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Lucky v. Liberty Mutual Fire Insurance Co.


February 13, 2008


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-7036-04.

Per curiam.


Submitted January 8, 2008

Before Judges Winkelstein and LeWinn.

Plaintiffs Morris and Lillie Lucky own a home in Piscataway that sustained extensive damage following a fire in July 2003. The home was insured by Liberty Mutual. In an effort to repair the damage to the home, plaintiffs retained a public adjuster, a general contractor, and a number of subcontractors. Liberty Mutual paid over $200,000 towards the damage to the home, but refused to pay for additional mold remediation in the basement.

Plaintiffs subsequently filed suit against Liberty Mutual, the public adjuster, the general contractor and the subcontractors. On appeal, plaintiffs challenge various summary judgment orders dismissing their complaint as to all defendants, as well as orders denying their motions to extend discovery. We affirm, except as to the order dismissing plaintiff's complaint against Reconstruction Builders, the general contractor. We reinstate the complaint against Reconstruction Builders and remand for further proceedings.

On July 27, 2003, a fire occurred in the basement of plaintiffs' home. The home became "smoke filled" and the basement "flooded." Liberty Mutual's policy included standard liability and loss provisions covering repairs to the home, as well as a "Concealment or Fraud" provision. Under the latter provision, if an insured intentionally misrepresents a material fact or circumstance, or otherwise engages in fraudulent conduct, then Liberty Mutual is under no obligation to provide coverage for any related property loss.

Following the fire, Liberty Mutual's claims adjuster, Fritz Lander, offered to have the flooded basement cleaned by a company retained by Liberty Mutual. Plaintiffs declined Lander's offer. Instead, they retained a public adjuster, John Carino, who was to arrange for the cleanup. Carino contacted Snowy White Cleaners who cleaned plaintiffs' soot-covered clothes to Lillie Lucky's "complete satisfaction." Plaintiffs canceled their contract with Carino three days later. On August 1, 2003, plaintiffs hired defendant Sarasohn, Pestcoe, and Galante (Sarasohn) to act as their insurance adjuster.

At the behest of Liberty Mutual, most of the standing water in the basement of the home was pumped out by July 31, 2003. The items stored in the basement, however, continued to seep water onto the floor. According to plaintiffs, it took about three months for Sarasohn, working in conjunction with Liberty Mutual, to arrange for the removal of the water-soaked items from the basement.

On September 28, 2003, at the recommendation of Sarasohn, plaintiffs hired Reconstruction Builders as their general contractor to repair their home. Sarasohn and Reconstruction Builders are owned by the same principals. Liberty Mutual played no role in plaintiffs' selection.

At some point during the early stages of Reconstruction Builders' work at plaintiffs' home, a minor flood occurred that resulted in two or three inches of water in the basement. On May 28, 2004, plaintiffs discovered mold in their basement.

As a result, the following month, plaintiffs hired RK Occupational and Environmental Analysis, an environmental testing and evaluation firm, to assess and remediate the mold problem. Liberty Mutual played no role in plaintiffs' selection. After RK determined that a combination of drying and mold abatement was needed to combat the mold problem in the basement, it engaged Commercial Drying Technologies to dry the basement and Preferred Cleaning Solutions to remediate the mold problem. Drying the basement and remediating the mold were accomplished by July 26, 2004. On that date, RK issued its post-remedial report, indicating that Commercial and Preferred "did a good job," and recommending that that their invoices be paid.

In late June 2004, plaintiffs discharged Reconstruction Builders, which at the time was almost finished making repairs. After Reconstruction Builders had been discharged, and while Preferred and Commercial were still working in the basement, another flood occurred when an unidentified person disconnected the sump pump.

RK's involvement with plaintiffs' home evidently ended with its issuance of its post-remedial report. In that report, RK noted the continued presence of "[u]nusual fungal populations" on the first floor of the home and recommended that an inspection and possible further remediation be done before plaintiffs moved in. The report also stated that continuing mold contamination appeared to emanate from the ventilation system where a "flex duct" had not been replaced. The report also indicated that "painting the basement floors, walls and structural members [by Reconstruction Builders] was ill advised." The report concluded that "[u]ntil such time as permanent dehumidification can be installed in the basement to control vapor pressure issues related to moisture in the air and since painted surfaces remain in the basement, mold growth can be expected."

