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Margalit v. Woods Restoration Services, LLC

Superior Court of New Jersey, Appellate Division

July 18, 2013

BERNARD MARGALIT and SIMHA MARGALIT, Plaintiffs-Respondents,
v.
WOODS RESTORATION SERVICES, LLC, Defendant/Third-Party Plaintiff-Respondent/ Cross-Appellant, and CHUBB INSURANCE COMPANY OF NEW JERSEY, INC., Defendant-Appellant/ Cross-Respondent,
v.
ANZO, INC., T/A TOTAL PLUMBING AND HEATING and EVERGREEN LANDSCAPING & NURSERY, LLC, Third-Party Defendants.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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.

PER CURIAM

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[1] 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).[2] 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 estimate, resulting in a net claim for uncompleted work of $112, 383.06.

The trial judge stated that he would not grant Chubb's motion regarding the items "Rodriguez said are necessary to fulfill the Woods original estimate" and that it would be left to the jury to determine any credit due to Chubb. The trial judge also declined to rule as to whether any of the exclusions barred coverage for any of plaintiffs' claims. He stated that the jury would have to "determine whether the exclusion applies because certain facts have to be found before the exclusion applies." The stated question of fact concerned whether the concrete slab had cracked due to faulty workmanship or because it is the nature of concrete to crack. There was no argument that there was a cause other than faulty workmanship for the damage to items set forth in P-19. Nonetheless, the trial judge did not rule on the application of the faulty workmanship exclusion to these claims. Instead, the trial judge included the exclusions in the charge to the jury for them to decide whether the exclusions barred coverage for any of the damages claimed by plaintiffs.

The verdict sheet had two sections. Section A addressed Chubb's liability and Section B addressed the liability of Woods and its subcontractors.

Section A posed three questions to the jury as to whether Chubb breached its obligations under the insurance policy. As noted, the damages sought against Chubb concerned the reconstruction of the concrete slab, the replacement of the kitchen cabinets, and a list of items damaged by Woods and its subcontractors.

Question A-1(a) asked if "Chubb breach[ed] its obligations under the insurance policy by not paying the plaintiffs the 'reconstruction cost' to 'repair, replace or rebuild'" the concrete floor slab. Question A-5 asked if "Chubb breach[ed] its obligations under the insurance policy by not paying the plaintiffs for the costs to replace the kitchen cabinets and related work[.]" The jury answered "no" to both questions. Question A-3, the only liability question the jurors decided against Chubb, asked:

Did Chubb breach its obligations under the insurance policy by not paying the plaintiffs all the "reasonable expenses" the plaintiffs incurred as a result of the initial radiant heat leak including items damaged by Woods or its subcontractors during the demolition of the existing concrete flooring, and the installation of the new concrete flooring?
[(Emphasis added).]

Thus, although the Policy excluded coverage for losses caused by faulty workmanship, the jury was asked to decide if Chubb had breached its obligations based upon a failure to pay for expenses that included items damaged by Woods and its subcontractors. The jury answered "yes."

As a result of that response, the jurors were instructed to answer Question A-4, which listed twelve separate and detailed categories of expenses.[3] For each item, the jury was first asked to determine "whether the item listed was damaged by Woods and/or its subcontractors[.]" If the jury found the item was damaged by Woods or its subcontractors, it was then asked to determine "the reasonable expense to replace the item."

The jurors were not asked to determine the total amount of damages attributable to any breach of Chubb's contractual obligations.[4] Thus, the only calculation of damages the jury was asked to make in Section A concerned those expenses they found were the result of damage caused by Woods and its subcontractors.

It is evident that the jury found this confusing, as they submitted the following question to the court: "If we come out with a total amount greater than zero under A-4, who's paying for it?" The trial judge rejected Chubb's request that the jury be informed that Chubb would be required to pay any damages identified under Section A. Over Chubb's objection, the trial judge told the jury:

[I]f you decide an amount is due, these questions ask you to calculate and determine that amount. It doesn't ask you to determine who's going to pay it. That is a legal question that will be determined later by the Court, upon advice of counsel and input of counsel, so that's not a concern that you . . . have.

