWLING CENTER,
Plaintiffs-Respondents,
v.
GREATER NEW YORK MUTUAL
INSURANCE COMPANY,
Defendant-Respondent,
and
BROUWER, HANSEN & IZDEBSKI
ASSOCIATES, and JOHN H. IZDEBSKI,
INC.,
Defendants/Third-Party
Plaintiffs-Appellants,
v.
GREATER NEW YORK MUTUAL
INSURANCE COMPANY,
Third-Party Defendant-
Respondent.
Argued December 20, 2016 - Decided September 5, 2017
Before Judges Ostrer, Leone and Vernoia.
On appeal from the Superior Court of New
Jersey, Law Division, Cumberland County,
Docket No. L-0669-11.
Patricia M. Henrich argued the cause for
appellants (Reilly, Janiczek, McDevitt,
Henrich & Cholden, P.C., attorneys; Ms.
Henrich and Michelle B. Cappuccio, on the
briefs).
Michael R. Perle and Raffi Momjian argued
the cause for respondents Loyle, LLC and
Elyol, Inc. (Raffi Momjian PC, attorneys;
Mr. Perle, of counsel; Mr. Perle and Mr.
Momjian, on the brief).
Allan Maitlin argued the cause for
respondent Greater New York Mutual Insurance
Company (Sachs, Maitlin, Fleming & Greene,
attorneys; Mr. Maitlin, of counsel; Mr.
Maitlin and Christopher Klabonski, on the
brief).
PER CURIAM
Following a 2010 arson fire that destroyed the bowling
alley they owned and operated, plaintiffs discovered they were
underinsured for the property and business interruption losses
they sustained.
In this action, plaintiffs claimed their insurance broker,
defendant Brouwer, Hansen & Izdebski, Inc. (BHI), negligently
advised them concerning the insurance coverage limits required
to replace the bowling alley building and its contents in the
event of a total loss and to reimburse plaintiffs for losses due
to business interruption. The matter proceeded to trial and the
2 A-2221-15T4
jury agreed, resulting in the entry of a $1,998,808.77 judgment
against BHI.1
On appeal, BHI claims the trial court erred by: permitting
plaintiffs to introduce testimony and evidence based on two
documents that were not produced during discovery, and denying
BHI's mistrial motion and motion for a new trial based on the
admission of such testimony and evidence; granting plaintiffs'
in limine motion to bar application of comparative negligence;
granting the insurance carrier's motion for summary judgment;
determining the judgment credits to which BHI was entitled; and
misinforming the jury about the burden of proof. Based on our
review of the record, we are not persuaded by BHI's contentions
and affirm.
I.
A. Background
On January 11, 2010, an arson fire destroyed Loyle Lanes
Bowling Center (the bowling center), resulting in a total loss
of the building and its contents. At the time of the fire, the
1
The jury found plaintiffs' losses from the destruction of the
bowling alley were $6,840,000. The $1,998,808.77 damage award
against BHI represents plaintiffs' net loss after deducting
credits based on plaintiffs' receipt of payments from their
insurance carrier and monies from other parties. The calculation
of judgment credits is one of the issues on appeal discussed
later.
3 A-2221-15T4
bowling center was insured under a policy with Greater New York
Mutual Insurance Company (GNY) that became effective on April 1,
2009 (2009 policy). The policy provided replacement cost
coverage for the building with a limit of $3,425,000,
replacement cost coverage for the building's contents with a
limit of $200,000, and business interruption coverage with a
limit of $400,000.
An appraisal conducted after the fire, however, revealed
that the building's actual replacement cost was $6,395,247.32,
and the replacement costs of the contents exceeded the policy
limits. GNY paid plaintiffs the full payment of the coverage
limits under the policy, together with adjustments, for a total
of $4,070,000.
Plaintiffs and GNY Enter Into a Litigation Agreement
In March 2011, plaintiffs entered into an agreement
(litigation agreement) with GNY to pursue litigation related to
the losses resulting from the fire. The litigation agreement
states that "GNY [] paid [plaintiffs] the full amount of its
coverages" under plaintiffs' policy, which, after adjustments,
totaled $4,070,000, but that "losses in excess of the GNY policy
limits" remained. Plaintiffs and GNY agreed to sue "any and all
persons or entities that may be responsible for causing or
contributing to the fire loss."
4 A-2221-15T4
The litigation agreement provided that GNY would "institute
suit on behalf of itself by way of subrogation," and that
plaintiffs would institute separate litigation "to recover
monies for the damages sustained . . . in excess of the amounts
paid by GNY." GNY agreed to incur all litigation costs and that
any recoveries, "whether by way of settlement or judgment, with
respect to the lawsuit brought by GNY . . . [would] be shared
equally between [plaintiffs] and GNY." Plaintiffs and GNY agreed
that plaintiffs would retain all monies they recovered in their
malpractice action against BHI.
The Lawsuits Filed by Plaintiffs and GNY, and BHI's Third-
Party Complaint Against GNY
In July 2011, GNY filed suit asserting subrogation rights
for plaintiffs' losses against the individuals alleged to have
set the fire and their employers,2 as well as Steven L. Holt,
Safe & Sound Security and Telecommunication (Safe & Sound), and
S.S. Sprinkler Co. (S.S. Sprinkler).3 The former provided
security alarm system services and the latter provided the
sprinkler system for the bowling center.
2
It was determined the fire was set by individuals affiliated
with a competitor of the bowling center, and those individuals
were criminally prosecuted.
3
The complaint was filed in the name of Strathmore Insurance
Company, an affiliate of GNY.
5 A-2221-15T4
Plaintiffs filed a separate complaint alleging insurance
broker malpractice against BHI, claiming BHI negligently advised
plaintiffs concerning the amount of insurance required to
provide replacement cost coverage for a complete loss of the
bowling center building and its contents and, as a result,
plaintiffs' 2009 policy had grossly deficient coverage.
Plaintiffs also asserted negligence claims against Safe & Sound
and S.S. Sprinkler.
BHI answered plaintiffs' complaint, generally denying the
allegations and asserting affirmative defenses and cross-claims
against its codefendants for contribution and indemnification.
In March 2012, the court granted BHI's motion to consolidate
plaintiffs' and GNY's cases.
A month later, plaintiffs and GNY released their respective
claims against Safe & Sound and S.S. Sprinkler. Plaintiffs and
GNY each received $500,000 from Safe & Sound and $450,000 from
S.S. Sprinkler. Safe & Sound and S.S. Sprinkler were dismissed
from the consolidated lawsuits.
Two years later, in April 2014, BHI was granted leave to
file a third-party complaint against GNY for indemnification and
contribution. BHI alleged GNY was obligated under an agency
agreement to indemnify BHI from any civil liability arising out
of GNY's negligence "in processing or handling business placed
6 A-2221-15T4
by [BHI] with GNY." BHI also alleged GNY conducted annual
inspections to determine the appropriate replacement cost
coverage limits for the bowling center building, that GNY had a
duty to establish adequate annual policy limits, and that GNY
breached its duty by undervaluing the full replacement costs of
the building.
On May 16, 2014, plaintiffs amended their complaint adding
negligence claims against GNY and dismissing their claims
against all of the remaining defendants except BHI. Plaintiffs
subsequently dismissed their claims against GNY.
The Court Grants Summary Judgment and Dismisses BHI's
Third-Party Complaint Against GNY
GNY filed a summary judgment motion seeking dismissal of
BHI's third-party complaint. On August 14, 2015, the motion
court issued a detailed written decision and entered an order
granting GNY's motion for summary judgment and dismissing BHI's
third-party complaint with prejudice. The court found GNY had
neither a contractual nor a common law duty to establish
coverage limits sufficient for the full replacement costs for
the bowling center, or to indemnify BHI for its negligence.
Plaintiffs' Negligence Claim Against BHI – Pretrial Rulings
As a result of the court's dismissal of BHI's third-party
complaint against GNY, the only remaining claim for trial was
7 A-2221-15T4
plaintiffs' insurance malpractice claim against BHI. In advance
of trial, plaintiffs moved to bar BHI from presenting evidence
of comparative negligence against plaintiffs, arguing BHI waived
the defense by failing to plead it in its answer. BHI admitted
it failed to plead comparative negligence but argued plaintiffs
were on notice it would pursue a comparative negligence defense
based on BHI's answers to interrogatories and expert reports.