In August 2004, plaintiffs retained The Windsor Consulting Group to conduct a post-remediation evaluation of the mold problem. Windsor investigated and discovered contamination.

Plaintiffs' home has remained unoccupied since the fire. They have not had any construction work done at the home since Reconstruction Builders was discharged in June 2004. Nor have they had any mold-abatement procedures done since Preferred completed its work.

During the litigation, evidence showed that plaintiffs submitted fraudulent bills to Liberty Mutual for payment for their living expenses. Morris Lucky admitted "falsifying the receipts." Among those falsified invoices were a rent receipt from his mother for $4800 - plaintiffs had only paid her $800; a receipt for $15,397 for the construction of a fence, reflecting a labor charge of $9,500 - plaintiffs had only paid between $1500 and $2000 for that labor; and five receipts totaling $2000 for rent covering Lillie Lucky's stay with a friend - plaintiffs did not pay the friend any rent, but did make payments of undetermined amounts toward expenses. By mid-2004, when Liberty Mutual ended its involvement with plaintiffs, it had paid $200,445.96 toward plaintiffs' claims.

To give context to the orders on appeal that denied plaintiffs' motions to extend discovery, and consequently barred plaintiffs from producing experts, we turn next to the procedural history of the litigation.

On September 30, 2004, plaintiffs filed a complaint against Liberty Mutual and its claims representative, Fritz Lander. Plaintiffs sought a declaration that Liberty Mutual had breached the terms of the homeowner's insurance policy. Along with their joint answer, Liberty Mutual and Lander filed a third party complaint against Sarasohn and Reconstruction Builders and their principals. The trial court dismissed the complaint against Lander on November 19, 2004.

On February 18, 2005, the trial court granted Liberty Mutual's motion to amend its third-party complaint to include contractors that plaintiffs had retained to perform mold abatement activities. Consequently, on March 11, 2005, Liberty Mutual filed a first amended third-party complaint, adding RK, Preferred, and Commercial, as third-party defendants.

On April 1, 2005, the trial court dismissed plaintiffs' complaint as a result of their failure to provide answers to interrogatories. After plaintiffs complied by answering interrogatories, the court reinstated their complaint and allowed them to file an amended complaint. Accordingly, on July 11, 2005, plaintiffs filed an amended complaint, naming Reconstruction Builders; Reconstruction's representative, Kevin Mulligan; Sarasohn; Sarasohn's representative, Joseph Giambattista; RK; RK's representative, Michael McGuinness; Commercial; and Preferred as direct defendants. The amended complaint also raised a claim against Snowy White Cleaners.*fn1 The new defendants filed answers and crossclaims, and Reconstruction Builders filed a counterclaim against plaintiff for $12,976.09, which it claimed was due for services it rendered to plaintiffs.

The case was initially scheduled for trial on July 25, 2006, but was rescheduled for October 3, 2005. That date was also adjourned and following a management conference on October 6, 2005, the Civil Division Presiding Judge entered an order establishing February 28, 2006, as the discovery end date, and scheduling a management conference for March 9, 2006.

During the discovery period, plaintiffs failed to respond to Liberty Mutual's supplemental demand for documents. Following a motion by Liberty Mutual to dismiss the amended complaint, on December 9, 2005, the trial judge, though denying Liberty Mutual's motion to dismiss, ordered that "plaintiff[s] shall certify to the defense that all documents have been produced. Any document not produced shall be barred at the time of trial."

On January 4, 2006, plaintiffs filed a motion to strike Liberty Mutual's answer and defenses because Liberty Mutual purportedly failed to timely provide specific answers to interrogatories. Liberty Mutual responded that it had provided interrogatory answers about eleven months earlier, in February 2005, and had provided a replacement set of answers in August 2005, after plaintiffs indicated that they had lost the original answers. Liberty Mutual also provided an item-by-item response to plaintiffs' request for more specific answers. The court denied plaintiffs' motion.