The jury determined that the reasonable expenses to replace the items damaged by Woods or its subcontractors totaled $167, 600.[5]

Plaintiffs made a motion for entry of judgment. Chubb filed a motion for judgment notwithstanding the verdict pursuant to Rule 4:40-2 or, in the alternative, to mold the verdict because Chubb was not liable for damages caused by the other defendants by virtue of the Policy's faulty workmanship exclusion. The trial court denied Chubb's motion. In a rider to its order, the court noted that Chubb had made applications at the close of plaintiffs' case and at the end of the trial for dismissal of plaintiffs' faulty workmanship claim against it based upon the exclusion. The court stated:

Additionally, Chubb asserted that the coverage issue constituted a matter of law to be decided by the Court and not a factual issue. The Court declined to determine the extent of the policy coverage at that time because the matter was not fairly before the Court at that time.
Chubb failed to include in its pleadings a claim for reimbursement from co-defendants, or a demand that the Court determine whether its policy includes coverage for faulty workmanship. As such, the issue of Chubb's policy coverage is not fairly before the Court in order to merit a discussion of Chubb's argument at this time. Chubb's motion for entry of "no cause for action" is denied.
In conclusion, Chubb's Motion for entry of judgment of "no cause for action" or judgment notwithstanding the verdict is denied as Chubb claims were not preserved in the pleadings to be properly before the Court at this time.

The trial court entered judgment against Chubb in the amount of $167, 600, the total the jury found was reasonable to replace the items damaged by Woods or its subcontractors. Judgment was entered against Woods for $196, 416; against Evergreen for $42, 089; and against Anzo for $42, 089. Warrants to satisfy the judgments against Evergreen and Anzo were filed in November 2011, and they have not participated in this appeal.

Chubb raises the following issues for our consideration:

POINT I
THE TRIAL COURT ERRED BY SUBMITTING CHUBB'S LIABILITY TO THE JURY, AS PLAINTIFF HAD NO PROOFS THAT CHUBB UNDERPAID THE LOSS.
POINT II
DESPITE CORRECTLY RULING THAT CHUBB WAS NOT VICARIOUSLY LIABLE FOR THE CONTRACTORS' NEGLIGENT WORKMANSHIP, THE COURT NEVERTHELESS PERMITTED THE JURY TO AWARD DAMAGES FOR THAT NEGLIGENCE AGAINST CHUBB.
POINT III
AS PLAINTIFFS CONCEDED THAT THEIR MAXIMUM CLAIM AGAINST CHUBB WAS $112, 383.06, THE JUDGMENT OF $167, 600.00 CONSTITUTES MANIFEST ERROR.
POINT IV
THE TRIAL COURT ERRED BY ENTERING JUDGMENT AGAINST CHUBB, AS THE CONCRETE SLAB'S CRACKING AND RELATED DAMAGES ARE EXCLUDED BY THE FAULTY CONSTRUCTION, GRADUAL OR SUDDEN LOSS, AND STRUCTURAL MOVEMENT EXCLUSIONS.
POINT V
THE TRIAL COURT ERRED IN ALLOWING THE JURY TO RELY ON THE RODRIGUEZ ESTIMATE, P-18 WHEN ASSESSING DAMAGES AGAINST CHUBB.
POINT VI
AS (1) THE TRIAL JUDGE ABDICATED HIS ROLE OF POLICY INTERPRETATION, WHICH ROLE WAS TAKEN FROM THE JURY DURING DELIBERATIONS, AND (2) THE COURT INCORRECTLY RULED THAT CHUBB NEVER PLEADED ITS POLICY EXCLUSIONS, CHUBB WAS DEPRIVED OF A HEARING ON COVER ISSUES.
POINT VII
PLAINTIFFS' COUNSEL'S IMPROPER SUMMATION UNFAIRLY PREJUDICED CHUBB'S RIGHTS.
POINT VIII
THE TRIAL COURT INCORRECTLY DISMISSED CHUBB'S SUBROGATION CLAIMS AGAINST THE CONTRACTOR DEFENDANTS AS NOT BEING PLEADED.