The trial court found BHI waived the right to pursue a
comparative negligence defense by failing to raise it in its
pleadings in accordance with Rule 4:5-4. The court rejected
BHI's argument that plaintiffs were on notice that comparative
negligence would be at issue. However, the court ruled that BHI
could present evidence showing plaintiffs had "the best
knowledge and ability to determine [policy] limits" as relevant
to proximate causation.
BHI also moved in limine for an order permitting it to
introduce evidence showing plaintiffs received $4,070,000 from
GNY, and plaintiffs and GNY received a total of $1,900,000 from
Safe & Sound and S.S. Sprinkler. Plaintiffs were entitled to the
replacement costs under the policy only if they undertook to
8 A-2221-15T4
rebuild the bowling center.4 BHI sought to introduce evidence
showing plaintiffs received settlement funds and could afford to
rebuild the bowling center but opted not to do so. Plaintiffs
intended to introduce evidence showing that because of BHI's
negligence, they received insurance proceeds that were
insufficient to fund the rebuilding of the bowling center.
The court granted BHI's motion to introduce evidence
showing the funds plaintiffs received from GNY and the other
tortfeasors but denied BHI's request to inform the jury about
the $950,000 GNY received from by Safe & Sound and S.S.
Sprinkler.
B. The Trial
The record developed at trial showed that brothers Charles
and John Loyle opened the bowling center in 1970. Charles,5 John,
and the Loyle family, including Charles's son, Michael, operated
the bowling center thereafter.
4
Under the GNY policy, plaintiffs were entitled to receive
replacement costs if they rebuilt the bowling center, and only
actual costs if they did not rebuild. Generally, the amount of
actual costs would be less than replacement costs because actual
costs are calculated based on the actual cost of the building
and contents less applicable amounts for depreciation. On the
other hand, replacement costs are calculated on the cost of
replacing the building and its contents following a loss.
5
Because this case involves multiple members of the Loyle
family, we use first names for ease of reference. We intend no
disrespect in doing so.
9 A-2221-15T4
A BHI employee, broker David Stanton, sold plaintiffs the
2009 policy. In their complaint, plaintiffs alleged that BHI,
through Stanton, negligently provided erroneous advice that the
2009 policy limits were sufficient to cover the full replacement
cost of the bowling center building and its contents in the
event of a total loss.
Although plaintiffs' negligence claim is founded on the
lack of sufficient insurance coverage under the 2009 policy, the
parties presented evidence at trial concerning the GNY policies
plaintiffs purchased through Stanton and BHI from 1998 to 2009.
Many of BHI's arguments on appeal are premised on the court's
rulings concerning evidence about the 1998 policy, and we
therefore summarize the testimony and evidence pertinent to the
judge's rulings concerning evidence of the 1998 policy that are
challenged on appeal.
Charles's Testimony and the 1998 Notes
Charles was the first witness to testify at trial. He
explained his interactions with Stanton concerning plaintiffs'
first purchase of a GNY policy in 1998. The policy was effective
April 1, 1998 to April 1, 1999, and provided replacement cost
coverage for the building with a limit of $2,300,000, personal
property insurance that covered the building's contents with a
limit of $200,000, and business interruption insurance with a
10 A-2221-15T4
limit of $400,000.
Charles testified that after purchasing the 1998 policy,
plaintiffs obtained an appraisal of the bowling center from the
Thompson-Loyle Company, Inc., a company owned in part by his
nephew. The appraisal was memorialized in a report that
estimated the bowling center's building and contents replacement
costs to be $3,650,000.
Charles was asked if he provided Stanton with a copy of the
Thompson-Loyle appraisal report. Charles responded that based on
his "internal notes," he believed he gave Stanton a copy of the
report during a September 1998 meeting. Charles then said, "I
checked my notes this morning." BHI's counsel objected, arguing
plaintiffs had not produced any notes concerning the September
1998 meeting during discovery and that Charles should not be
permitted to rely upon whatever notes he reviewed to refresh his
recollection about the meeting.
The court conducted an N.J.R.E. 104 hearing concerning the
late production of the 1998 notes. Charles, then eighty-eight
years old, testified that the 1998 notes were salvaged from the
fire and kept at his residence. He could not recall if he had
sent the 1998 notes to BHI's counsel. Plaintiffs' counsel
represented that the notes were not previously provided to him.
Charles stated he had other records with him in court that
11 A-2221-15T4
he reviewed prior to his testimony. He also said he had
additional records at his home that he reviewed in anticipation
of testifying. The court adjourned the proceedings to permit
counsel's review of the records Charles had in court and to
permit Charles to retrieve and provide counsel with the other
records from his home. All of the notes and records were
provided to counsel that day.
The next day, after reviewing the notes and records, BHI's
counsel requested that Charles be precluded from referring to or
testifying about two notes concerning his 1998 meetings with
Stanton. Counsel also requested that the jury be instructed to
disregard Charles's testimony from the previous day about the
notes. BHI argued the failure to produce the notes during
discovery prejudiced BHI because their production during trial
constituted unfair surprise, impacted counsel's trial strategy
including her opening statement, and improperly bolstered
Charles's credibility.
The court overruled BHI's objection and determined that
based on Charles's testimony at the N.J.R.E. 104 hearing,
Charles did not intend "to deceive" anyone by failing to produce
the 1998 notes, and plaintiffs' reliance on the 1998 notes would
not "substantial[ly] change . . . the theory of the case." The
court concluded that any prejudice to BHI could be remedied by
12 A-2221-15T4
permitting counsel to take Charles's deposition.
The court rejected BHI's request to depose Michael Loyle,
but Michael was in court, and provided sworn testimony outside
the presence of the jury that he never saw the notes prior to
trial. There was no evidence Michael was present during the
September 1998 meeting between Charles and Stanton. The court
also initially denied BHI's request to re-depose plaintiffs'
expert William C. Stewart, Jr. concerning the notes. The trial
was paused and BHI's counsel took Charles's deposition
concerning the notes that day.
The trial resumed and Charles testified that the 1998 notes
refreshed his recollection about conversations he had with
Stanton concerning plaintiffs' first GNY policy. Based on the
information contained in the first note, Charles testified that
he met with Stanton in September 1998 and provided Stanton with
the Thompson-Loyle appraisal report, which estimated the
insurable value of the bowling center building was $2,160,415,
and the replacement cost of equipment was $1,540,000, for a
total insurable value of $3,650,000 after adjustments.
Charles testified that the note concerning the September
1998 meeting refreshed his recollection that he gave Stanton a
copy of the appraisal, but that Stanton calculated a replacement
cost for the building at $2,145,750, based on an estimated cost
13 A-2221-15T4
of $75 per square foot multiplied by the 28,610 square footage
of the center.6 Stanton also estimated the replacement value of
the equipment was $960,000, based on a calculation of $30,000
for each of the center's thirty-two bowling lanes. According to
Charles, the equipment valuation was rounded up to $1,000,000,
and therefore Stanton's total replacement cost valuation for the
building and its contents was $3,145,750. Stanton applied an
eighty-percent coinsurance factor7 to the total valuation, which
6
The building valuation Charles attributes to Stanton was only
$15,000 less than the valuation of the building in the Thompson-
Loyle appraisal report. Approximately $485,000 of the $500,000
difference between the appraisal and Stanton's valuation is
attributable to the values assigned by each to replacement costs
for the building's contents.
7
As later explained by plaintiffs' expert, William C. Stewart,
Jr., coinsurance rates require an insured to carry a policy
limit equal to or above a specified percentage of the total
replacement value of the property insured. A failure to carry a
policy limit at the required percentage results in a penalty to
an insured for a claim for less than a total loss. For example,
where an eighty-percent coinsurance rate applies and a property
is worth $200,000, the insurance policy must have a limit of at
least $160,000 for the insured to collect 100 percent of any
partial loss from the insurer. If the insured carries only a
$120,000 limit, and suffers a $10,000 loss, the insurance
company pays the insured only $7500 because $120,000 is only
three-quarters of $160,000. The remaining $2500 of the loss
would be borne by the insured because the policy limit was not
eighty percent of the property's replacement value. The amount
of the coinsurance percentage is not directly an issue in this
case because there was a total loss. However, an accurate
valuation of the replacement cost of the insured property is
essential to ensure that after the coinsurance rate is applied,
the insured can collect 100 percent for a partial loss claim.
14 A-2221-15T4
resulted in an insurance requirement of $2,516,600, and Stanton
recommended that Charles purchase insurance with a $2,700,000
limit. Charles asked Stanton to forward a letter recommending an
increase in the coverage from plaintiffs' then-current coverage
of $2,300,000 to $2,700,000, but he never received the letter.
