April 24, 2008
ARC FAMILY, LLC, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
RALPH PARNES ASSOCIATES, INC., DEFENDANT-APPELLANT/CROSS-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4751-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 17, 2007
Before Judges S. L. Reisner, Gilroy and Baxter.
This is an insurance broker malpractice action. Defendant Ralph Parnes Associates, Inc., a licensed insurance broker, appeals from the April 18, 2006, order, which awarded plaintiff Arc Family, LLC: 1) $1,610,000 for defendant's negligence in securing adequate replacement cost property insurance, together with prejudgment interest in the amount of $178,953.22; and 2) $37,641.88 for defendant's negligence in setting the policy limits for business interruption insurance, together with prejudgment interest in the amount of $4,155.09. Defendant also appeals from the order of May 30, 2006, which denied its motion for judgment notwithstanding the verdict (JNOV); or in the alternative, for a new trial on damages or for a remittitur. Plaintiff cross-appeals, and we affirm in all respects.
Plaintiff, a limited liability company, owned by Alex and Susan Cocoziello, purchased the Radburn Plaza Building, Fairlawn (the Building), in 1999. The Building was partially destroyed by fire in 2002. On June 2, 2003, plaintiff filed an insurance broker malpractice action, alleging that defendant was negligent in securing adequate replacement cost property insurance and business interruption insurance on the Building.
The matter was tried to a jury. During the trial, defendant stipulated to its negligence in determining the amount of business interruption insurance, but did not stipulate as to the amount of damages; instead defendant agreed to submit the issue of damages to the court. At the conclusion of the trial, the jury awarded plaintiff $5,000,000 in damages, determining that defendant was negligent in procuring sufficient replacement cost insurance. The jury also found that plaintiff was comparatively negligent, assessing 70% fault to defendant and 30% to plaintiff.
On April 11, 2006, the court conducted oral argument regarding molding the verdict. On April 18, 2006, Judge Merkelbach entered an order, supported by a written opinion, determining that plaintiff was entitled to $1,610,000 in replacement cost damages ($5,000,000 (verdict) - $2,700,000 (insurance proceeds previously received) - $690,000 (30% of $2,300,000)). The trial judge also found plaintiff was entitled to $37,641.88 in business interruption damages. On May 30, 2006, defendant's motion for JNOV, or in the alternative, for a new trial on damages or for a remittitur, was denied.
A. THE BUILDING
In 1999, plaintiff purchased the Building for $3,800,000. The 32,000 square-foot Building was built in 1929 as part of the Radburn Association (the Association), a planned community. The Association is empowered to, among other things, compel property owners to perform restorations or repairs in conformance with certain aesthetic standards of the planned community.
The Building consisted of a north and south wing, separated in the center by an illuminated clock tower. The Building's exterior was comprised primarily of brick and stone, with decorative arches and concrete markings at the corners of the Building. The three-story Building had a deeply pitched Vermont slate roof, and the clock tower had both a slate and copper roof. In 1999, the first level of the Building was occupied by various retail establishments, including a bank, restaurant, barbershop, and a pharmacy. The second and third floors were occupied by commercial offices, and the basement was unoccupied.
B. THE POLICY
In early 1999, Alex Cocoziello contacted Cary Smollen, a licensed insurance broker employed by defendant, to obtain insurance for the Building. Alex told Smollen that he wanted to secure a policy covering the full replacement cost of the Building and any potential loss of rental income. During the conversation Smollen wrote down certain information, including, the address of the Building, the purchase price, and the square footage of the commercial space. Alex's real estate broker provided Smollen with information indicating that the Building's 1999 rental income was $614,504. Alex told Smollen to contact Crew Shielke, the Cocoziellos' real estate attorney, if he needed any additional information to procure the insurance policies.
Smollen conducted a site inspection of the Building shortly after his conversation with Alex. Smollen took notes during the inspection, listing the names of the various commercial tenants, the number of offices, and the condition of the Building. Smollen testified that, generally, in procuring replacement cost insurance on a commercial building, he considers the square footage, type of construction, the age, condition, and location of the building, and "any particulars of the building that may be different from your average run[-]of[-]the[-]mill building." He then determines a square footage cost, with input from the insurance carrier. Finally, Smollen "ballpark[s]" the replacement cost of the building based on his experience with other similar properties.
Smollen procured a one-year, renewable, comprehensive general liability insurance policy, which included fire insurance, from Greater New York Mutual Insurance Company, effective May 27, 1999. The policy, which was not submitted into evidence, provided $2,600,000 in replacement cost property coverage, with a $100,000 code upgrade, and $613,504 in lost rental or business interruption coverage.
With regard to the business interruption coverage, Smollen informed Alex that it was company policy to adjust the lost rental coverage every five years. Nonetheless, although the insurance policy was annually renewed from 1999 to 2001, the amounts of coverages remained the same, even though the yearly rental income had increased from $614,504 to $791,496, and improvements had been made to the Building.
At trial, Smollen conceded that Alex had told him to purchase as much insurance as possible for the Building. However, the parties disputed how the replacement cost insurance value had been determined. Alex denied expressing any opinion as to the replacement cost for the Building, asserting he had no experience in that area, and relied on Smollen's expertise. Smollen denied that Alex had asked him to formulate the replacement cost for the Building, testifying that he was unaware who had formulated the replacement cost; although he believed that $2,600,000, the amount of replacement cost insurance procured, was the actual replacement value of the Building. Nonetheless, during cross-examination, Smollen was confronted with his pretrial deposition testimony in which he testified that:
Question: How did you arrive at $2.6 million as a replacement value of the [B]uilding?
Answer: Judging by the size and condition of the building, less the value for property, because if the building [was] totally destroyed the land itself would have some value, we came up . . . with $2.6 million.
Question: Who is we?
Question: All right.
Answer: And Dr. Cocoziello.
Question: When you say and Dr. Cocoziello, do you recall any discussions with him, with him saying insure for 2.6 or 2.6 sounds right?
Answer: I recall him saying 2.6 sounds like an accurate number.
When confronted with his deposition testimony, Smollen asserted that he had been "caught off-guard" at the deposition and, for the first time, implied that he may have been provided the replacement cost value by Shielke, the Cocoziellos' attorney, who had died prior to trial. In response, Alex testified that Shielke never expressed an expertise in determining commercial real estate value and had not provided him with a replacement value for the Building.
C. THE FIRE
On October 1, 2002, a fire started in the basement of the south wing of the Building. The firefighters attempted to extinguish the blaze by cutting a large vent hole in the roof and using aerial equipment to direct streams of water into the south wing of the Building, while simultaneously spraying water on the clock tower to prevent the fire from spreading. Eventually the fire spread to the roof of the south wing, causing it to collapse. The south wing of the Building was completely destroyed by the fire. However, the amount of damage to the north wing and clock tower was subject to dispute.
During the night of the fire, Shielke contacted the Cocoziellos, who were on vacation. Alex directed Shielke to do "whatever was necessary in order to get things going," including hiring an adjuster to address the insurance claim and a structural engineer to begin rebuilding. Alex then contacted Joel Ives, an architect whose office had been located in the Building, and asked him to "start drawing up plans right away."
Shortly after the fire, Thomas Metzler, the Director of Emergency Services for the Borough of Fair Lawn, and Thomas Van Hook, the construction and zoning officer for the Borough, conducted independent inspections of the Building and concluded that the clock tower and north wing, although intact, had sustained extensive smoke and water damage. Both officials found that the majority of the damage had occurred on the first and second floors, although the third floor of the north wing, as well as the clock tower, had also sustained smoke and water damage.
Specifically, Metzler found that a significant amount of water had flowed through those portions of the Building as a result of the firefighting efforts and that the Building had sustained smoke damage throughout. Van Hook also found that: many of the ceilings in the commercial spaces located in the remaining sections of the Building had collapsed; some floors had caved in; some floors and walls had buckled; light fixtures and air-conditioning ducts were hanging from the ceiling; water had pooled on the floors; most of the walls were streaked with smoke, soot, and water; and several feet of water had accumulated in the basement. Additionally, Van Hook found that the slate roofs on the north wing and clock tower had sustained significant damage in that many tiles "were loose or appeared to have been moved." Van Hook noted that some of the tiles had lifted up or cracked as a result of the high pressure of the water that had been sprayed onto the roof.