On January 17, 2006, Liberty Mutual filed a motion to dismiss plaintiffs' complaint with prejudice for failure to comply with the December 9, 2005 court order. Liberty Mutual asserted that plaintiffs had failed to provide any documents in discovery and had also failed to certify that all documents had been produced, as required in the December 9, 2005 order. Plaintiffs responded to Liberty Mutual's dismissal motion that many documents had already been, or would be, supplied.

On February 13, 2006, Liberty Mutual filed a motion to amend its answer and to include a counterclaim against plaintiffs for insurance fraud.

Next, with the discovery end date of February 28, 2006 approaching, plaintiffs filed a motion with the Presiding Judge on February 24, 2006, to extend the discovery period. The court denied the motion without prejudice on March 17, 2006, evidently because plaintiffs failed to include a proposed order. Plaintiffs refiled that motion to extend discovery on March 27, 2006. The Presiding Judge did not decide the motion on the return date.

Meanwhile, on March 9, 2006, the Presiding Judge rescheduled trial for May 15, 2006. On March 17, 2006, the trial judge heard argument on Liberty Mutual's motion to dismiss plaintiffs' complaint for failure to comply with his order requiring plaintiffs to certify that all documents had been produced. Plaintiffs argued that they needed more time for discovery. The judge held that the discovery period had ended on February 28, 2006, and indicated further that, in light of the impending trial date of May 15, 2006, defendants had been prejudiced by plaintiffs' failure to certify that all discoverable documents had been produced. Consequently, though the judge did not dismiss plaintiffs' complaint, he entered an order that barred them from submitting additional proofs after the discovery end date.

Also on March 17, 2006, the trial judge addressed and denied Liberty Mutual's motion to amend its answer and to assert a fraud-based counterclaim against plaintiffs. The judge denied the requested relief because "[t]his matter has a trial date. Furthermore, discovery has been completed as of 2/28/06."

On April 4, 2006, the trial judge entered another order, barring plaintiffs "from producing any additional documents of any nature whatsoever including experts' reports after the February 28, 2006 discovery end date, and it is further ORDERED that plaintiffs be and are hereby barred from using any such documents at the time of trial."

The next day, Liberty Mutual filed a motion for summary judgment, seeking the dismissal of plaintiffs' claims against it, chiefly on the basis of plaintiffs' alleged fraud. In turn, Sarasohn and Reconstruction Builders, and their principals; Preferred; and Commercial, moved for summary judgment, seeking the dismissal of all claims against them, on the basis of a failure of proof. Plaintiffs' opposition to the summary judgment motions did not include experts' reports.

On April 28, 2006, the Presiding Judge entered an order denying plaintiffs' motion to extend the discovery period. In a letter opinion dated September 12, 2006, the judge indicated that plaintiffs' counsel had "omitted key facts from his certification regarding this case" and that she had "no choice" but to deny the motion for extension, in light of the trial judge's order that barred production of the materials that plaintiffs sought to produce.

Following argument on May 12, 2006, the trial judge granted all defendants' summary judgment motions.*fn2 He reasoned that plaintiffs' fraud precluded their claim for insurance coverage against Liberty Mutual, and that plaintiffs had failed to provide sufficient evidence against the remaining defendants to survive the summary judgment motions. The court memorialized its decision in an order of that date. At that point, only RK and McGuinness remained as defendants.

Plaintiffs moved for reconsideration. In their moving papers, they, for the first time, included experts' reports and other materials, even though those reports and materials had not been produced before the discovery end date. Reconstruction Builders cross-moved for summary judgment on its counterclaim against plaintiffs.

In denying plaintiffs' motion for reconsideration, the trial judge declined to consider any of the materials that had not been submitted prior to the discovery end date. The court also denied Reconstruction Builders' cross-motion for summary judgment on the counterclaim, finding sufficient evidence to raise a jury question as to whether Reconstruction Builders negligently performed its obligations as general contractor. Reconstruction Builders' counterclaim was dismissed at the trial call on May 15, 2007. The record does not contain the reasons for its dismissal. Following the filing of plaintiffs' appeal,*fn3 the trial judge entered an order, with the consent of the parties, dismissing plaintiffs' claims against RK and McGuinness.

Against this factual and procedural backdrop, we begin our discussion with plaintiffs' challenge to the denial of their motions to extend discovery. Their arguments are without merit.