Charles also testified concerning a second note he used to
refresh his recollection that on October 1, 1998, he received a
notice changing the policy limits to $2,800,000, instead of the
$2,700,000 he had discussed with Stanton. He called Stanton's
office and left a message requesting that Stanton send a letter
recommending an increase in the coverage to the $2,800,000
amount in the notice.
Thus, the GNY policy plaintiffs first purchased through BHI
in April 1998 was amended effective November 1998 to increase
the building coverage from $2,300,000 to $2,800,000. The amended
policy did not, however, alter the $200,000 coverage limit for
the building's contents and the $400,000 coverage limit for
business income.
Charles testified to matters beyond those based on the 1998
notes. He explained the GNY insurance policy was thereafter
renewed annually through Stanton and BHI until the fire occurred
in 2010. According to Charles, each March plaintiffs and Stanton
discussed the annual policy renewal. Charles stated the initial
15 A-2221-15T4
"[$]2,800,000 [building] coverage existed for three years,"
following 1998, then increased to $3,120,000 for the policy
period of April 1, 2002 to April 1, 2003.
In March 2003, plaintiffs transferred $537,000 in bowling
equipment from Loyle, LLC, to Elyol, Inc.8 Charles drafted a
letter to Stanton dated March 20, 2003, explaining the equipment
transfer and asking if the contents coverage should be increased
from $200,000 to $600,000. Before Charles had a chance to mail
the letter, Stanton visited the bowling center and the parties
discussed the issue.
During their March 2003 meeting, Charles again took notes
memorializing his conversation with Stanton.9 Charles testified
that according to his March 2003 notes, Stanton advised Charles
there was no need to increase the contents coverage based on the
equipment transfer. Stanton explained that all of the bowling
equipment was considered part of the building and therefore was
covered under the building coverage.
Following the March 2003 meeting, plaintiffs renewed their
insurance coverage for the April 1, 2003 to April 1, 2004 policy
8
Charles explained that Loyle, LLC owned the bowling center real
estate and Elyol, Inc. was the bowling center's operating
company.
9
The March 2003 notes were produced in discovery and were not
the subject of any objections at trial.
16 A-2221-15T4
period. The building coverage limit was increased to $3,425,000,
but the $200,000 coverage limit for the building's contents and
the $400,000 coverage limit for business income remained the
same. Following the changes to the 2003 policy, none of the
coverage limits were adjusted during any of the subsequent
annual policy renewals preceding the 2010 fire.
In 2008, plaintiffs invested $431,000 in renovations to the
bowling center. Michael testified that in March 2009, he showed
Stanton the renovations and asked if they needed more insurance.
According to Michael, Stanton said no additional insurance was
required because the renovations simply replaced existing
fixtures in the bowling center. Michael explained that he relied
on Stanton's advice because Stanton was the insurance expert.
Plaintiffs' Expert
Plaintiffs presented the testimony of William C. Stewart,
Jr., an expert on insurance producer and broker conduct. During
voir dire, Stewart explained that he reviewed the transcript of
Charles's mid-trial deposition. BHI's counsel objected to
Stewart testifying concerning the 1998 notes or Charles's
deposition testimony, arguing that the court did not allow her
to re-depose Stewart after Charles disclosed the existence of
the notes, and that any opinion Stewart might have about the
notes would constitute an unfair surprise. The court excused the
17 A-2221-15T4
jury to conduct an N.J.R.E. 104 hearing.
Stewart testified during the hearing that based on his
review of the 1998 notes, he believed Stanton wrongfully
discounted the Loyle-Thompson appraisal valuing the building at
"3.6 million" in favor of his personal appraisal of "2.7
million." Stewart noted that Stanton is not a licensed
appraiser. He opined:
[I]t was incorrect advice for [] Stanton to
recommend [$]2.7 million in coverage because
if you accepted the $3.6 million appraisal,
[eighty] percent . . . would have been
[$]2.88 million. . . . Stanton was,
therefore, recommending underinsurance and a
coinsurance penalty because the property
would have not been insured to [eighty]
percent of its value.
The court ruled BHI's counsel could use Stewart's N.J.R.E.
104 hearing testimony during her cross-examination of Stewart.
The judge also offered BHI's counsel the opportunity to depose
Stewart at plaintiffs' cost. BHI chose not to depose Stewart,
and the trial resumed.
Stewart's trial testimony concerning the 1998 notes was
consistent with his N.J.R.E. 104 hearing testimony. He opined
that Stanton's recommendation that plaintiffs increase building
coverage to $2,700,000 was at odds with the Thompson-Loyle
appraisal valuation of the building at $3,650,000, and resulted
in coverage insufficient to satisfy GNY's eighty percent
18 A-2221-15T4
coinsurance requirement. He stated that the 1998 amended policy
raising the insurance coverage from $2,300,000 to $2,800,000 did
not satisfy the eighty percent coinsurance requirement. On
cross-examination, Stewart admitted that the 1998 notes did not
specify that Stanton actually "recommended" anything.
Stewart testified concerning Stanton's advice to Charles
during the parties' March 2003 meeting. He opined that Stanton's
advice that plaintiffs did not need to increase their contents
coverage from $200,000 to $600,000, despite plaintiffs' $537,000
equipment transfer, was "absolutely incorrect." Stewart
explained that Stanton should have considered how long the
$200,000 contents limit had been in effect, whether plaintiffs
purchased any new equipment, and reassessed the replacement
value of the bowling center's contents.
Stewart also opined as to the sufficiency of Stanton's
advice to plaintiffs in 2008 and 2009. He testified that Stanton
failed to properly advise plaintiffs in 2008, when GNY increased
its coinsurance requirement from eighty to ninety percent.
Stewart believed Stanton should have recommended that plaintiffs
obtain an appraisal due to the coinsurance increase and because
the building coverage had been the same since 2004.
Stewart also testified that Stanton erred in March 2009 by
advising Michael that plaintiffs did not require additional
19 A-2221-15T4
insurance coverage as a result of the 2008 renovations. Stewart
admitted it was not the job of a licensed insurance broker to
determine the replacement value of a building, but testified
that if a client asks a broker whether more insurance is needed,
the broker "has an obligation to give an accurate answer because
. . . he's inviting reliance on his answer." Here, however,
Stewart observed that Stanton did not ascertain which items
included in the 2008 renovations were permanently affixed to the
structure and thus considered part of the building, and which
were moveable and thus considered contents under the policy.
Stewart also pointed to Stanton's failure to request the
costs of the renovations. Stewart testified that if Stanton was
unaware of the costs, he could have recommended plaintiffs
consult with "somebody qualified to appraise" the bowling
equipment, and then evaluated their coverage needs. Stewart had
no evidence Stanton took such action.
BHI's Mistrial Motion
Following Stewart's testimony, BHI moved for a mistrial,
arguing BHI was prejudiced by the introduction of Charles's 1998
notes that were not provided during discovery, and that the
prejudice was compounded by the fact that counsel was not
permitted to re-depose Michael or Stewart. The court denied the
motion, reiterating that Charles did not intentionally withhold
20 A-2221-15T4
the 1998 notes, and that any potential prejudice was ameliorated
because counsel had been permitted to depose Charles about the
notes, question Michael and Stewart outside of the presence of
the jury, and because BHI was permitted to depose Stewart but
opted not to do so. The court also noted it had ruled that BHI's
expert would be permitted to offer opinions based on the 1998
notes, and Charles's and Stewart's testimony about them, during
the expert's testimony on BHI's behalf.
Stanton's Deposition Testimony
Plaintiffs read portions of Stanton's deposition transcript
to the jury including his recollection of the March 2009
discussion with Michael about the 2008 renovations. Stanton
testified the renovations consisted of replacements of "like
quality equipment with like quality equipment," that was
"already covered in [plaintiffs' policy] building limit."
Stanton informed Michael "it was not necessary to add to the
building coverage at that time."
The jury also heard Stanton's deposition testimony
explaining his understanding of "replacement coverage." Stanton
was asked during his deposition "if one of your insured had
$100,000 coverage on the building and the loss is . . .
$150,000[,] and has a replacement coverage in the policy, does
the insured receive $150,000 or . . . $100,000?" Stanton
21 A-2221-15T4
replied: "[T]hey would receive the $150,000." Other evidence at
trial showed Stanton's understanding was incorrect.