Ultimately, the Borough directed plaintiff to replace the elevator, boiler, and electrical system, all having sustained significant damage; and to remove and replace all of the wet ceilings, walls, and floors, and the storefronts in the clock tower and north wing. In contrast, as discussed infra, defendant's experts found that the north wing and clock tower had sustained only minimal damage.
D. THE REPAIRS
Immediately after the fire, Alex hired Michael Lagrotteria, a contractor, to oversee the project. Demolition of the south wing began within days. Shortly thereafter, Alex hired contractors to remove the walls, wiring, ceiling, and floors in the north wing and the clock tower, to enable the Borough's engineer to ascertain whether the Building was structurally sound. Alex maintained that the remaining sections of the Building were extensively damaged, claiming that smoke had been absorbed into the plaster walls, and the acrid smell could only be remedied by removing the walls. Nonetheless, Alex tried to salvage as much of the north wing as possible because he wanted to get his tenants back into the Building quickly.
Ives completed the architectural plans for the Building in May or June 2003. The plans initially called for installation of a synthetic roof, but the Association did not approve that part of the plan, requiring plaintiff to replace the roof with slate tiles. The Association did, however, permit plaintiff to use less expensive aluminum windows and store fronts, rather than the original wood windows and store fronts. The north wing and the clock tower were completed in April 2004, and the south wing was completed in March 2005. According to Alex, as of January 16, 2005, the cost of the repairs totaled $6,299,203.06.
E. THE INSURANCE PROCEEDS
Meanwhile, Greater New York engaged independent adjusters for the purpose of assessing the covered loss under the policy. Greater New York retained Viking Adjustment, who in turn, hired Tom Rubino, an appraiser employed by C.J. Rubino and Sons. Alex engaged a public adjuster, Gillespie and Gibson, to represent plaintiff's interest, who in turn, hired Carl Rodriguez,*fn1 an appraiser employed by C.M.R. Construction. Rubino and Rodriguez coordinated their work at the site and agreed for the most part on the extent of the physical damage to the Building; however, each independently determined the monetary loss. Rubino reported to Viking that the estimated losses incurred as a result of the fire totaled $2,908,464.12.*fn2 In April or May 2003, based on Viking's report, Greater New York paid plaintiff the full policy limits of $2,600,000 for replacement costs, $100,000 for code upgrades, and $613,504 for business interruption or lost rental income.
F. EXPERT TESTIMONY
Plaintiff's liability expert, John Klagholz, testified that plaintiff had hired defendant to procure a policy on the Building that would provide coverage on a replacement cost basis. Generally, an insurance producer has no duty to establish the replacement value of property. Instead, the replacement cost of a commercial building is usually determined by an experienced appraiser, accountant, or contractor. However, once an insurance producer undertakes to determine replacement cost, as in this case, the producer then owes the insured a duty to exercise reasonable skill, care, and diligence in not only making an accurate determination, but also in procuring adequate coverage. Klagholz opined that defendant breached that duty because Smollen had applied a flawed methodology in calculating the replacement cost.
Klagholz found that Smollen had calculated the $2,600,000 replacement value by simply "considering the square footage of the [B]uilding and the condition of the [B]uilding minus some value that he assigned for the value of land." It appeared to Klagholz that Smollen had arrived at the replacement cost by simply subtracting an estimated value of the land from the purchase price ($3,800,000 (purchase price) - $1,200,000 (estimated value of land) = $2,600,000 (replacement cost)). Klagholz opined that this methodology was "not consistent with the fiduciary relationship and the obligation of the producer to be knowingly accurate in these representations. You can't just take a guess at it. You have to be correct." Klagholz stated that Smollen should have considered the structural components of the Building, such as the slate roof and brick exterior, in calculating replacement costs.
According to Klagholz, if the insurance producer did not procure sufficient coverage, it would be liable for the actual replacement cost of the Building as of the time the coverage was placed. In responding to a hypothetical question, Klagholz testified:
Q: I want you to assume that the actual replacement cost of the Radburn Plaza as of the time that [defendant] . . . placed the April, 2002 policy of insurance was seven million dollars. Do you have an opinion as to what amount of insurance should have been placed by [defendant] in connection with that April, 2002 policy on the [B]uilding?
A: Seven million dollars.
On redirect, Klagholz further testified that:
Q: Now, you were asked . . . what if the replacement cost for the [B]uilding was 3.4 million dollars or 3.2 million dollars . . . . Is there any reason why[,] had the value of the [B]uilding been 3.4 million dollars[,] coverage wouldn't have been placed in that amount?
A: There's . . . no reason . . . . [In] my opinion, it could not have been placed.
Conversely, Franklin Seigel, defendant's liability expert, opined that defendant had not breached the applicable standard of care because a broker has no obligation to calculate replacement cost for an insured, and he found no indication in the record that defendant had undertaken such a duty. However, on the assumption that he was being asked a hypothetical question, Seigel admitted that "to the extent that a broker undertakes the duty for its client who's relying upon that broker to determine the replacement value of a building . . . and that broker ballparks or guesstimates a number and plugs it in as the replacement cost[,] that broker breached a duty if he's wrong . . . ."
Seigel also concluded that plaintiff, through Alex, had breached its duty to provide Smollen with all information necessary to properly insure the Building. Seigel determined that Alex had failed to inform defendant of the existence of the Association, whose regulatory power should have been a material consideration in the determination of replacement costs and in the formation of the policy. "So if an insured has superior knowledge and knows something about a particular structure or a particular item, [the insured has] an obligation to communicate that to us as brokers, in order to obtain the proper value."
2. REPLACEMENT COSTS
Ives, plaintiff's architect, was hired to design plans to rebuild the Building as closely as possible to its prior appearance and in the most cost effective manner. Ives explained that his design utilized more cost effective modern materials, for instance, sheet rock instead of plaster as utilized in the original construction.
Ives determined that extensive repair to the north wing and clock tower was necessary because of the amount of water, smoke, and firefighting-related damage to those sections. For example, Ives stated that plaintiff had properly replaced the slate roof because the tiles on the north wing and the clock tower, although still intact, had sustained significant damage when the firefighters directed high pressure water onto them. He observed that many of the tiles were damaged, and thus a contractor would have had to remove and examine each tile to assess whether it could be reused. Moreover, a contractor would not have been able to match the new slate tiles installed on the south wing roof with the older tiles on the remainder of the Building.
George Stekovich, plaintiff's expert in the field of construction estimations, opined that the replacement cost for the Building as of 2002, was $6,800,000. In deriving that figure, Stekovich reviewed the architectural plans prepared by Ives for rebuilding the south wing; calculated the amount of materials needed for construction by doubling the materials required for rebuilding the south wing; and estimated the materials needed to rebuild the clock tower based on perimeter dimensions and interior layouts.
Once Stekovich had determined what materials were required, he inputted that information, along with other data such as the size of the Building and the type of construction, into the "Means Guide" computer program, a program that provides average construction costs for various materials in a particular region. The program estimated the costs of various aspects of the project, for a total replacement cost of $5,987,296.63.
Stekovich added to that amount a 10% overhead profit and a 10% contingency, for a total of $7,173,955.95, and then adjusted that amount downward for inflation, concluding that the replacement cost for the Building in 2002 was approximately $6,800,000.
Regarding the actual cost of the replacement, Don Erwin, plaintiff's expert in the field of restoring buildings, opined that the work performed on the Building was necessary "to bring the Building back to its pre-fire condition," and that the $6,400,000*fn3 spent by plaintiff to restore the Building was reasonable. In support of that conclusion, Erwin reviewed photographs depicting the Building before and after the fire; visited the site and examined the architectural plans; interviewed Alex, the architect, the construction manager, and several of the vendors to determine what repairs were done and why; and also reviewed the deposition testimony of the Building inspector and read the experts' reports. Based on this information, Erwin concluded that the south wing had been completely destroyed by the fire, and that the remainder of the Building had suffered extensive smoke, water, and firefighting-related damage.
Erwin next examined boxes of invoices and cancelled checks, separating the documents into categories of repairs, and then traced those amounts back to specific repairs to ensure that they represented reasonable rebuilding expenses. Erwin explained that he rejected any expenses that appeared questionable, or could not be traced to a specific repair.