Motions to extend discovery to obtain experts' reports implicate Rule 4:17-7 and Rule 4:24-1(c). Bender v. Adelson, 187 N.J. 411, 426-27 (2006). Rule 4:17-7 requires that untimely requests to amend answers to interrogatories "be accompanied by a showing of due diligence." Id. at 426. It also requires that amended answers to interrogatories shall be served "not later than 20 days prior to the end date of the discovery period." R. 4:17-7. Rule 4:24-1(c) calls for a showing of "exceptional circumstances" to extend the discovery period after a trial date has been fixed. Bender, supra, 187 N.J. at 426-27.

Here, plaintiffs' motion to extend discovery was untimely. It was filed on February 24, 2006, less than twenty days before February 28, 2006, the scheduled discovery end date. Plaintiffs also failed to establish that the information in the amendments to their answers to interrogatories was not reasonably available and discoverable by the exercise of due diligence before the discovery end date. In addition, plaintiffs filed their motion to extend discovery well after the case had first been scheduled for trial and have failed to show good cause, let alone exceptional circumstances, to excuse their failure to timely amend their interrogatory answers.

Plaintiffs point to an on-site inspection of their home during which they purportedly learned for the first time that Reconstruction Builders had negligently failed to replace certain ductwork in the home that was a source of continuing mold contamination. They assert that this inspection was "the very reason why [they] requested the extension of discovery for their expert to be able to submit the supplemental report." In making this argument, plaintiffs failed to point out that the home inspection took place on February 9, 2005, more than a year before the February 28, 2006 discovery end date.

In their motion to the Presiding Judge, plaintiffs made no attempt to show due diligence or exceptional circumstances. They simply claimed that their reason for seeking the extension of discovery was that the case was complex and more discovery was required. That reason did not satisfy the controlling court rules.

In sum, neither judge's refusal to extend the discovery end date was an abuse of discretion. Id. at 428 (standard on review of trial court's decision to bar amendments to interrogatory answers and deny further discovery extensions is abuse of discretion).

That takes us to the trial judge's refusal to consider the experts' reports plaintiffs submitted along with their motion for reconsideration of the summary judgment orders. The court refused to address or consider any of the attachments that plaintiffs had failed to produce before the discovery end date.

On appeal, plaintiffs argue that they should have been able to submit experts' reports and opinions based on the comprehensive home inspection that took place on February 9, 2005. As we pointed out, however, the inspection took place more than a year before the discovery end date. Plaintiffs do not explain why they could not have timely submitted these experts' reports.

Similarly, plaintiffs did not adequately explain to the trial judge why they failed to timely submit even those experts' reports that had been prepared prior to the expiration of the discovery period. Plaintiffs did not assert either that they had acted diligently in conducting discovery or that exceptional circumstances excused their failure to produce the experts' reports in a timely manner. Thus, the judge had a sound basis upon which to refuse to address the additional proofs plaintiffs submitted as part of the reconsideration motion.

Next, we will address substantively the court's orders dismissing defendants on summary judgment. We begin with the dismissal of plaintiffs' complaint against Liberty Mutual. Plaintiffs recite a series of allegations against Liberty Mutual, detailing how Liberty Mutual purportedly mishandled their insurance claim. Plaintiffs fail to address, however, the basis for the trial court's grant of summary judgment in Liberty's favor - Morris Lucky's fraudulent conduct.

Under the insurance policy's "Concealment or Fraud" provision, an insured's fraudulent conduct relieved Liberty Mutual of any obligation to provide coverage for any property loss related to the fraud. Morris Lucky admitted that he engaged in fraudulent conduct when he falsified receipts and submitted them to Liberty Mutual for payment. Specifically, at his deposition on February 7, 2006, he testified that he wanted to correct some of the answers that he gave at a prior deposition. He essentially stated that his prior testimony, that he had paid his mother $4800 in rent; that he had paid approximately $9500 in labor charges for construction of a fence; and that he had paid $2000 for rent while Lillie Lucky stayed with a friend, was false. This testimony supports the trial court's decision to dismiss plaintiffs' claims against Liberty Mutual. Plaintiffs' remaining arguments as to why their claims against Liberty Mutual should not have been dismissed are without sufficient merit to warrant additional discussion. R. 2:11-3(e)(1)(E).