Testimony of GNY's Underwriter, Phillip Wu
Plaintiffs called Philip Wu, a GNY employee and underwriter
for plaintiffs' 2009 GNY policy to testify that GNY conducted an
annual physical inspection of the bowling center and, based on
the inspection, entered data into a computer program called
Marshall-Swift, which calculated the replacement value of the
bowling center building. GNY used the Marshall-Swift analysis to
determine the policy limits and the policy premium for its
internal use. The report was not shared with brokers and the
reports for the bowling center were not provided to BHI.
Wu explained that GNY would not permit an insured to
purchase a policy with building replacement cost coverage limits
less than the amount calculated by the Marshall-Swift analysis.
However, if an insured showed that the replacement value was
more than the value generated by the Marshall-Swift analysis,
the insured could purchase insurance with a higher limit by
paying a higher premium. Based on the 2009 Marshall-Swift
analysis, Wu used a replacement cost of $3,306,000 to calculate
plaintiffs' insurance premium for the building coverage.
Stanton's Trial Testimony
Stanton testified as a defense witness. He has been an
22 A-2221-15T4
insurance broker since 1993, specializing in the field of
bowling alleys. He corrected his deposition testimony concerning
the meaning of "replacement cost," explaining he confused
"replacement cost" and "guaranteed replacement cost," and stated
he never told plaintiffs they could recover more from GNY than
their policy limit.
Stanton testified that over the course of his business
relationship with plaintiffs, they never wanted the building
coverage limit increased or expressed dissatisfaction with the
contents coverage limits. Stanton did not believe plaintiffs
ever wanted additional coverage because they were concerned
about the amount of their premiums.
Stanton was questioned about the Thompson-Loyle appraisal
report. He denied that Charles provided him with the report in
1998 or that they even met that year to discuss increasing
coverage. He also denied giving Charles a replacement cost
estimate of $2,700,000. On cross-examination, however, Stanton
stated he was "sure" and "guess[ed]" a meeting occurred in
September 1998. He admitted he had no reason to believe
Charles's 1998 notes were inaccurate and stated that the second
note accurately documented that Charles received a November 4,
1998 endorsement increasing the policy limits to $2,800,000.
Stanton was also questioned about his March 2003 meeting
23 A-2221-15T4
with Charles. Stanton initially testified that he had no memory
of a March 2003 meeting or if Charles asked if the bowling
center should increase its business contents coverage based on
its $537,000 equipment transfer. However, Stanton admitted on
cross-examination that the March 2003 meeting occurred and that
he advised plaintiffs the equipment transfer did not constitute
a change in the building's contents necessitating an increase in
the policy limits.
Stanton further testified that he could not recall if he
advised plaintiffs that between 2008 and 2009, GNY increased the
coinsurance requirement on plaintiffs' policy from eighty to
ninety percent but stated that in any event, the change was
reflected "in the document." On cross-examination, Stanton
stated he did not discuss the significance of the increase with
plaintiffs.
Stanton testified that in 2009, Michael showed him the
renovations that were made to the bowling center, but he denied
that Michael asked about an increase in coverage and that he
advised Michael not to buy more insurance. On cross-examination,
however, Stanton admitted that Michael asked him whether the
renovations warranted an insurance increase, and that he told
Michael the renovations were merely replacement costs that were
already "figured into the building [coverage] rate."
24 A-2221-15T4
Stanton also explained that he did not propose increasing
the building coverage for the April 1, 2009 to April 1, 2010,
policy year based on GNY's analysis and valuation of the
building. When asked why he did not propose an increase when the
coinsurance rate increased from eighty to ninety percent, he
replied, "I just relied on [GNY's] value." Stanton acknowledged
that the GNY policy contained a provision stating that its
reports and inspections were for GNY's internal purposes only.
He also acknowledged that GNY did not conduct an inspection of
the building for the 2009 policy until May 2009, yet he
submitted that year's policy proposal to plaintiffs in March
2009 and the policy, with unchanged coverage limits, was renewed
and became effective in April 2009.
BHI's Expert James R. Klagholz
James R. Klagholz testified as BHI's expert in the
profession of insurance brokers and producers. He opined that in
BHI's dealing with plaintiffs, its actions were consistent with
the customary standards of care in the industry. He explained
that it is not the job of an insurance broker to calculate the
actual replacement value of buildings, personal property, or
lost income. According to Klagholz, brokers are simply not
qualified to determine appropriate policy limits.
Klagholz testified the 1998 Thompson-Loyle appraisal report
25 A-2221-15T4
demonstrated plaintiffs were aware that a certified real estate
appraiser had inspected their building and estimated its
replacement cost as $3,650,000. He pointed out that Charles
resisted increasing the building coverage from $3,120,155 to
$3,425,000 for the period April 1, 2003 to April 1, 2004. He
opined that Charles's 2003 notes demonstrated that Charles was
not willing to purchase additional insurance coverage even when
it was suggested.
Klagholz testified that Stanton's advice to Michael during
their 2009 meeting was correct because plaintiffs had a
replacement cost policy; that coinsurance had absolutely no
applicability to plaintiffs' fire losses because plaintiff's
suffered a total loss; and that it was reasonable for Stanton to
rely on GNY's valuation in determining the building's
replacement cost value. Klagholz concluded that neither BHI nor
Stanton did anything incorrect in the sale of the 2009 GNY
policy to plaintiffs.
On cross-examination, Klagholz agreed it would be improper
for an insurance broker to do an independent calculation of a
building and its contents replacement cost to make a
recommendation for insurance coverage limits. He explained that
if a client asks a broker if insurance coverage limits should be
raised, the broker should not advise the client the coverage is
26 A-2221-15T4
adequate but should instead advise the client that the broker is
not qualified to calculate the value of a client's assets.
The Verdict
The jury returned a verdict finding BHI negligent, and that
BHI's negligence proximately caused plaintiffs' damages. The
jury found plaintiffs' total loss from the fire was $6,840,000,
representing the sum of its findings as to building loss
($5,600,000), business interruption ($750,000), and contents
loss ($490,000). The court molded the verdict by deducting the
sums paid by GNY under the policy ($4,070,000), and the amounts
recovered by plaintiffs from Safe & Sound and S.S. Sprinkler
($950,000) from the amount of plaintiffs' total loss
($6,840,000) for a damage award of $1,820,000. The court also
awarded $178,808.77 in prejudgment interest and costs for a
total judgment of $1,998,808.77.
BHI's New Trial Motion
BHI moved for a new trial, claiming the admission of the
1998 notes and Charles's corresponding testimony deprived BHI of
a fair trial. The court issued a detailed written opinion and
entered an order denying BHI's motion, finding there was
sufficient evidence to support the jury's determination, and
that the jury "evidently resolved the conflicting accounts of
the incident between Charles [] and Stanton by crediting
27 A-2221-15T4
[p]laintiffs' version, which was corroborated by trial testimony
and other statements."
The court acknowledged that Charles's 1998 notes
contradicted Stanton's trial testimony and likely affected his
credibility, but described the notes as "one of the numerous
evidential considerations" utilized by the jury to determine
credibility. The court also found the notes "did not involve a
wholesale-change in the presentation of [p]laintiffs' version of
the incident," and "did not deviate significantly from pre-trial
deposition testimony." Moreover, the court concluded it took
sufficient remedial measures in response to the late production
of the notes to ensure BHI received a fair trial.
II.
BHI first argues the court erred by permitting the
introduction of Charles's undisclosed 1998 notes memorializing
his September 1998 meeting with Stanton and allowing testimony
based on the notes. BHI contends the notes were integral and
material and, therefore, their late production caused prejudice
that could not be remedied. The notes, BHI argues, were the
"smoking gun" that altered the entire trial. We are not
persuaded.
BHI challenged the admissibility of the notes and
corresponding testimony in different contexts during the trial.
28 A-2221-15T4
First, BHI objected to both Charles and Stewart's testimony
concerning the notes.10 Second, BHI sought relief in the form of
a mistrial motion and motion for a new trial based on the
admission of testimony about the notes. We address the
objections and motions in turn.
A. BHI's Objections to Testimony and Evidence About
Charles's 1998 Notes
BHI argues the court erred by permitting Charles to refresh
his recollection based on the 1998 notes and testimony
concerning the notes. BHI contends the court compounded its
error by permitting Stewart to supplement the opinion contained
in his expert report by testifying about the notes and expanding
his opinion based on the notes.
"When a party fails to comply with discovery, the trial
court, in its discretion, may impose appropriate sanctions."
Allis-Chalmers Corp. Prop. Liab. Tr. v. Liberty Mut. Ins. Co.,
305 N.J. Super. 550, 557 (App. Div. 1997). "The application of
sanctions is consigned to the sound discretion of the court."