Erwin testified in detail as to the scope of the reconstruction work conducted and why the work was necessary. Erwin admitted, however, that he did not separate the expenses incurred in phase one - the repairs to the north wing and clock tower, from phase two - the rebuilding of the south wing.
Erwin indicated that he had received from plaintiff the type of information typically used by architects in investigating the cost to restore a building. However, Erwin acknowledged that he would have liked to have had received a comprehensive survey of the damage to each room, including photographs, but he had been told that such a survey did not exist. Erwin could not recall if he had received the survey of damages prepared by Gillespie and Gibson, which would have included Rodriguez's findings.
Conversely, Dennis DiMillo, a construction consultant employed by DBI Construction Consultants, and defendant's expert in construction oversight, damage evaluation, and cost estimation, opined that the cost for the project should have totaled $2,967,373. He found that although the south wing had been completely destroyed, the north wing and clock tower had sustained only "limited smoke and water damage."
DiMillo explained that his calculation of reasonable costs varied from plaintiff's because much of the work performed by plaintiff in the north wing and clock tower had exceeded the scope of necessary repairs. He found that plaintiff had replaced the old boiler system with a new forced-air heating system, and had rewired the north wing to provide each tenant with a separate meter. Additionally, he found that plaintiff had replaced several windows and a decorative steel railing in the north wing that had sustained no damage. Plaintiff had also replaced the entire plumbing system in the north wing, not because it was damaged, but rather to accommodate a desired change in the floor plan.
According to DeMillo, one of the most significant examples of unnecessary expenses was the replacement of the slate roof. Although DeMillo conceded that the slate roof had to be replaced in the south wing, he determined that the slate roof should have been repaired, not replaced, in the north wing and clock tower, because the slate was intact in those sections. DeMillo also found no damage to the copper roof, excluding any allowance for that repair. Thus, he concluded that the total cost of the recommended roof repairs should have been approximately $151,500, not $578,000 as claimed by plaintiff. Finally, DeMillo used a computer program as an additional method of deriving replacement costs. Using that program, he calculated that in 1999 the replacement cost for the entire Building was $3,456,714.
On appeal, defendant argues:
IN ITS CHARGE AND IN ITS FAILURE TO GRANT AN INVOLUNTARY DISMISSAL, THE TRIAL COURT ERRED IN MODIFYING THE PLAINTIFF'S BURDEN OF PROVING DAMAGES WITHIN THE CONTEXT OF COVERAGE.
A. PLAINTIFF FAILED TO ESTABLISH A PRIMA FACIE CASE OF LIABILITY.
B. PLAINTIFF FAILED TO SUBMIT ADEQUATE PROOFS ON THE AMOUNT OF DAMAGES THAT WOULD HAVE BEEN COVERED UNDER A POLICY WITH HIGHER LIMITS.
THE TRIAL COURT ERRED IN DENYING DEFENDANT'S MOTION FOR DISMISSAL AT THE CLOSE OF ALL EVIDENCE.
THE TRIAL COURT ERRED IN FAILING TO PROPERLY CHARGE THE JURY ON THE MEASURE OF DAMAGES AND FAILING TO ISSUE SUFFICIENT JURY INTERROGATORIES.
THE TRIAL COURT ERRED IN THE METHOD APPLIED TO MOLD THE VERDICT TO REFLECT PLAINTIFF'S COMPARATIVE NEGLIGENCE.
THE TRIAL COURT ERRED IN DENYING DEFENDANT'S MOTION TO PRECLUDE THE TESTIMONY OF CERTAIN OF PLAINTIFF'S EXPERTS.
A. THE REPORT OF CONSTRUCTION ESTIMATORS SHOULD HAVE BEEN EXCLUDED AS IRRELEVANT.
THE TRIAL COURT ERRED IN DENYING DEFENDANT'S MOTION FOR ADVERSE INFERENCE BASED UPON PLAINTIFF'S FAILURE TO CALL MICHAEL LAGROTTERIA AND MEJORE CONSTRUCTION.
THE TRIAL COURT ERRED IN PRECLUDING DEFENSE COUNSEL FROM CROSS-EXAMINING PLAINTIFF'S WITNESSES REGARDING THE BERGEN COUNTY SUBROGATION CASE.
THE TRIAL COURT ERRED IN DENYING DEFENDANT'S MOTION FOR JNOV[,] OR IN THE ALTERNATIVE[,] FOR A NEW TRIAL ON DAMAGES OR REMITT[IT]UR.
On its cross-appeal, plaintiff argues:
THE TRIAL COURT ERRED IN FAILING TO DISMISS DEFENDANT'S COMPARATIVE FAULT DEFENSE AND IN ALLOWING THE JURY TO CONSIDER WHETHER PLAINTIFF HAD BEEN COMPARATIVELY NEGLIGENT.
THE TRIAL COURT ERRED IN PRECLUDING THE TESTIMONY OF PLAINTIFF'S EXPERT WITH REGARD TO DEFENDANT'S LIABILITY IN SETTING THE LOST BUSINESS INSURANCE LIMITS AND IN LIMITING PLAINTIFF'S RECOVERY OF LOST BUSINESS INSURANCE TO A PERIOD OF ONE YEAR.
We first address defendant's arguments. Defendant argues in Point I that the trial court erred in denying its motion for an involuntary dismissal, and in part of Point VIII that the court erred in denying its motion for a JNOV. We disagree.
At the close of plaintiff's case, defendant moved for an involuntary dismissal, arguing that plaintiff had failed to present evidence of what "a reasonable broker would have insured this building for in 1999 or renewed it for in 2002." Defendant asserted that plaintiff had only presented evidence of the actual costs of renovation, which were upgrades and would not have been included by a broker in determining reasonable replacement costs.
The trial court denied the motion, concluding that plaintiff had presented sufficient expert testimony regarding replacement costs. Specifically, the court found that Klagholz, in response to a hypothetical, had testified that if the actual replacement cost of the building in 2002 had been $7,000,000, then defendant should have procured a policy for that amount. Moreover, Erwin, Ives, and Stekovich had testified as to the "cost to replace the building . . . subject, of course, to required [c]ode updates."
Thereafter, in denying defendant's motion for a JNOV, the court found that plaintiff had: presented evidence establishing the replacement cost of the Radburn Plaza Building in 2002. Specifically, Mr. Ives testified that after the fire he designed replacement architectural plans that would mimic the exterior, façade, and interior structure of Radburn Plaza using modern means and methods.
Mr. [Stekovich] then testified that it was common in construction estimation fields to use design drawings provided by architects to develop estimates to arrive at the final construction estimate. Further Mr. [Stekovich] testified that in compliance with accepted practices, he used Mr. Ives plans to develop a replacement cost estimate. Thereafter, using standard means in the construction estimation field, Mr. [Stekovich] testified that he regressed his valuation back to the [re]placement cost value in 2002. Thus, [plaintiff] proffered evidence establishing the amount of replacement cost coverage that should have been in place at the time of the fire.
Moreover, this information provided a sufficient basis for [Klagholz], plaintiff's liability expert, to answer the hypothetical [question] posed by [plaintiff's] counsel as to what the policy limits for replacement cost should have been for the Radburn Plaza Building. Mr. [Klagholz] testified that if [plaintiff] spent $7 million to rebuild the building, the proper coverage limit would be 7 million.
Motions for judgment, whether made under Rule 4:37-2(b) at the close of the plaintiff's case, under Rule 4:40-1 at the close of evidence, or under Rule 4:40-2(b) after the verdict, are "governed by the same evidential standard: '[I]f, accepting as true all the evidence which supports the position of the party defending against the motion and according him the benefit of all inferences which can reasonably and legitimately be deduced therefrom, reasonable minds could differ, the motion must be denied . . . .'" Verdicchio v. Ricca, 179 N.J. 1, 30 (2004) (citations omitted). This is the same standard which applies to trial courts, Frugis v. Bracigliano, 177 N.J. 250, 269 (2003), and which governs a motion for summary judgment. Schneider v. Simonini, 163 N.J. 336, 360 (2000); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995).
