NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 7, 2013
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-6480-09.
Richard S. Nichols argued the cause for appellant/cross-respondent (Gennett, Kallmann, Antin & Robinson, P.C., attorneys; Mr. Nichols, on the briefs).
Judah D. Greenblatt argued the cause for respondents Bernard Margalit and Simha Margalit (Greenblatt Lesser, LLP, attorneys; Mr. Greenblatt, on the brief).
Sharon K. Galpern argued the cause for respondent/cross-appellant Woods Restoration Services, LLC (Stahl & DeLaurentis, P.C., attorneys; Ms. Galpern, on the briefs).
Before Judges Graves, Espinosa and Guadagno.
The radiant heat system of Bernard and Simha Margalit (plaintiffs) leaked and damaged their home. They filed this lawsuit against defendants Chubb Insurance Company of New Jersey, Inc. (Chubb), their homeowners insurance carrier; Woods Restoration Services, LLC (Woods), the contractor they hired to perform repair work; and two subcontractors hired by Woods. Chubb filed an appeal from the judgment entered against it after a jury trial, and Woods filed a cross-appeal. For the reasons that follow, we reverse the judgment against Chubb and affirm the judgment against Woods.
Plaintiffs Bernard and Simha Margalit own a single-family home that is built upon a concrete slab. In September 2006, plaintiffs discovered a leak in the radiant heat system, which includes piping laid within the concrete slab. Plaintiffs made a claim under their homeowners policy (the Policy) with Chubb.
Plaintiffs acknowledged that the Policy did not provide coverage for the replacement of the radiant heat system itself. Rather, the Policy required Chubb to pay the reasonable cost of removing and replacing the concrete slab to allow access to the plumbing, and the repairs and replacement necessary to restore the house to the condition it was in prior to the leak.
Chubb hired Woods to inspect and estimate repair costs. In November 2006, Gerard Rudoshko, Chubb's Property Claims Specialist, sent plaintiffs the initial estimate prepared by Woods, which estimated home repairs to be $79, 193.93. Rudoshko advised that Chubb had also received plumbing repair costs of $26, 620.18. Rudoshko asked plaintiffs to call him to discuss the estimate and further advised, "Please note you are free to choose a contractor of your choice." Plaintiffs elected to enter into a contract with Woods to perform the repair work. Chubb paid plaintiffs the $79, 193.93 repair cost estimated by Woods.
The initial estimate was based upon a plan to access the radiant heat system by cutting the concrete slab to install new pipes. However, because the condition of the existing slab had deteriorated, the slab crumbled when cut and this plan was abandoned.
Woods prepared a second estimate for demolishing the existing slab and pouring a new concrete slab into which a new radiant heat system would be built. The estimate also included the cost of replacing wall finishes and trim to be affected by this work. In September 2007, Chubb paid plaintiffs $114, 269.95, which consisted of the additional repair and replacement work ($99, 269.95), $3000 to replace contents, and $12, 000 as extra living expenses for plaintiffs. Thus, Chubb paid the full amount of the estimates prepared by the contractor plaintiffs retained to perform the work.
In July 2009, plaintiffs initiated this action against Chubb and Woods.
The allegation against Woods relevant to this appeal is that the work it performed "was either insufficient in scope to properly replace the radiant heat system and repair the damage, and/or improperly performed by Woods and its subcontractors." The amended complaint added subcontractors Anzo, Inc., t/a Total Plumbing and Heating (Anzo) and Evergreen Landscaping & Nursery, LLC (Evergreen) as defendants.
The allegations against Chubb are contained in the second and third counts of the amended complaint. The second count alleged that "[t]he scope of work approved by Chubb to replace the radiant heat system and repair the damage was insufficient to accomplish the replacement of the radiant heat system and repair of the damage." The third count alleged "Woods was Chubb's agent in connection with the investigation of the Margalits' loss, the estimation of the cost of the Replacement/Repair Work and the actual performance of the Replacement/Repair Work." Chubb later filed a motion in limine to dismiss the allegation in this count that Woods was an agent of Chubb, which was granted by the trial court.
In June 2010, Woods filed a Chapter 11 petition in the United States Bankruptcy Court for the District of New Jersey. The automatic stay was modified by order dated October 20, 2010, which permitted plaintiffs to litigate their claims against Woods, limiting the claims and enforceability of any judgment to amounts covered by applicable insurance policies.
Chubb identified four exclusions as applicable to plaintiffs' claims in the lawsuit, including the "Faulty planning, construction or maintenance" exclusion (the faulty workmanship exclusion). This exclusion bars coverage for "any loss caused by the faulty acts, errors or omissions of [the insured] or any other person in planning, construction or maintenance." The exclusion defines "construction" as including "materials, workmanship, and parts or equipment used for construction or repair." The exclusion has an exception for "ensuing covered loss unless another exclusion applies."
Plaintiffs did not allege that Chubb made any erroneous coverage determination or that it acted in bad faith in its handling of the claim. In fact, Margalit testified that plaintiffs had no complaints about the way Rudoshko handled their claim for Chubb. Plaintiffs' expert, Carl Rodriguez, testified, "Chubb didn't do anything wrong"; that "the problem lies in the performance of the work[.]" He stated "there was excessive damage . . . that was created on the job."