Brown v. Mortimer, 100 N.J. Super. 395, 401 (App. Div. 1968).
We have recognized that "[p]reclusion of evidence as a
10
BHI did not challenge the authenticity of the notes, the
admissibility of the notes had they been timely produced in
discovery, or Charles's right to testify about the 1998
conversations with Stanton without reference to the notes.
29 A-2221-15T4
sanction for failure to provide notice or make required
disclosures is available 'in the limited circumstances where a
lesser sanction is not sufficient to remedy the problem caused
by an inexcusable delay . . . thereby resulting in substantial
prejudice to the non-disclosed party.'" Manorcare Health Servs.,
Inc. v. Osmose Wood Preserving, Inc., 336 N.J. Super. 218, 235
(App. Div. 2001) (emphasis added) (quoting Mitchell v. Procini,
331 N.J. Super. 445, 453-54 (App. Div. 2000)).
In exercising its discretion, the trial court's chosen
"sanction must be just and reasonable." Lindenmuth v. Holden,
296 N.J. Super. 42, 52 (App. Div. 1996), certif. denied, 149
N.J. 34 (1997). The court can suspend the imposition of
sanctions "(1) where there is an absence of a design to mislead;
(2) where there is an absence of the element of surprise if the
evidence is admitted; and (3) where there is an absence of
prejudice which would result from the admission of the
evidence." Ibid.; see also Manorcare, supra, 336 N.J. Super. at
235 (suggesting lesser sanctions may be adequate to remedy
surprise).
These standards apply whether the surprise evidence is
proffered through the form of lay or expert witness testimony.
See State v. Wolfe, 431 N.J. Super. 356, 363 (App. Div. 2013),
certif. denied, 217 N.J. 285 (2014). The trial court's decision
30 A-2221-15T4
to exclude or admit expert testimony on a subject not covered in
the written report must "stand unless so wide of the mark that
it results in a manifest denial of justice." Bitsko v. Main
Pharmacy, Inc., 289 N.J. Super. 267, 284 (App. Div. 1996).
Based on our careful review of the record, we discern no
basis to conclude the court abused its discretion in allowing
Charles and Stewart to testify concerning Charles's 1998 notes
and allowing introduction of the notes into evidence. Faced with
plaintiffs' failure to produce the notes during discovery, the
court immediately conducted an N.J.R.E. 104 hearing to determine
why the notes had not been produced during discovery and the
appropriate remedy for the failure.
The record supports the court's determination following the
hearing that Charles's failure to produce the notes during
discovery was not the result of any design to mislead, and BHI
agreed.11 The court, however, recognized that the existence of
the notes and Charles's intended reliance on them constituted a
surprise for BHI. In order to ameliorate any prejudice from the
surprise, the court permitted BHI to take Charles's deposition.
11
After hearing testimony from Charles, the court found there
was "probably . . . no intention to deceive," and offered BHI's
counsel the opportunity to cross-examine Charles on the issue.
BHI declined and stated, "I don't have any reason to believe
that [Charles] was intending to deceive anybody."
31 A-2221-15T4
BHI was permitted to question Charles concerning the notes prior
to continuing Charles's direct testimony. Charles was the first
witness, his revelation concerning the notes came early in his
testimony, and his deposition afforded BHI ample time to address
the testimony and the notes on cross-examination. BHI was
thereafter well-positioned to address the testimony and evidence
with all subsequent witnesses at trial.
BHI contends that the opportunity to depose Charles during
the trial could not remedy the prejudice from the late
production of the notes because the notes changed plaintiffs'
theory of the case. BHI argues it was prejudiced because prior
to the discovery of the notes, plaintiffs' theory was that
Stanton and BHI were negligent by never recommending that
plaintiffs obtain an appraisal report to determine the
replacement value of the building and its contents. BHI asserts
that after the notes were discovered, plaintiffs' theory was
that Stanton was negligent by making his own calculation of the
value of the building and contents.
As correctly determined by the trial court, the record does
not support BHI's contentions. Although Charles's 1998
conversations with Stanton provided context for the ensuing
annual renewals of the policy, the jury's verdict was based on a
determination that Stanton was negligent eleven years later in
32 A-2221-15T4
2009. Plaintiffs' theory of negligence was that Stanton never
requested an appraisal in connection with the 2009 policy
renewal and that he was negligent in advising plaintiffs they
did not need increased coverage based on their improvements to
the bowling center. That theory never changed. Charles's notes
concerning the 1998 policy did not alter plaintiffs' theory of
BHI's negligence concerning the insurance coverage limits in the
2009 policy, which was the policy at issue in the litigation.
Moreover, the evidence showed that the policy limits were
increased in 2003 based on conversations between Charles and
Stanton that were wholly unrelated to the 1998 notes. Charles's
notes concerning the 2003 conversations, that were timely
produced during discovery, supported plaintiffs' consistent
theory that Stanton was negligent in advising them there was no
need for changes in the policy limits. The evidence also showed,
without reference to the 1998 notes, that Stanton never advised
plaintiffs about the 2008 increase in the coinsurance and
otherwise provided erroneous advise about coverage limits at the
time the 2009 policy was purchased.
Charles's testimony concerning the 1998 notes did not alter
plaintiffs' theory of the case or surprise BHI in a manner
requiring the exclusion of the evidence. This case does not
resemble the cases cited by BHI where exclusion was required.
33 A-2221-15T4
See, e.g., McKenney v. Jersey City Med. Ctr., 167 N.J. 359, 369-
76 (2001) (finding the court abused its discretion in denying a
mistrial motion where defense counsel withheld disclosure of
expert's intention to deviate from his earlier opinion and
elicited the testimony after the plaintiff's case-in-chief);
Wymbs v. Twp. of Wayne, 163 N.J. 523, 545-46 (2000) (reversing
the admission of defendant's surprise expert witness produced
twelve days into trial, who opined on a pivotal issue in the
case regarding the scene of an accident); Thomas v. Toys "R" Us,
Inc., 282 N.J. Super. 569, 580-82 (App. Div.) (concluding the
trial court properly excluded expert's references to x-ray films
plaintiff discovered on the day of trial in part because it left
defendant unable to rebut the evidence with his own expert),
certif. denied, 142 N.J. 574 (1995).
We are therefore convinced that although BHI was surprised
by the production of the notes, it did not suffer any prejudice
that was not ameliorated by the court's curative measures of
requiring production of the notes and allowing BHI's counsel to
depose Charles.
The court was not required to sanction plaintiffs by
barring the testimony and evidence, and did not abuse its
discretion in permitting the testimony and evidence after BHI
deposed Charles. The court struck a balance and alleviated any
34 A-2221-15T4
prejudice to BHI by allowing its counsel to depose Charles
before resuming trial. See, e.g., Gaido v. Weiser, 227 N.J.
Super. 175, 192 (App. Div. 1998) (finding exclusion of expert
testimony not contained in the expert's report was not required
where the court permitted the expert's deposition at trial and
the testimony expanded upon the parties' defense, but did not
assert an unexpected defense), aff'd, 115 N.J. 310 (1989).
For substantially the same reasons, we find the court took
sufficient measures to eliminate potential prejudice concerning
Stewart's expert testimony based on the 1998 notes. The court
again paused the trial in order to ascertain Stewart's intended
testimony outside the presence of the jury at an N.J.R.E. 104
hearing. At the hearing, Stewart explained that based upon the
1998 notes "as well as the [Thompson-Loyle] appraisal [report],"
Stanton incorrectly performed a valuation of the property and
its contents. Stewart further testified that Stanton was not a
licensed appraiser and he incorrectly advised plaintiffs to
obtain $2,700,000 in building coverage, an amount that "did not
satisfy GNY's minimum [eighty percent coinsurance] requirement."
The court stated that BHI's counsel could cross-examine Stewart
with his N.J.R.E. 104 hearing testimony, and offered BHI's
counsel the opportunity to depose Stewart, which counsel elected
not to pursue. We discern no abuse of discretion in the trial
35 A-2221-15T4
court's chosen remedial measures because Stewart's testimony
concerning the 1998 notes did not change his ultimate opinion
that BHI grossly underinsured the bowling center based on
Stanton's erroneous and careless advice about the 2009 policy.
See ibid.Stewart's opinion at trial was primarily based upon
Stanton's failure to discuss with plaintiffs the impact of GNY's
increase of its coinsurance rate before renewing the policy in
2008, and his response to Michael's inquiries in 2009 about
whether the insurance limits should be increased. Stewart was
deposed on three occasions but was only asked about the parties'
1998 meeting at his first deposition, where he opined that BHI
should have advised plaintiffs to have the property appraised
before underwriting the 1998 policy.