An insurance broker owes a fiduciary duty of care to the insured. Aden v. Fortsh, 169 N.J. 64, 78 (2001); Carter Lincoln-Mercury, Inc. v. Emar Group, Inc., 135 N.J. 182, 189 (1994). "A broker is not an 'order taker' who is responsible only for completing forms and accepting commissions." Aden, supra, 169 N.J. at 82. Thus, "an insurance broker who agrees to procure a specific insurance policy for another but fails to do so may be liable for damages resulting from such negligence." Id. at 79. "Liability resulting from the negligent procurement of insurance is premised on the theory that a broker 'ordinarily invites [clients] to rely upon his expertise in procuring insurance that best suits their requirements.'" Ibid. (quoting Rider v. Lynch, 42 N.J. 465, 477 (1964)). In that regard,
[o]ne who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain insurance, the law holds him to the exercise of good faith and reasonable skill, care and diligence in the execution of the commission. He is expected to possess reasonable knowledge of the types of policies, their different terms, and the coverage available in the area in which his principal seeks to be protected. [Rider, supra, 42 N.J. at 476.]
A plaintiff can establish a prima facie case of negligence against a broker if: (1) the broker neglects to procure the insurance; (2) the broker secures a policy that is either void or materially deficient; or (3) the policy does not provide the coverage the broker undertook to supply. President v. Jenkins, 180 N.J. 550, 569 (2004); Rider, supra, 42 N.J. at 476. "The damages which may be recovered for breach of an agreement to furnish an insurance policy is the loss sustained by reason of the breach, 'the amount that would have been due under the policy provided it had been obtained.'" Robinson v. Janay, 105 N.J. Super. 585, 591 (App. Div.) (quoting 43 Am. Jur. 2d, Insurance, § 174, p. 231), certif. denied, 54 N.J. 508 (1969); see also Cromartie v. Carteret Sav. & Loan, 277 N.J. Super. 88, 99 (App. Div. 1994).
Here, plaintiff's claim is based on defendant's failure to procure adequate replacement cost coverage. N.J.S.A. 17:36-5.22 permits insurers to provide for extended coverage, beyond the actual cash value of a structure, including replacement cost. "[U]nder replacement cost coverage, the insurer may be obligated to pay to rebuild the structure including any changes required to meet building codes in effect during rebuilding." 1-1 Appleman on Insurance 2d § 1.11 (2007). This coverage "may actually result in rebuilding a structure that is more sound than the destroyed property due to the improvements required by building codes." Ibid.
Courts have held that "a replacement cost policy, by definition, provides a 'make-whole' remedy." FSC Paper Corp. v. Sun Ins. Co. of N.Y., 744 F.2d 1279, 1283 (7th Cir. 1984). Such a remedy must strive to approximate the situation the insured would have occupied had the fire not occurred. Ibid. Thus, there must be a relationship of cause and effect between the fire and the replacement purchases. Ibid. In other words, the insurer must pay for whatever purchases the insured made to replace the fire-damaged building, provided those purchases were made in a commercially reasonable manner. Ibid.; see Hellbaum v. Burwell, 463 P.2d 225, 231 (Wash. Ct. App. 1969) (replacement cost means cost in a reasonable amount, and thus proof of mere expenditure does not establish that the cost was necessary or reasonable).
Defendant argues that the court erred in denying its motions for involuntary dismissal and JNOV, because plaintiff had failed to establish what the appropriate replacement cost policy limits should have been in 1999 or in 2002, when defendant last renewed the policy. Defendant contends that plaintiff presented no proof as to the appropriate amount of coverage, and thus the jury was left to speculate as to what limits defendant should have procured. Although defendant acknowledges that Klagholz testified in response to a hypothetical question, that if the actual cost to replace the Building had been $7,000,000 in 2002, then defendant should have procured a policy for that amount, it contends that because Klagholz did not testify as to the appropriate policy limits themselves, it was entitled to an involuntary dismissal or NJOV. We determine that plaintiff's proofs were not so limited.
Stekovich testified that the 2002 replacement cost for the Building was $6,800,000. He calculated that amount by reviewing the architectural plans, and inputting data into a computer program that was widely used in the industry to determine construction costs. See U.S. v. Shugart, 176 F.3d 1373, 1376 (11th Cir. 1999) (court did not err allocating replacement costs where expert testified that the method used to estimate replacement costs were generally used in insurance industry). Klagholz opined that defendant should have procured a policy in an amount sufficient to cover the actual costs of replacing the Building, and, as stated by Stekovich, that amount was $6,800,000. Accordingly, we are satisfied that the trial court correctly determined that plaintiff had presented ample evidence to support the jury's finding, that defendant failed to procure adequate insurance coverage.
Defendant contends next that given the Court's hesitancy, as set forth in Wang v. Allstate Ins. Co., 125 N.J. 2, 11-15 (1991), "to impose a duty on an insurance broker to advise an insured of the possible need for higher policy limits without a legislative mandate, the action of the court below in approving the transformation of an insurance broker into a guarantor for failure to do just that must be reversed." As defendant correctly points out, the issue of whether a duty exists is generally a question of law for the court to decide, and is largely a question of fairness or policy. Jerkins v. Anderson, 191 N.J. 285, 294 (2007); Olivo v. Owens-Illinois, Inc., 186 N.J. 394, 401 (2006). Nonetheless, "the legal determination of the existence of a duty may differ, depending on the facts of the case." Wang, supra, 125 N.J. at 15.
The parties agree that an insurance broker generally has no duty to establish the replacement value of property. However, it is also undisputed that if a broker agrees to determine replacement costs, then he or she owes the insured a duty to make an accurate determination and to procure adequate coverage. We are satisfied that there was ample evidence that Smollen, at Alex's request, had undertaken such a duty.
Wang does not support defendant's argument that the trial court erred in finding the existence of a duty. In Wang, the Court held that an insurance agent had no duty to advise an insured to consider higher amounts of homeowner's insurance. Id. at 11-12. However, in making that determination the Court found significant the absence of evidence of a "special relationship" of reliance between the insured and the agent. Id. at 16.
Generally, "a duty arises when there is a special relationship between the insurance agent and the client which indicates reliance by the client on the agent." Sobotor v. Prudential Prop. & Cas. Ins. Co., 200 N.J. Super. 333, 342 (App. Div. 1984). In Sobotor, the court found that by asking for the "best available" insurance, the insured put the agent on notice that he was relying on the agent's expertise to obtain the desired coverage. Id. at 336-39. Here, as in Sobotor, the duty arose based on the "special relationship" between plaintiff and defendant, namely Smollen's agreement to undertake the duty of determining replacement costs and Alex's reliance on defendant's expertise to do so. See Rider, supra, 42 N.J. at 481-82 (duty encompasses claims alleging that the agent or broker obtained insurance that failed to meet the insured's needs).
Contrary to defendant's argument, the imposition of such a duty did not, by itself, render defendant a guarantor for the entire amount spent in replacing the Building. See Carter, supra, 135 N.J. at 200 (imposing a duty on a broker to evaluate the financial stability of an insurer did not transform the broker into the "guarantor of the financial condition or solvency of the company from which he obtains the insurance."). Instead, once defendant undertook to calculate replacement value, it owed plaintiff a duty to use reasonable care, skill, and judgment in making an accurate determination, and plaintiff would only be entitled to recover commercially, reasonable expenditures.
Similarly unpersuasive is defendant's argument that plaintiff failed to establish that a policy was available for a higher amount of coverage. Klagholz testified that he knew of no reason why a policy for $3,400,000 could not be obtained. Although Klagholz did not specifically address whether plaintiff could have obtained a $7,000,000 policy, the jury could reasonably have found that such a policy could have been procured, given that plaintiff had presented evidence that a larger policy could have been obtained, absent any evidence to the contrary.
Defendant asserts next that even if plaintiff had established that it failed to procure adequate replacement cost insurance, plaintiff failed to submit sufficient proofs on the amount of damages that would have been covered under such a policy. As defendant correctly points out, damages are calculated as the amount that would have been due under the policy provided it had been properly obtained. See Cromartie, supra, 277 N.J. Super. at 99; Winans-Carter Corp. v. Jay & Benisch, 107 N.J. Super. 268, 274 (App. Div. 1969). Replacement cost coverage requires an insurance company to pay commercially reasonable and necessary costs associated with restoring or rebuilding a fire-damaged building. Defendant contends that plaintiff failed to present any evidence as to what amount would have been due under the policy, noting that plaintiff failed to call at trial its adjusters Gibson and Gillespie. We disagree.