We turn next to plaintiffs' claims against the contractors. We begin with Sarasohn and its principal, Joseph Giambattista.

In opposition to their motion for summary judgment, plaintiffs submitted a letter from Liberty Mutual's claims adjuster, Lander; RK's July 26, 2004 report; Environmental Safety Management Corporation's report of April 19, 2005, which had been submitted on behalf of Liberty Mutual; and Windsor's expert report of February 21, 2005. Those materials contain no evidence that would implicate liability to plaintiffs by Sarasohn or Giambattista. Nor did plaintiffs explain in their argument in the Law Division, or to this court, what actions these defendants took, or how they failed to act, which resulted in damages to plaintiffs. Summary judgment as to these defendants was appropriate.

We reach a similar result as to defendants Preferred and Commercial. Essentially, plaintiffs contend that, because the experts' reports indicate that there was a continuing mold problem in the home after Preferred and Commercial had completed their mold-abatement work, they must have been negligent. The trial court rejected this argument, reasoning that plaintiffs failed to submit proof either that Preferred or Commercial had been negligent, or that the mold problem was not the result of some event occurring after they had completed their work.

We agree. A review of the proofs available to the trial court with the summary judgment motion reveals no evidence from which it can be inferred that either Preferred or Commercial was negligent. On the contrary, RK's cover letter of July 26, 2004 to Liberty Mutual's claim adjuster states that "[w]e believe that Preferred Cleaning and Commercial Drying Technologies did a good job and recommend payment of their invoices." Plaintiffs simply presented no proof that Preferred or Commercial failed to abate the mold that was present when they performed the services at plaintiffs' home. Accordingly, the trial court did not err in granting summary judgment in their favor.

The remaining defendants are Reconstruction Builders and its principal, Kevin Mulligan. At argument on the summary judgment motions on May 12, 2006, after the trial court had made findings with regard to the remaining defendants, counsel for Reconstruction Builders stated, "Also Reconstruction Builders and Kevin Mulligan. Judge, they were not involved in the remediation process." The court responded: "That's right. They were not involved in the mold at all."

We agree as to Mulligan. Reconstruction Builders is a corporation. Plaintiffs have submitted no evidence to prove that Mulligan has any personal liability.

We disagree, however, with the court's conclusion as to Reconstruction Builders. Before the litigation began, plaintiffs hired RK to prepare a post-remedial evaluation. That report, dated July 26, 2004, stated that Reconstruction Builders' painting of the walls, floor and other surfaces in the basement of the home was "ill advised" and a contributing cause of the mold contamination. The report further indicated that ductwork in the home's heating system had not been replaced by Reconstruction Builders, and the ductwork was the source of mold contamination. In addition, Windsor's February 21, 2005 report contained a notation that "a large amount of gypsum board was discovered inside" the ductwork that Reconstruction Builders was to have replaced, but did not. Considering this evidence in the light most favorable to plaintiffs as is required in addressing defendants' summary judgment motion, see Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995), plaintiffs have presented competent evidential materials to defeat Reconstruction Builders' summary judgment motion.

We are mindful that RK was a defendant in this case. Nevertheless, RK was, from the outset, plaintiffs' expert in mold abatement remediation. Although RK's fee was paid by Liberty Mutual, no dispute exists that it was plaintiffs who hired RK without a referral or recommendation by Liberty Mutual. Simply because RK was subsequently a defendant in the litigation does not mean that its opinion that a co-defendant took action that contributed to plaintiff's mold problem is not competent evidence.

That said, we also recognize that issues may arise, financial and otherwise, as to Michael McGuinness's, RK's principal, willingness to testify as a witness on behalf of plaintiffs at trial. Those issues, however, must abide specific objections, and are best first addressed by the Law Division on a complete record.

Plaintiffs have made various other arguments to support their position that summary judgment was improperly granted as to all defendants, and that the judges abused their discretion in failing to grant plaintiffs' motions for additional discovery. We find those additional arguments to be without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

In sum, we affirm dismissal of all of plaintiffs' claims with the exception of its claim against Reconstruction Builders. We reverse the dismissal of the complaint as to that defendant and remand for further proceedings consistent with this opinion.

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