During his subsequent depositions, however, Stewart only
addressed Stanton's encounters with plaintiffs and the adequacy
of their insurance in 2003 and 2009. At trial, Stewart remained
largely focused on those encounters, and his testimony
concerning the 1998 notes was brief and consistent with his
testimony during the N.J.R.E. 104 hearing. Stewart relied on the
1998 notes as additional support for the theory that Stanton was
negligent by failing to properly advise plaintiffs of their
insurance coverage requirements, and not in support of an
36 A-2221-15T4
altered theory of negligence. See Gaido, supra, 227 N.J. Super.
at 192.
We thus find no abuse in the court's discretion in allowing
Charles or Stewart to testify concerning the 1998 notes because
there was an absence of any design to mislead, and any prejudice
to BHI was cured by the court's remedial measures.
B. BHI's Motions for a Mistrial and New Trial
Following Stewart's testimony, BHI moved for a mistrial,12
arguing again that BHI was prejudiced by the late production of
the notes, and that the prejudice was compounded by the fact
that counsel was not permitted to re-depose Michael or Stewart.13
The court denied BHI's motion, reiterating that Charles did
not intentionally withhold the existence of the 1998 notes, and
that the court took sufficient measures to eliminate any
12
BHI inaccurately asserts that it moved for a mistrial twice:
(1) during Charles's testimony on August 27, 2015, when the
existence of the 1998 notes first became apparent; and (2) after
Stewart's testimony. The record shows that BHI's counsel
indicated that she might move for a mistrial depending on the
court's remedial measures, but did not move for a mistrial until
Stewart's testimony concluded.
13
As noted, BHI was offered the opportunity to depose Stewart
but opted not to do so. Michael was questioned briefly under
oath concerning the 1998 notes and testified he had never seen
them prior to the night before Charles's disclosure of them
during the trial. In addition, there is no evidence Michael was
present during the September 1998 meeting between Charles and
Stanton referred to in one of the 1998 notes.
37 A-2221-15T4
potential prejudice. The court noted that it allowed BHI's
counsel to depose Charles, permitted counsel to question Michael
on the record about his knowledge of the notes, conducted an
N.J.R.E. 104 hearing regarding Stewart's testimony, afforded
defense counsel the opportunity to depose Stewart, and allowed
BHI's expert to opine about the notes without amending his
expert report.
"The grant of a mistrial is an extraordinary remedy to be
exercised only when necessary 'to prevent an obvious failure of
justice.'" State v. Yough, 208 N.J. 385, 397 (2011) (quoting
State v. Harvey, 151 N.J. 117, 205 (1997), cert. denied, 528
U.S. 1085, 120 S. Ct. 811, 145 L. Ed. 2d 683 (2000)). "For that
reason, an appellate court should not reverse a trial court's
denial of a mistrial motion absent a 'clear showing' that 'the
defendant suffered actual harm' or that the court otherwise
'abused its discretion.'" Ibid. (quoting State v. Labrutto, 114
N.J. 187, 207 (1989)). "A decision by the trial court to deny a
motion for a mistrial 'is reviewable only for an abuse of
discretion.'" Khan v. Singh, 397 N.J. Super. 184, 202 (App. Div.
2007) (quoting State v. Winter, 96 N.J. 640, 647 (1984)), aff'd,
200 N.J. 82 (2009).
In exercising its discretion in deciding a mistrial motion,
a trial court must consider the unique circumstances of the
38 A-2221-15T4
case, and whether an alternative course of action short of a
mistrial is appropriate. State v. Smith, 224 N.J. 36, 47 (2016).
"For example, a curative instruction, a short adjournment or
continuance, or some other remedy, may provide a viable
alternative to a mistrial depending on the facts of the case."
Ibid.On appeal, BHI asserts the prejudice it suffered from the
late production of the 1998 notes was not cured by the court's
remedial measures. BHI asserts that the late disclosure of the
notes prevented it from deposing John E. Loyle, who drafted the
Thompson-Loyle appraisal report, and from obtaining any related
documents pertinent to the report. BHI further asserts it would
have approached its depositions of Charles and Michael with a
focus on whether they relied on Stanton's advice over that of
the appraiser of the Thompson-Loyle appraisal report, and
retained an expert to opine concerning their decision.
As noted, we discern no prejudice to BHI in the admission
of the testimony and evidence concerning the notes that was not
directly addressed by the court's remedial actions during the
trial. The record supports the trial court's decision that it
undertook sufficient alternative actions to ameliorate any
surprise or alleged prejudice created by the late discovery of
the 1998 notes.
39 A-2221-15T4
We are not persuaded by BHI's arguments that it would have
pursued a different course of discovery had it known about the
notes earlier. BHI obtained the Thompson-Loyle appraisal report
during discovery and knew it was prepared in part by Charles's
nephew, John E. Loyle, but chose not to depose him during
discovery. In addition, BHI's assertion that it would have
retained an expert to address plaintiffs' purported comparative
negligence is contradicted by BHI's own position because BHI did
not plead comparative negligence as an affirmative defense, and
its expert's report did not opine that plaintiffs' disregard of
the appraisal report constituted negligence.14
Moreover, and as noted, the 1998 notes did not establish
BHI's negligence in 2009, when the policy at issue was sold by
BHI. Again, the undisputed evidence showed that Stanton did not
advise plaintiffs to obtain an appraisal at that time, there was
no evidence Stanton calculated the value of the building and its
contents at that time, and the jury was asked only to determine
if BHI was negligent in its actions concerning the 2009 policy.
In sum, the court did not abuse its discretion in denying
BHI's motion for a mistrial. BHI fails to make a clear showing
that the court's denial of its mistrial motion constituted "an
14
As explained infra, we affirm the trial court's decision
barring BHI from pursuing a comparative negligence defense.
40 A-2221-15T4
abuse of discretion that result[ed] in a manifest injustice."
Harvey, supra, 151 N.J. at 205.
For the same reasons, we reject BHI's claim that the court
erred in denying its request for a new trial. "A trial judge may
only grant a motion for a new trial 'if, having given due regard
to the opportunity of the jury to pass upon the credibility of
the witnesses, it clearly and convincingly appears that there
was a miscarriage of justice under the law.'" Hill v. N.J. Dep't
of Corr. Comm'r Fauver, 342 N.J. Super. 273, 302 (App. Div.
2001) (quoting R. 4:49-1(a)), certif. denied, 171 N.J. 338(2002). A "miscarriage of justice" may occur where there is a
"manifest lack of inherently credible evidence to support the
[jury's] finding," or where it is obvious the jury overlooked or
undervalued crucial evidence. Lindenmuth, supra, 296 N.J. Super.
at 48 (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 598
(1977)).
In applying this standard, the judge must evaluate the
evidence with an eye toward correcting "clear error or mistake
by the jury." Dolson v. Anastasia, 55 N.J. 2, 6 (1969). The
judge is to "take into account, not only tangible factors
relative to the proofs as shown by the record, but also
appropriate matters of credibility, generally peculiarly within
the jury's domain, and the intangible 'feel of the case' which
41 A-2221-15T4
it has gained by presiding over the trial." Kita v. Borough of
Lindenwold, 305 N.J. Super. 43, 49 (App. Div. 1997) (quoting
Dolson, supra, 55 N.J. at 6).
The court addressed BHI's new trial motion in a detailed
and well-reasoned written opinion. For the reasons already
noted, as well as those set forth by the trial judge, we find no
miscarriage of justice in the jury's verdict and no merit to
BHI's contention that the court erred in denying the mistrial
motion. Hill, supra, 342 N.J. Super. at 302.
III.
Next, we consider BHI's argument that the trial court erred
in molding the verdict without crediting BHI $950,000 against
the jury's damage award for the amount GNY received from Safe &
Sound and S.S. Sprinkler. BHI contends it is entitled to the
credit because GNY did not have a right to subrogation of
plaintiffs' claims against the tortfeasors.
Subrogation is an equitable device designed "to compel the
ultimate discharge of an obligation by the one who in good
conscience ought to pay it [and] . . . to serve the interests of
essential justice between the parties." Culver v. Ins. Co. of N.