Plaintiff presented ample evidence that the expenses associated with rebuilding were necessary, that is, causally related to the fire, and were reasonable. Metzler and Van Hook testified as to the extent of the damage caused by the fire; Ives testified that his architectural plans were designed to recreate the Building using the most cost effective modern materials; and Erwin testified as to the reasonableness of the actual expenditures, ultimately concluding that $6,400,000 of the money spent by plaintiff was both reasonable and necessary. In support of his conclusion, Erwin engaged in an extensive review of several sources of information and testified in detail as to the scope of the work conducted.
Defendant contends that plaintiff failed to present any evidence as to whether those expenses would have been covered under the actual policy obtained by defendant. As previously stated, plaintiff did not offer the Greater New York policy into evidence. Instead, defendant moved to admit the policy at the close of all the evidence, even though it had not presented any testimony as to the policy's contents, including limitations on coverage. The court properly denied the application, concluding that without the benefit of testimony as to the provisions of the policy, submission to the jury would cause confusion: "its probative value was substantially outweighed by the risk of confusing the jury."
In denying defendant's motion for a JNOV, the court explained that plaintiff:
[s]ubmitted evidence at trial that defendant agreed to secure a policy that would have covered [plaintiff] fully for replacement cost in the event of a loss. To the extent that defendant argues that there were restrictions in coverage in the policy it did secure, the policy secured by the defendant was inadequate and did not match [plaintiff's] request. Thus, [plaintiff] was not required to prove what insurance it would have been entitled to under the policy, which [defendant] actually procured for [plaintiff].
In support of its argument, defendant cites to Cromartie, supra, 277 N.J. Super. at 105. In that case, the defendant, a mortgage servicing agent, breached its contractual obligation when it permitted the fire insurance on the plaintiffs' property to lapse without notifying them. Id. at 96. At the time of the fire, the plaintiffs were not occupying the premises. Id. at 84. Under the lapsed policy, which was not submitted into evidence, the homeowner's occupancy of the premises was a condition of coverage. Ibid. The court held that the plaintiffs, as part of their damage case, had the burden of showing that, but for the defendant's failure to pay insurance premiums in accordance with its contract or to warn them of the lapse of their policy because of its failure to pay premiums, they would have been protected against fire loss. Id. at 105. Additionally, the court held that absent any relevant evidence showing the plaintiffs were covered, the defendant would be entitled to a judgment limiting the plaintiffs' compensatory damages to nominal damages. Ibid.
Cromartie is distinguishable. Here, plaintiff alleged that defendant had failed to procure adequate replacement cost coverage. Plaintiff had wanted to purchase sufficient insurance to cover full replacement costs, and there was ample evidence that such coverage was available. Therefore, plaintiff need not have established what limitations or exclusions would have applied under the improperly procured policy. Instead, defendant had "the burden of proving that a policy exclusion precludes coverage," Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 329 (1998), and defendant did not present any evidence as to such exclusions.
Defendant argues in Point II that the trial court erred in denying its motion for judgment. The only argument presented in Point II, not addressed previously, is defendant's contention that plaintiff failed to meet its burden of proof because it did not provide Erwin with a copy of the survey of damages prepared by Gillespie and Gibson. Defendant contends that Erwin was denied sufficient information to form an opinion as to "the damage occasioned by the loss versus what were admittedly full scale upgrades." In other words, defendant asserts that Erwin's testimony constituted a net opinion. The trial court rejected this argument, and so do we.
N.J.R.E. 703 provides that an expert's opinion must be based on "facts or data . . . perceived by or made known to the expert at or before the hearing." An expert may not, however, give a "net opinion," that is an opinion that is unsupported by factual evidence. Buckelew v. Grossbard, 87 N.J. 512, 524-25 (1981).
It is undisputed that Erwin testified that he would have liked to have had received a comprehensive survey of the damage. Nonetheless, Erwin said he had considered the type of information typically used by architects in investigating the cost to restore a building: he reviewed photographs depicting the Building before and after the fire; he visited the site and examined the architectural plans; he interviewed Alex, the architect, the construction manager, and several of the vendors to determine what repairs were done and why; and also reviewed the deposition testimony of the building inspector and read the experts' reports.
Based on a review of this information, Erwin stated that the south wing had been completely destroyed by the fire, and that the remainder of the Building had suffered extensive smoke, water, and firefighting-related damage. Erwin opined that $6,400,000 of the money spent by plaintiff to rebuild was reasonable and necessary. We conclude that Erwin's testimony was amply supported by the evidence and did not constitute an inadmissible net opinion. Moreover, Erwin's testimony was consistent with several other witnesses who testified at trial. Metzler and Van Hook determined that the clock tower and north wing, although intact, had sustained extensive smoke and water damage. Also, Stekovich opined that the replacement cost for the Building as of 2002, was $6,800,000.
Defendant argues that the court erred in failing to properly charge the jury on damages and by submitting a confusing and inaccurate question on the verdict sheet. This argument lacks merit.
Defendant objected to the instruction during the charge conference, arguing that it was "entitled to find out the . . . machinations in terms of what [the jurors] believe the reasonable cost or replacement cost policy should have been and then have them adjust the policy within that." The court rejected that argument and charged:
[p]laintiff seeks the difference between the amount of insurance proceeds Plaintiff received and those that Plaintiff contends it would have received if the appropriate coverage had been secured.
It is for you, as the jury, to determine what reasonable and necessary costs Plaintiff actually incurred to replace with materials of like kind and quality property damaged by fire, water or smoke. It is for you to decide if the levels set on the replacement policy [were] appropriate, and if not, to award damages for the amount that would have been due Plaintiff under the policy if the appropriate level of coverage had been set.
A proper jury charge is essential to a fair trial. Reynolds v. Gonzalez, 172 N.J. 266, 288 (2002). A jury charge "'must outline the function of the jury, set forth the issues, correctly state the applicable law in understandable language, and plainly spell out how the jury should apply the legal principles to the facts as it may find them . . . .'" Id. at 289 (quoting Velazquez v. Portadin, 163 N.J. 677, 688 (2000)). "The failure to tailor a jury charge to the given facts of a case constitutes reversible error where a different outcome might have prevailed had the jury been correctly charged."
Ibid. However, "an appellate court will not disturb a jury's verdict based on a trial court's instructional error 'where the charge, considered as a whole, adequately conveys the law and is unlikely to confuse or mislead the jury, even though part of the charge, standing alone, might be incorrect.'" Wade v. Kessler Inst., 172 N.J. 327, 341 (2002) (quoting Fischer v. Canario, 143 N.J. 235, 254 (1996)). That same standard applies on appeal when evaluating the adequacy of jury interrogatories or a verdict sheet. Ibid.
Defendant contends that the jury charge failed to "take into consideration that the jury was at no point presented with either the policy in question or testimony from a qualified expert explaining to them what would and would not have been covered items under a properly adjusted policy." However, as stated previously, the terms of the defective policy were not admitted into evidence, and thus, the court did not err in failing to charge the jury to consider such provisions.
Next, defendant asserts that the trial court erred in submitting a confusing and inaccurate question on the jury verdict sheet. We disagree.
The court submitted the following written question on damages to the jury:
6. Within the limits that Plaintiff would have received had the appropriate coverage been secured, what is the amount of money that Plaintiff reasonably and . . . necessarily expended to replace the property damaged by fire, smoke or water?
"'The framing of [jury] questions in clear and understandable language cannot be overemphasized.'" Ponzo v. Pelle, 166 N.J. 481, 491 (2001) (quoting Benson v. Brown, 276 N.J. Super. 553, 565 (App. Div. 1994)). "Interrogatories are meant to serve particular purposes: 'to require the jury to specifically consider the essential issues of the case, to clarify the court's charge to the jury, and to clarify the meaning of the verdict and permit error to be localized.'" Id. at 490-91 (quoting Wenner v. McEldowney & Co., 102 N.J. Super. 13, 19 (App. Div.), certif. denied, 52 N.J. 493 (1968)).