Plaintiffs presented evidence that Woods had been negligent in its performance as general contractor. They argued that, as a result, the amounts paid by Chubb were insufficient.
Michael Anzovino of Anzo, the plumbing subcontractor, testified he told Ed Christenson, Woods's project manager, that it was necessary for him to place the feed and return for the radiant heat system under the first pour of concrete after the demolition work was done. However, Woods did not contact Anzo to commence the plumbing work until the lower slab had been poured. When Anzovino protested, Woods instructed him to lay the pipe on top of the concrete slab. Anzovino testified that this would cause a "hot spot" on the floor.
Evergreen was the subcontractor Woods retained to remove and replace the concrete floor. Robert Schwartz of Evergreen testified that, after the first pour had been completed and the radiant heat system placed on top, plaintiffs asked him to install reinforcing bar, or rebar, in the top pour. Schwartz explained that he agreed with this request because rebar makes the floor stronger and keeps it from cracking. However, when he told a representative of Woods about the customer's request, the representative told him that it was not required by the code as far as he knew and was not going in. Schwartz was told "to do what [he] was told, to keep [his] mouth shut and don't talk to the customer[.]" Schwartz also suggested to Woods that fiberglass be put into the concrete floor because fiberglass "makes it stronger and holds it together when it expands and contracts." The Woods representative again told Schwartz, "no, it's not code and we're not doing it." Schwartz also testified he told the Woods representative they had to "prep the house for [Evergreen]" when it was time to pour the concrete because "[w]hen concrete cures it generates a tremendous amount of heat and humidity" that can cause "a lot of damage" to the house. Schwartz testified that, in response, the Woods representative "threw his hands up in the air and said I can't be bothered with details and walked away."
The potential problems identified by Anzo and Schwartz occurred. The concrete floor showed signs of cracking in October and November 2007. Although Margalit notified Woods's project manager, nothing was done to remedy the problem. The marble tile floor installed over the concrete floor cracked in several locations. Schwartz confirmed that the lack of reinforcement in the floor caused the cracking. After plaintiffs moved back into their home, Margalit felt hot spots on the floor that could not be controlled. Anzovino told him the hot spots were caused by the failure to install the hot water supply lines below the first pour of concrete.
In addition, as Schwartz predicted, there was damage to plaintiffs' home. Margalit said he was present when Schwartz told a Woods representative that there would be a lot of heat and moisture in the house when the cement was poured and that the doors and windows should be removed. The Woods representative said he could not be bothered with that. Margalit testified that the front doors had to be replaced because they had warped.
Margalit testified as to other elements of damage. Because the floor had to be broken up, it was necessary to remove the kitchen cabinets, which sat on the floor. He said that Woods did an "irresponsible job" in removing the cabinets and, as a result, some of the cabinets were chipped, and both the refrigerator and the counter were damaged. Woods stored the cabinets in the garage, where they were damaged further by heavy rain. Margalit testified that "all" of the kitchen was damaged. Chubb sent him a check for $18, 000 for the damaged kitchen cabinets. Margalit testified that Christenson acknowledged Woods had damaged the cabinets while moving them and said Woods would replace them. In addition, the door handle had to be replaced because it "broke during the time that they were opening and closing the door for the seven months they were in the house."
Plaintiffs presented the testimony of two experts: Gilbert Chevalier, a licensed professional engineer, and Carlos Rodriguez, a general contractor and insurance appraiser. No expert was called regarding Chubb's handling of the claim.
Chevalier was qualified as an expert in concrete design and construction. He testified as to the proper method of construction for the concrete flooring. He explained that cracking occurs in concrete when it dries and the concrete shrinks. Chevalier opined that cracks in the upper concrete slab were caused by the failure to install any reinforcement into the pour.
Rodriguez was qualified as an expert in the cost of repair and reconstruction. Rodriguez did not review the original estimates prepared by Woods and admitted that he had no knowledge as to whether the amount Chubb paid, based on those estimates, was insufficient. He testified that he determined the "various costs to replace damaged items[.]" Rodriguez prepared two estimates. The estimate marked as P-18 evaluated the cost for "work to be done that wasn't completed." He estimated that the cost to complete work that Woods did not complete was approximately $149, 000. The estimate marked as P-19 evaluated the cost of "work to be redone as a result of bad construction." Rodriguez opined that the cost to perform the work identified in P-19 was $349, 503.54.
At the close of plaintiffs' case, Chubb moved for an involuntary dismissal of the claims asserted against it. Counsel argued that plaintiff had failed to present any proof that the amounts paid by Chubb were inadequate. Counsel argued further that the evidence regarding the remaining damages claimed, presented in Rodriguez's testimony, consisted of two elements: $149, 000 to complete work left unfinished by Woods and approximately $350, 000 to repair work negligently done by Woods or its subcontractors or to replace things they had damaged. Counsel argued that the Policy did not provide coverage for Woods's breach of contract in failing to complete work and that the exclusion for faulty workmanship barred coverage for the items damaged by Woods and its subcontractors.
The trial judge asked plaintiffs' counsel to identify the evidence that showed Chubb had failed to pay what it was obligated to pay under the Policy. Plaintiffs' counsel answered, "P-18 is our allegation of what was not paid." He then argued that the amount that Chubb paid should be deducted from the P-18 ...