Am., 115 N.J. 451, 455-56 (1989) (quoting Std. Accident Ins. Co.
v. Pellecchia, 15 N.J. 162, 171 (1954)). "In an insurance
context, [subrogation] fulfills the dual purposes of avoiding
42 A-2221-15T4
unjust enrichment to an insured who obtains recovery for the
same injury from both his insurer and the tortfeasor and, in the
absence of such double recovery, of precluding the tortfeasor
from escaping all liability for damages that the tortfeasor has
caused." McShane v. New Jersey Mfrs. Ins. Co., 375 N.J. Super.
305, 309-10 (App. Div. 2005).
Relying on Culver, supra, BHI claims GNY was not entitled
to subrogation of plaintiffs' claims until plaintiffs were made
whole. 115 N.J. at 456. BHI argues plaintiffs had not been made
whole at the time GNY asserted claims against Safe & Sound and
S.S. Sprinkler and therefore GNY did not have a subrogation
right to assert claims on plaintiffs' behalf against the
tortfeasors.
In Culver, the Court considered an insured's challenge to
an agreement it reached with the insurer to divide the sums
recovered by the insurer from the tortfeasors. Id. at 453. The
insured sought a declaration the agreement was unenforceable in
part based on the argument that BHI makes here: that the insurer
had no right to subrogation because the insured had not yet been
made whole. Id. at 452.
The Court rejected the argument, explaining that
"[s]ubrogation rights are created in one of three ways: '(1) an
agreement between the insurer and the insured, (2) a right
43 A-2221-15T4
created by statute, or (3) a judicial "device of equity to
compel the ultimate discharge of an obligation by the one who in
good conscience ought to pay it."'" Id. at 456-59 (citations
omitted). The Court recognized subrogation rights existed under
the insurance policy, and that equitable principles generally
permitted the assertion of subrogation rights only after an
insured was made whole, but held that an insured and insurer
could enter into an enforceable agreement permitting the insurer
to assert subrogation rights prior to the insured being made
whole. Id. at 457. The Court expressly rejected a requirement
that "the insured be made whole first from the settlement of a
subrogation action" where the insured and insurer had "a
contractual agreement to the contrary." Id. at 459.
We therefore reject BHI's assertion that it was entitled to
a credit for the $950,000 recovered by GNY from the tortfeasors
because GNY could not properly assert subrogation rights on
plaintiffs' behalf. Pursuant to the litigation agreement between
GNY and plaintiffs, GNY was authorized to assert subrogation
claims on plaintiffs' behalf without any requirement that
plaintiffs first be made whole. See id. at 458-59. BHI's
44 A-2221-15T4
contentions to the contrary lack merit.15
IV.
BHI also argues the court erred by granting GNY's motion
for summary judgment on BHI's indemnification claim because
there were genuine issues of material fact concerning whether
GNY owed a duty to BHI and plaintiffs. BHI asserts that GNY
conducted annual inspections of the property and calculated a
replacement value for the building that was used to determine
the policy premiums, and therefore GNY owed BHI a duty to
accurately calculate the building's replacement value. BHI
contends GNY's actions in calculating a replacement value that
BHI relied upon created a special relationship between GNY and
BHI that imposed a duty on GNY to calculate the replacement
15
Because we find no support in the law for BHI's contention
that it was entitled to the $950,000 credit because GNY could
not be properly subrogated to plaintiffs' rights until
plaintiffs were made whole, we need not address plaintiffs'
assertion that no credit was required because their agreement
with GNY constituted a reasonable effort to mitigate their
damages. We note only that plaintiffs had an obligation to take
reasonable steps to mitigate their damages, Covino v. Peck, 233
N.J. Super. 612, 616 (App. Div. 1989), and that BHI does not
dispute on appeal that plaintiffs' entry into the agreement with
GNY constituted a reasonable effort to mitigate damages. BHI
offers no evidence that the agreement or the agreed upon sharing
of the proceeds was an unreasonable exercise of plaintiffs' duty
to mitigate damages. See Prospect Rehab. Servs., Inc. v.
Squitieri, 392 N.J. Super. 157, 164 (App. Div.), certif. denied,
192 N.J. 293 (2007); Covino, supra, 233 N.J. Super. at 619;
Spaulding v. Hussain, 229 N.J. Super. 430, 444 (App. Div. 1988).
45 A-2221-15T4
value accurately. BHI claims GNY breached that duty by
understating the replacement value of the building, and the
court erred by granting summary judgment by finding no duty
existed.16
When reviewing a grant of summary judgment, we employ the
same standard used by the motion judge under Rule 4:46. Henry v.
N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). First, we
determine whether the moving party has demonstrated there were
no genuine disputes as to material facts, and then we decide
whether the motion judge's application of the law was
correct. Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J.
Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104(2006). In doing so, we view the evidence in the light most
favorable to the non-moving party. Brill v. Guardian Life Ins.
Co. of Am., 142 N.J. 520, 523 (1995). We accord no deference to
the motion judge's legal conclusions, which we review de novo.
Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,
16
BHI sought indemnification against GNY only for plaintiffs'
losses due to the underinsurance for the full replacement cost
for the building. There was no evidence GNY conducted
inspections or valuations of the contents of the bowling center
to determine their replacement costs, or of plaintiffs'
potential business interruption losses. Thus, BHI does not claim
the court erred in dismissing its indemnification claim based on
plaintiffs' underinsured losses for the replacement costs of the
building's contents or the interruption of plaintiffs' business.
46 A-2221-15T4
378 (1995). Applying these standards, and based on the summary
judgment record provided by the parties on appeal,17 we affirm
the court's grant of GNY's summary judgment motion.
Notably, BHI alleged before the motion court that it was
entitled to contractual indemnification from GNY in part because
BHI was GNY's agent pursuant to an agreement between the
parties. See Johnson v. MacMillan, 233 N.J. Super. 56, 61 (App.
Div.) (holding that "[a]s a matter of elementary agency law, the
negligence of an employee-agent is imputable to the employer-
principal, who must answer for it"), remanded on other grounds,
118 N.J. 199 (1989); accord Mazur v. Selected Risks Ins. Co.,
233 N.J. Super. 219, 226 (App. Div. 1989); Avery v. Arthur E.
Armitage Agency, 242 N.J. Super. 293, 300-01 (App. Div. 1990).
The court dismissed the claim, finding BHI was not entitled to
indemnification pursuant to the agency agreement because BHI
terminated the agreement on April 3, 2007, two years prior to
the 2009 policy was executed. The record supports the court's
finding, BHI does not point to any evidence in the record
showing otherwise, and BHI does argue the court erred in
17
We rely upon the documents, affidavits, deposition
transcripts, and other materials that were submitted in BHI's
appendix pursuant to Rule 2:6-1(a)(1)(I). BHI represents these
materials comprised the record before the motion court, and GNY
does not argue otherwise.
47 A-2221-15T4
rejecting its agency theory on appeal. An issue not briefed on
appeal is deemed waived. Jefferson Loan Co. v. Session, 397 N.J.
Super. 520, 525 n.4 (App. Div. 2008); Zavodnick v. Leven, 340
N.J. Super. 94, 103 (App. Div. 2001).
BHI challenges the court's dismissal of its indemnification
claim to the extent the claim is premised on basic negligence
principles. In order to prevail on a negligence claim, the
plaintiff must prove: "(1) that the defendant owed a duty of
care; (2) that the defendant breached that duty; (3) actual and
proximate causation; and (4) damages." Fernandes v. DAR Dev.
Corp., 222 N.J. 390, 403-04 (2015). The motion court dismissed
BHI's indemnification claim finding there was no competent
evidence supporting a finding that GNY assumed a duty of care to
provide BHI or Stanton with an accurate valuation of the total
replacement costs of the building. Based on our review of the
motion record, we agree.
"The existence of a duty to exercise reasonable care to
avoid risk of harm to another is a question of law." Fackelman
v. Lac d'Amiante du Quebec, 398 N.J. Super. 474, 486 (App. Div.
2008). The existence of a duty "is largely a question of
fairness or policy," and the inquiry involves the weighing of
the relationship of the parties, the nature of the risk and the
public interest in the proposed solutions. Wang v. Allstate Ins.
48 A-2221-15T4
Co., 125 N.J. 2, 15 (1991). "[T]he legal determination of the
existence of a duty may differ, depending on the facts of the
case." Ibid.An insurer and its agents have "no common law duty . . .
to advise an insured concerning the possible need for higher
policy limits upon renewal of the policy. If such a duty would
be in the public interest, it is better established by
comprehensive legislation, rather than by judicial decision."
Wang, supra, 125 N.J. at 11-12. However, it has been held that
brokers are liable for the negligent procurement of insurance on
behalf of an insured where the "broker agrees to procure a
specific insurance policy for another but fails to do so." Aden
v. Fortsh, 169 N.J. 64, 78 (2001); accord Rider v. Lynch, 42
N.J. 465, 477 (1964).