"Ordinarily, 'a trial court's interrogatories to a jury are not grounds for reversal unless they were misleading, confusing, or ambiguous.'" Id. at 490 (quoting Sons of Thunder v. Borden, Inc., 148 N.J. 396, 418 (1997)). In reviewing an interrogatory for reversible error, the appellate court should consider the question "in the context of the charge as a whole." Id. at 491. Thus, "[a]n accurate and thorough jury charge often can cure the potential for confusion that may be present in an interrogatory." Ibid.
Defendant asserts that the "combination" interrogatory improperly framed the issue of damages by failing to separate a finding as to the amount of replacement coverage defendant should have procured, from the expenses reasonably incurred in rebuilding. Here, however, the jury found that defendant was negligent in failing to procure appropriate replacement cost coverage. Plaintiff was thus entitled to damages, as defined by the court in Question Six. Although defendant may have been entitled to a finding as to precisely what the coverage should have been, ultimately, the question was whether the expenses incurred in rebuilding were commercially reasonable and attributable to the fire damage. Question Six accurately set forth the law, and defendant is not entitled to a new trial on that basis. Finally, defendant argues that Question Six was inaccurate because it did not require the jury to consider the policy limits. However, as set forth supra, such limits were not admitted into evidence and could not be considered by the jury.
Defendant argues next that the trial court erred in the method used to mold the verdict. We reject this argument.
The jury found that plaintiff was comparatively negligent, assessing 70% fault to defendant and 30% to plaintiff, and awarded plaintiff $5,000,000 in damages. Defendant argued in the Law Division that the court should have reduced the $5,000,000 award by 30%, and then subtracted the $2,700,000 insurance proceeds previously received by plaintiff. The court rejected the argument, finding:
[t]he jury was instructed not to consider insurance paid to plaintiff in determining any award of damages. This was done so that the Court would properly mold the judgment by reducing the jury's figure by the amount of insurance proceeds plaintiff received. The number determined by the jury, minus insurance proceeds received, would have been plaintiff's total damages award had the jury found no comparative negligence. Consequently, the Court must subtract insurance proceeds from the jury's dollar figure before comparative negligence can be assessed. This conclusion is consistent with the language of the statute . . . .
The court found that plaintiff was entitled to $1,610,000 in replacement cost damages ($5,000,000 verdict) - $2,700,000 (insurance received) - $690,000 (30% of $2,300,000)).
N.J.S.A. 2A:15-5.1 provides:
[c]ontributory negligence shall not bar recovery in an action by any person or his legal representative to recover damages for negligence resulting in death or injury to person or property, if such negligence was not greater than the negligence of the person against whom recovery is sought or was not greater than the combined negligence of the persons against whom recovery is sought. Any damages sustained shall be diminished by the percentage sustained of negligence attributable to the person recovering. [(emphasis added).]
And, N.J.S.A. 2A:15-5.2(a) provides that the trier of fact shall make the following findings:
(1) The amount of damages which would be recoverable by the injured party regardless of any consideration of negligence or fault, that is, the full value of the injured party's damages.
(2) The extent, in the form of a percentage, of each party's negligence or fault. The percentage of negligence or fault of each party shall be based on 100% and the total of all percentages of negligence or fault of all the parties to a suit shall be 100%.
N.J.S.A. 2A:15-5.2(d) further provides that "the judge shall mold the judgment from the findings of fact made by the trier of fact." See Brodsky v. Grinnell Haulers, Inc., 181 N.J. 102, 109 (2004) (court "mold[s] the judgment" based on the percentages of fault and computes the amount of damages owed).
Here, the "damages sustained" by plaintiff was the loss caused by defendant's malpractice, namely, the gap in coverage, or the amount that would have been due under the policy had it been properly obtained, minus any insurance proceeds received. N.J.S.A. 2A:15-5.1. In fact, as noted by the trial court, if the jury had found no contributory negligence, plaintiff would have been entitled to $5,000,000 (verdict) minus $2,700,000 (coverage received). N.J.S.A. 2A:15-5.2(a)(1). Thus, the court properly reduced the $2,300,000 "damages sustained" by plaintiff, by the percentage of negligence attributed to plaintiff, or 30%.
Nonetheless, defendant contends that in molding the verdict the court failed to consider the jury's findings of fact, as required by N.J.S.A. 2A:15-5.2(d). Defendant asserts that a review of the charge indicates that "the jury was instructed that the amount arrived at and put on the jury verdict sheet would be the damages." On that basis, defendant argues the "damages sustained" for purposes of molding the verdict was the amount awarded by the jury, or $5,000,000.
However, as previously stated, the trial court instructed the jury not to consider the insurance paid to plaintiff in determining damages, and specifically indicated that it would "set the final amount of damages for which [d]efendant is responsible." And, in its "ultimate outcome" charge the court explained that it would reduce plaintiff's "recovery of damages by its percentage of the . . . negligence that proximately caused the accident." Thus, we are satisfied that the jury understood its award would be reduced by any insurance proceeds received, and the court properly molded the verdict to reflect that finding. Accordingly, we reject defendant's argument that the court improperly ignored the jury's findings and improperly applied the collateral source rule, or that the award represents a double recovery.
Defendant argues that the trial court erred in denying its motion to bar two of plaintiff's experts, Erwin and Stekovich, from testifying at trial because their testimony was not relevant to the issue of damages. This argument is not persuasive.
Defendant moved in limine to bar the experts from testifying on the basis that their testimony concerning the actual costs to rebuild had little, if any, relevance to the measure of damages because the experts failed to address the "calculation of an insurable replacement cost, or the application of policy conditions." The court denied the motion finding that "there's enough here to set out a measure of damages." Moreover, in denying defendant's motion for a new trial the court found that Erwin's and Stekovich's testimony as to actual replacement costs was relevant in determining damages.
Trial courts are granted broad discretion in determining the relevance of evidence and whether its probative value is substantially outweighed by its prejudicial nature. Verdicchio, supra, 179 N.J. at 34; Green v. N.J. Mfrs. Ins. Co., 160 N.J. 480, 492 (1999). Relevant evidence is defined as evidence "having a tendency in reason to prove or disprove any fact of consequence to the determination of the action." N.J.R.E. 401. "To be relevant, evidence must have 'probative value, which is the tendency of the evidence to establish the proposition that it is offered to prove.'" State v. Koskovich, 168 N.J. 448, 480 (2001) (quoting State v. Wilson, 135 N.J. 4, 13 (1994)). In determining whether evidence is relevant, courts focus on the logical connection between the evidence and a fact in issue, and the evidence should be admitted if it makes the inference to be drawn more logical. Ibid.; State v. Covell, 157 N.J. 554, 565 (1999).
However, "relevant evidence may be excluded if its probative value is substantially outweighed by the risk of (a) undue prejudice, confusion of issues, or misleading the jury or (b) undue delay, waste of time, or needless presentation of cumulative evidence." N.J.R.E. 403. "The burden is clearly on the party urging exclusion of evidence to convince the court that the N.J.R.E. 403 considerations should control." Biunno, Current N.J. Rules of Evidence, comment on N.J.R.E. 403 (2007). A court's determination under N.J.R.E. 403 "should not be overturned on appeal 'unless it can be shown that the trial court palpably abused its discretion, that is, that its finding was so wide of the mark that a manifest denial of justice resulted.'" Green, supra, 160 N.J. at 492 (quoting State v. Carter, 91 N.J. 86, 106 (1982)).
Defendant argues that Erwin's and Stekovich's testimony was not relevant on the assessment of damages because they calculated the cost to rebuild the structure in accordance with the 2003 architectural plans and actual costs, and thus their testimony "bore no relevance to approximating the structure insured in 2002." Not so. Stekovich testified that the replacement cost for the Building as of 2002, the year the policy was renewed, was $6,800,000. He derived at that figure by calculating the total actual replacement costs and adjusting that amount downward for inflation to derive a 2002 replacement cost value. This testimony was highly probative as to replacement costs and therefore the court did not err in admitting it.
Nonetheless, defendant asserts that Stekovich should have determined replacement costs for 1999, the year the policy was procured, and not 2002, the year it was renewed. That argument is meritless. It is undisputed that plaintiff sought full replacement cost coverage. That policy was renewed in 2002, and the fire occurred in October of that year.
Moreover, the difference between Stekovich's estimate of $6,800,000 in replacement costs, and defendant's $2,900,000 estimate, was not dependent on whether the costs were calculated as of 1999 or 2002, but rather on the scope of allowable work. Stekovich based his estimate on a finding that the south wing had been completely destroyed and that the remaining sections had suffered extensive smoke, water, and firefighting damage. Based on that finding, he concluded that the vast majority of the work performed in the north wing and clock tower was necessary to rebuild the structure.
In contrast, DiMillo, defendant's expert, found that although the south wing had been completely destroyed, the north wing and clock tower had sustained only "limited smoke and water damage." Accordingly, he concluded that much of the work performed in the north wing and clock tower constituted upgrades and was not covered. The question of the extent of the damage and the adequacy of the replacement coverage was a question of fact for jury resolution. Therefore, Stekovich's testimony was relevant to a fact in issue.
Similarly, Erwin reviewed all of the actual expenditures for the purpose of determining whether they were reasonable and necessary to restore the Building to its pre-fire condition. He ultimately concluded that $6,400,000 of the money spent by plaintiff to restore the Building was commercially reasonable.
That testimony was highly relevant to the determination of damages.
Defendant argues next that the trial court erred in denying its motion for an adverse inference charge as to plaintiff's failure to call LaGrotteria and Rodriguez at trial, and further contends that plaintiff's counsel's comments in summation regarding Rodriguez's report effected a miscarriage of justice and warrants a new trial. We again disagree.
Plaintiff did not call LaGrotteria, the individual responsible for overseeing the reconstruction, or Rodriguez, the appraiser employed by the independent insurance adjuster. Defendant asked for an adverse inference charge as to LaGrotteria and Rodriguez. Plaintiff responded that LaGrotteria was "medically unable to sit to give testimony" and that in any event, both LaGrotteria's and Rodriguez's testimony would have been cumulative to testimony given by other witnesses. It is unclear from the record submitted whether defendant pursued the application regarding LaGrotteria. Nonetheless, in denying the application with regard to Rodriguez, the court found that plaintiff had "no duty" to call Rodriguez as a witness, and that defendant could have subpoenaed him to testify at trial.
"Generally, failure of a party to produce before a trial tribunal proof which, it appears, would serve to elucidate the facts in issue, raises a natural inference that the party so failing fears exposure of those facts would be unfavorable to him." State v. Clawans, 38 N.J. 162, 170 (1962). "The adverse inference charge, also known as the Clawans charge, is available when a party does not call to the stand a witness that the party has the power to produce and whose testimony would be superior to testimony presented at trial." Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 118 (2005).
The trial court did not err in denying the application because there is nothing in the record to suggest that LaGrotteria and Rodriguez were in a position to offer testimony superior to that otherwise presented at trial. For example, although defendant first argues that LaGrotteria could have presented testimony to determine whether Alex used his business expertise in establishing the replacement cost of the Building, there was no evidence presented that LaGrotteria had any such role. Instead, Alex had testified that he had not expressed an opinion as to the replacement cost for the Building, and had claimed he relied on Smollen's expertise to do so. In that regard, there is no indication that LaGrotteria would have presented any relevant testimony, much less superior information.
Defendant next contends that LaGrotteria could have testified as to the condition of the Building prior to the fire and as to his oversight and management of the rebuilding project. Clearly, LaGrotteria could have presented such testimony. However, there is no indication that his testimony would have been superior to that presented by other witnesses. For example, Alex, Ives, Metzler, and Van Hook presented detailed testimony as to the condition of the Building prior to the fire, and testified in detail as to the damage caused by the fire, the extent of the repairs, and the cost of the repairs.
Similarly, although Rodriguez could have testified as to his observations of the damage caused by the fire, and his estimate of costs, that evidence was cumulative, not superior, to testimony presented by several of the other witnesses, including Alex, Metzler, Van Hook, and Ives.
Defendant asserts that plaintiff's counsel's comments in summation effected a miscarriage of justice and warrants a new trial. During summation, plaintiff's counsel stated:
[I]t is true that in addition to Mr. Rubino there was a man by the name of Rodriguez who was hired by the public adjuster who also went out with his clipboard when this fire happened. You didn't hear his testimony other than for Mr. Rubino to say that he came to a significantly higher estimate.
Defendant objected and the court instructed the jury to "disregard" the statement.
Closing arguments are permitted pursuant to R. 1:7-1(b), and attorneys are generally afforded broad latitude in making such statements. Brenman v. Demello, 191 N.J. 18, 33 (2007); Fertile v. St. Michael's Med. Ctr., 169 N.J. 481, 495 (2001). Thus, "counsel may draw conclusions even if the inferences that the jury is asked to make are improbable, perhaps illogical, erroneous or even absurd . . . ." Colucci v. Oppenheim, 326 N.J. Super. 166, 177 (App. Div. 1999), certif. denied, 163 N.J. 395 (2000). But arguments "must be based in truth, and counsel may not 'misstate the evidence nor distort the factual picture.'" Bender v. Adelson, 187 N.J. 411, 431 (2006) (quoting Colucci, supra, 326 N.J. Super. at 177).
"[A] clear and firm jury charge may cure any prejudice created by counsel's improper remarks during opening or closing argument." City of Linden v. Benedict Motel Corp., 370 N.J. Super. 372, 398 (App. Div.), certif. denied, 180 N.J. 356 (2004). Juries are presumed to follow such instructions. State v. Winter, 96 N.J. 640, 649 (1984). However, "[w]hen summation commentary transgresses the boundaries of the broad latitude otherwise afforded to counsel, a trial court must grant a party's motion for a new trial if the comments are so prejudicial that 'it clearly and convincingly appears that there was a miscarriage of justice under the law.'" Bender, supra, 187 N.J. at 431 (quoting R. 4:49-1(a)); see Priolo v. Compacker, Inc., 321 N.J. Super. 21, 29 (App. Div. 1999) (wrong to suggest that anything a jury hears can be remedied by instruction); Diakamopoulos v. Monmouth Med. Ctr., 312 N.J. Super. 20, 37 (App. Div. 1998) (new trial warranted if counsel's misconduct in the aggregate rendered the trial unfair).
Here, Rubino had testified that his conclusion as to the dollar amount of the loss differed from Rodriguez's. He did not testify that Rodriguez's estimate was higher. Thus, plaintiff's counsel inaccurately told the jury that Rubino testified that Rodriguez had submitted a significantly higher estimate. However, the court promptly provided the jury with a specific instruction curing any prejudice created by counsel's brief and unrepeated remark. City of Linden, supra, 370 N.J. Super. at 398.
In that regard, this case is distinguishable from Tomeo v. N. Valley Swim Club, 201 N.J. Super. 416 (App. Div. 1985), cited by defendant. In that case, the court granted the plaintiff's motion for a new trial because, during summation, defense counsel had drawn a false inference that the defendants had no insurance and that a verdict against them would cause them to lose their house. Id. at 419. The appellate court found that the trial court failed to give the jury a proper cautionary instruction. Ibid. In contrast, here, the brief comment was much less prejudicial and the trial court gave a prompt, specific curative instruction.
Defendant argues next that the court erred in barring it from cross-examining Alex about the Bergen County subrogation action. We disagree.
In 2004, Greater New York filed a subrogation action in Bergen County to recover insurance payments made to plaintiff from the parties who allegedly started the fire. Plaintiff did not assert any individual claims for damages in that action, and the cause of the fire was not an issue in this case. In 2004 and 2005 several tenants filed separate suits in Bergen County seeking damages caused by the fire. The tenants' claims were consolidated with the subrogation suit filed by Greater New York.
Thereafter, in late 2005, defendant moved to consolidate this action with the consolidated Bergen County actions. The motion was denied by order of December 16, 2005. On February 8, 2006, an order was entered denying defendant's motion for reconsideration.
In denying defendant's motion to consolidate, the court stated in pertinent part:
In the Bergen cases, the measure of damages in the negligence cases would be all of the tort damages occurring as a result of the fire. The causation of the fire would be an element. The malpractice, which may have occurred in the setting of the policy limits, would be irrelevant. In fact, the potential for jury confusion in separating the actual losses that may be claimed by the Bergen County parties from the proper analysis for setting the limits of the policy at its inception would be detrimental to all of the parties.