"Liability resulting from the negligent procurement of
insurance is premised on the theory that the broker 'ordinarily
invites [reliance] on his expertise in procuring insurance that
best suits their requirements.'" Aden, supra, 169 N.J. at 78(quoting Rider, supra, 42 N.J. at 477). "Because of the . . .
complexity of the insurance industry and the specialized
knowledge required to understand all of its intricacies, the
relationship between an insurance agent [or broker] and a client
is often a fiduciary one." Sobotor v. Prudential Prop. &
49 A-2221-15T4
Casualty Ins. Co., 200 N.J. Super. 333, 341 (App. Div. 1984).
The fiduciary duty exists in part because an agent or broker is
sophisticated in the field of insurance and the client is not.
Id. at 341-42. "Insurance brokers (and agents) have a
responsibility in law to act toward their less expert clients in
a way that is responsible in fact." Id. at 343 (quotation
omitted).
The undisputed evidence showed that at all times relevant
to the issuance of the 2009 policy, BHI and Stanton acted as
independent insurance brokers. Generally, "[s]o separate are the
broker and the insurer that when the insured recovers against
the broker, the broker may not obtain indemnification from the
insurer." Weinisch v. Sawyer, 123 N.J. 333, 341 (1991); accord
Avery, supra, 242 N.J. Super. at 310-11. However, where a broker
can establish that the insurer is negligent, the insurer owes a
duty of contribution to the broker. See Johnson, supra, 233 N.J.
Super. at 64 (explaining that "if [the insurer] had been
negligent, it would have been a joint tortfeasor owing joint and
several liability to plaintiffs and a duty of contribution to
[the broker]"); see also Rider, supra, 42 N.J. at 475 (observing
that regardless of the insurance broker's negligence, an insurer
would be liable to the insured if it had been negligent in
issuing the insurance policy).
50 A-2221-15T4
Here, the motion court found GNY did not owe a duty to
provide BHI with an accurate statement of the full replacement
costs of plaintiffs' building because "no evidence has been
presented that GNY agreed to take on the duty of valuing the
insured's property." The undisputed facts support the court's
conclusion.
The evidence showed that GNY only used the Marshall-Swift
analysis internally, the valuation reports generated by the
analysis were not provided to BHI or Stanton prior to the fire
and subsequent lawsuits, and Stanton never communicated with GNY
or Wu concerning the valuations. Moreover, the GNY policy
Stanton sold to plaintiffs expressly provided that any
inspections or reports undertaken by GNY related only to
insurability and the premiums to be charged.
GNY never advised BHI that the 2009 policy limits were
based on a dispositive determination of the building's full
replacement costs. In addition, Stanton and BHI knew GNY would
insure the building up to its appraised value and that the
policy limit for the building's replacement cost could be
increased to its appraised value, but did not recommend an
appraisal in connection with the 2009 policy renewal.
As noted by the motion court, BHI produced no letters or
certifications supporting its claim that GNY invited reliance on
51 A-2221-15T4
its internal valuations that it used to determine insurability
and premiums. BHI did not submit an expert report supporting its
claim that GNY owed a duty to supply an accurate valuation of
actual replacement costs. There is no evidence GNY made any
representations that the policy limits it set based on its
inspection and valuation constituted an accurate and complete
statement of the full replacement costs for plaintiffs'
building. Moreover, Doreen Dulowski, the only BHI employee who
interacted with Wu and whose testimony was considered by the
motion court, acknowledged in her deposition testimony that the
most important factor in determining full replacement cost value
was "an appraisal from [the] insured showing what their value is
on [the] building."
Thus, BHI's reliance on GNY was not a matter of any
imbalance of sophistication in the insurance industry or any
information asymmetry between the parties. See Sobotor, supra,200 N.J. Super. at 342-43 (considering that the insured was "not
a sophisticated insurance consumer" in determining that an
insurer and its agent had an affirmative duty to advise the
insured that increased coverage was available, and breached that
duty because the parties were not equally situated to make
policy decisions). Rather, GNY, BHI and Stanton were
sophisticated parties with expertise in the insurance industry,
52 A-2221-15T4
BHI was well aware of its own independent duty to its client,
see id. at 341-42, and of its own obligations under the renewal
process to obtain the requisite information, including an
appraisal, in order to accurately assess the replacement costs
for plaintiffs' building.
As the motion court correctly recognized, the record is
bereft of evidence that Stanton relied on any determination by
GNY concerning the replacement cost of the building when he
erroneously advised plaintiffs in 2009 that no additional
coverage was needed. Stanton never spoke with GNY's underwriter,
Wu. Thus, Stanton's deposition testimony concerning GNY's
alleged actions constitutes inadmissible hearsay and is not
competent evidence sufficient to defeat GNY's summary judgment
motion. R. 1:6-6; Chicago Title Ins. Co. v. Ellis, 409 N.J.
Super. 444, 457 (App. Div.) (explaining that hearsay statements
"cannot be considered evidence in the summary judgment record
showing a disputed issue of fact"), certif. denied, 200 N.J. 506(2009).
In addition, the evidence showed that Stanton could not
have relied upon any GNY valuation of plaintiffs' building at
the time plaintiffs purchased the 2009 policy from him. First,
the information submitted to BHI for the renewal of the policy
indicated only that the coverage limits were based on the prior
53 A-2221-15T4
year's policy. Second, although GNY provided BHI with policy
renewal information in March 2009, and the policy was renewed in
April, GNY's inspection that year was not completed until late
May 2009. Therefore, neither BHI nor Stanton could have relied
on any Marshall-Swift or other valuation analysis conducted by
GNY when Stanton advised plaintiffs that no additional insurance
was required and sold them the deficient 2009 policy. See
Johnson, supra, 233 N.J. Super. at 62-63 (finding absent special
circumstances, an insurance broker's negligence is not imputed
to the insurer, and no special circumstances existed where
broker was acting solely in insured's interests in evaluating
its insurance needs and making recommendations).
In sum, we find no reason to disturb the motion court's
finding that the evidence presented was insufficient to support
BHI's claim that GNY acted in a manner that imposed a duty upon
GNY to provide an accurate value of the full replacement costs
of the building.
V.
BHI's remaining arguments lack sufficient merit to warrant
a written discussion in an opinion. R. 2:11-3(e)(1)(E). We offer
only the following comments.
We reject BHI's contention that the court erred in
precluding BHI from asserting comparative negligence against the
54 A-2221-15T4
plaintiffs at trial. BHI did not plead comparative negligence as
an affirmative defense, and thus, waived its right to the
defense. R. 4:5-4; see also Brown v. Brown, 208 N.J. Super. 372,
384 (App. Div. 1986) ("[A]n affirmative defense is waived if not
pleaded or otherwise timely raised."). In addition, BHI's
argument that plaintiffs were aware BHI would rely on
comparative negligence is not supported by the record and is
contradicted by BHI's counsel's representation to the court.
Following the close of discovery and denial of plaintiffs'
summary judgment motion, BHI's counsel stated, "I am not
claiming comparative negligence. I'm not even saying
[plaintiffs] were negligent." Moreover, and as the court
correctly recognized, New Jersey courts generally preclude
comparative fault defenses in professional malpractice cases,
and confine allegations of a client's negligence to issues of
proximate causation. Aden, supra, 169 N.J. at 75-78.
We also reject BHI's argument that the court incorrectly
instructed the jury that BHI had the burden of proving it relied
on GNY's Marshall-Swift analysis in its determination of the
replacement cost of the building. The instruction was proper
because BHI asserted an affirmative defense that plaintiffs'
losses were caused by "third parties over whom" BHI exercised no
control, and BHI argued at trial that it relied on GNY. BHI had
55 A-2221-15T4
the burden of proving its affirmative defense. Walker Rogge,
Inc. v. Chelsea Title & Guar. Co., 254 N.J. Super. 380, 387
(App. Div. 1992). In addition, BHI did not object to the
proposed instruction, and we find no plain error in its use, R.
2:10-2, because the jury was properly instructed concerning what
plaintiffs were required to prove to sustain their cause of
action against BHI. We therefore discern no basis to conclude
the challenged instruction was clearly capable of producing an
unjust result. Bldg. Materials Corp. of Am. v. Allstate Ins.
Co., 424 N.J. Super. 448, 487 n.14 (App. Div.), certif. denied,
212 N.J. 198 (2012).
Affirmed.
56 A-2221-15T4