Thereafter, plaintiff moved to bar defendant from referring to the Bergen County action. The court granted the motion and barred defendant from cross-examining Alex about the recovery sought in that action. Nonetheless, the court held that defendant could use any inconsistent statements made by Alex in the Bergen County action for the purpose of impeaching his credibility in this case. During trial, the court barred defense counsel from asking Alex about damages in the Bergen County case.
The scope of cross-examination rests in the broad discretion of the trial court. Casino Reinvestment Dev. Auth. v. Lustgarten, 332 N.J. Super. 472, 492 (App. Div.), certif. denied, 165 N.J. 607 (2000). On appeal, a decision to limit cross-examination will not be disturbed "unless clear error and prejudice are shown." Ibid. (quoting Glenpointe Assocs. v. Twp. of Teaneck, 241 N.J. Super. 37, 54 (App. Div.), certif. denied, 122 N.J. 391 (1990)).
We are satisfied the court did not err in limiting the scope of defendant's cross-examination regarding the Bergen County action. As the trial court determined testimony about a subrogation action filed by plaintiff's insurer was not relevant to the contested issues in this case, and would have only served to confuse the jury. Moreover, the court permitted defendant to use any inconsistent statements to impeach Alex's credibility.
Defendant argues that the trial court erred in denying its motion for a new trial because the damages awarded to plaintiff were excessive. We conclude to the contrary.
Trial courts should not interfere with jury damage awards unless so disproportionate to the injury as to shock the conscience. Baxter v. Fairmont Food Co., 74 N.J. 588, 596-97 (1977); see also Boryszewski v. Burke, 380 N.J. Super. 361, 391 (App. Div. 2005), certif. denied, 186 N.J. 242 (2006). "A trial court should set aside excessive verdicts only in 'clear cases.'" Caldwell v. Haynes, 136 N.J. 422, 432 (1994) (quoting Fritsche v. Westinghouse Elec. Corp., 55 N.J. 322, 330 (1970)). "In assessing whether the quantum of damages assessed by the jury is excessive, a trial court must consider the evidence in the light most favorable to the prevailing party in the verdict." Id. at 432; see Boryszewski, supra, 380 N.J. Super. at 391 (damage evidence is viewed in the light most favorable to prevailing party, with deference given to trial court's feel for the case). Thus, "a trial court should not interfere with a jury verdict unless the verdict is clearly against the weight of the evidence." Caldwell, supra, 136 N.J. at 432.
Here, plaintiff claimed that the replacement cost for the Building as of 2002, was $6,800,000. Conversely, defendant asserted the replacement cost was $2,967,372. The jury ultimately awarded plaintiff $5,000,000. We determine that viewing the evidence in the light most favorable to plaintiff, the verdict, which is substantially less than the amount sought by plaintiff, was amply supported by the evidence and not excessive.
Nonetheless, defendant repeats the argument, presented throughout the appeal, that the verdict was excessive because the jury failed to consider various policy exclusions. However, as previously stated, defendant presented no testimony about the exclusions at trial, nor was the policy admitted into evidence.
Moreover, as the court found, to the extent that defendant "argues that there were restrictions in coverage in the policy it did secure, the policy secured by the defendant was inadequate and did not match [plaintiff's] request [for full replacement coverage]."
We now turn to plaintiff's cross-appeal. Plaintiff argues that the court erred in denying its application to dismiss defendant's comparative fault defense. We disagree.
"[C]omparative negligence principles may be applied in professional malpractice claims in which the client's alleged negligence, although not necessarily the sole proximate cause of the harm, nevertheless contributed to or affected the professional's failure to perform according to the standard of care of the profession." Aden, supra, 169 N.J. at 77. "Nevertheless, professionals may not diminish their liability under the Comparative Negligence Act when the alleged negligence of the client relates to the task for which the professional was hired." Id. at 78. "That rule is premised on the heightened responsibilities of professionals . . . ." Ibid. For example, in Aden, the Court held that the policy holder's failure to read the policy could not be asserted as comparative negligence in a professional malpractice action against an insurance broker. Id. at 69.
However, the Court also held that, if a client impedes the professional in his or her performance by, for example, withholding or failing to provide certain information to the professional concerning the matter for which the professional was hired that could have reduced a portion of the harm committed, the client's conduct may constitute comparative negligence unless the professional's scope of employment included an obligation to prevent such conduct on the part of the client. [Id. at 77.]
Here, there was evidence that plaintiff had failed to provide information regarding its membership in the Radburn Association, a private association empowered to compel property owners to perform restorations or repairs in accordance with certain aesthetic standards.
Nevertheless, plaintiff argues that even if it had revealed this information, it would not have reduced a portion of the harm committed because defendant was required to replace the entire structure exactly as previously constructed, including the slate roof. The record does not support that claim. Ives admitted that his initial architectural plans called for the installation of a more cost-effective synthetic roof, however, the Association did not approve of that plan and instead required plaintiff to replace the roof with slate tiles. In that regard, there is evidence that plaintiff's failure to provide information about the Radburn Association impacted defendant's ability to set proper replacement limits. Therefore, we are satisfied that the trial court did not err in finding that the comparative negligence defense was available in this professional malpractice case.
Plaintiff argues next that the trial court erred in limiting the scope of its expert's testimony regarding the business interruption insurance. We find the argument unpersuasive.
It is undisputed that the one-year renewable policy provided $613,504 in lost rental or business interruption coverage. Alex claimed that Smollen had informed him that it was defendant's policy to adjust the lost rental coverage every five years. Nonetheless, although the insurance policy was renewed from 1999 to 2001 on an annual basis, the amounts of coverage remained the same, even though the yearly rental income had increased from $614,504 to $791,496. It was also undisputed that: the fire occurred on October 1, 2002; the north wing and the clock tower were completed in April 2004; and the south wing was completed in March 2005. Defendant ultimately stipulated that it had been negligent in determining the amount of business interruption insurance, but did not stipulate as to the amount of damages, agreeing to submit the issue of damages to the court for decision.
During the trial, defendant moved to bar Klagholz, plaintiff's expert, from testifying that plaintiff was entitled to recover more than one year of lost rental or business interruption damages. Plaintiff conceded that Klagholz had not included that opinion in his report. Notwithstanding, plaintiff argued that in depositions Klagholz had testified that a broker should adjust the term on business interruption damages to reflect the reasonable period of restoration, which may be more than the one-year period provided in the policy. In granting defendant's motion to bar the testimony the court stated:
[I] think clearly here if you [plaintiff] wanted to get into this area -- there should have been an amended report. Clearly, there's a prejudice at this point of getting into that area . . . .
The court ultimately set business interruption damages at $37,641.88 ($651,145.88 (lost rent) - $613,504 (policy)).
Parties are obligated under R. 4:17-4(a) and (e) to furnish expert's reports requested through interrogatories on a continuing basis. Trial courts have the discretion to preclude a party's expert from testifying to opinions beyond the subject matter of his or her reports or other discovery that the party has furnished. Mauro v. Raymark Indus. Inc., 116 N.J. 126, 145 (1989); Ratner v. Gen. Motors Corp., 241 N.J. Super. 197, 202 (App. Div. 1990). The factors which would "strongly urge" the trial court, in the exercise of its discretion, to suspend the imposition of sanctions are the absence of a design to mislead, the absence of the element of surprise, and the absence of prejudice. Wymbs v. Twp. of Wayne, 163 N.J. 523, 544 (2000); Gaido v. Weiser, 227 N.J. Super. 175, 192 (App. Div. 1988), aff'd 115 N.J. 310 (1989).
We find the trial court did not abuse its discretion in precluding Klagholz from testifying as to a measure of damages that was not included in his report, and was only briefly mentioned during depositions. Although there is no indication that plaintiff intended to mislead defendant, the testimony offered at such a late date in the proceedings came as a surprise, and was prejudicial, given the lack of evidence regarding whether the repairs were conducted in a reasonable period. In that regard, the court properly calculated damages, consistent with the evidence, based on a one-year period.