After carefully considering the arguments of counsel in light of the record and applicable legal principles, we are convinced that the faulty workmanship exclusion barred coverage for the claims that form the basis for the judgment against Chubb. Because the trial court erred in denying Chubb's motions for involuntary dismissal and for judgment following the verdict, we reverse the judgment against Chubb.

At the close of the plaintiffs' case, the trial judge concluded he could not rule on the applicability of the policy exclusions because there were fact issues for the jury to determine. However, after the jury verdict, he declined to mold the verdict based upon the exclusion because he concluded Chubb had failed to properly plead or preserve the exclusion issue for the court. We disagree with each of these conclusions.

At the close of plaintiffs' case, Chubb made a motion for involuntary dismissal of the claims against it. Rule 4:37-2(b) permits a defendant to "move for a dismissal of the action or of any claim on the ground that upon the facts and upon the law the plaintiff has shown no right to relief." The rule further requires the motion to be denied "if the evidence, together with the legitimate inferences therefrom, could sustain a judgment in plaintiff's favor." Ibid.

In Filgueiras v. Newark Pub. Schools, 426 N.J.Super. 449 (App. Div.), certif. denied, 212 N.J. 460 (2012), we noted that the evidential standard for this motion was the same as that for motions made under Rules 4:40-1 and 4:40-2. Id. at 455.

[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 . . . .
[Id. at 456 (quoting Verdicchio v. Ricca, 179 N.J. 1, 30 (2004) (citations omitted).]

In our review of the trial court's decision on such motions, we apply the same standard of review, "accept[ing] as true all the evidence supporting [plaintiffs] and accord [them] all legitimate inferences." Ibid.

As noted, the trial judge granted Chubb's in limine motion and dismissed plaintiffs' claim that Woods was Chubb's agent and therefore, Chubb was vicariously liable for the negligence of Woods and its subcontractors. The remaining claim was a breach of contract claim based upon Chubb's alleged failure to pay what it was required to under the Policy. A threshold issue was, therefore, whether the exclusions in the Policy barred any or all of plaintiffs' claims.

Both the trial judge and counsel acknowledged that the interpretation of an insurance contract, including its exclusions, presents a question of law to be decided by the court. See Nat'l Union Fire Ins. Co. v. Transp. Ins. Co., 336 N.J.Super. 437, 443 (App. Div. 2001). However, the trial judge initially declined to interpret the exclusions on the ground that predicate factual issues had to be decided by the jury.

In reviewing the trial court's decision, we decide the questions of law arising from the interpretation of an insurance contract and its exclusions independently of the trial court's conclusions. Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J.Super. 241, 260 (App. Div. 2008), certif. denied, 199 N.J. 133 (2009); Simonetti v. Selective Ins. Co., 372 N.J.Super. 421, 428 (App. Div. 2004). The interpretation of the language in an insurance contract requires a court to first give the words their plain and ordinary meaning. Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001). "In the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one purchased." Gibson v. Callaghan, 158 N.J. 662, 670 (1999) (internal quotation marks omitted); see also Bd. of Educ. v. Utica Mut. Ins. Co., 172 N.J. 300, 307 (2002). In this case, plaintiffs do not allege any ambiguity either in the insurance contract or in the exclusions relied upon by Chubb.

Our concern is with the application of the faulty workmanship exclusion. This exclusion bars coverage for "any loss caused by the faulty acts, errors or omissions of . . . any . . . person in . . . construction[, ]" the definition of which specifically includes "workmanship."

At trial, plaintiffs' counsel argued that the claim regarding the concrete slab was not barred by this exclusion because the evidence presented two alternative theories for why the slab cracked -- faulty workmanship or just as a function of the nature of concrete. Since the jury rejected this claim, we need not consider whether the exclusion barred coverage for it.

The claims that were the basis for the judgment entered against Chubb were the subject of Questions A-3 and A-4. The latter question itemized twelve categories of damages based upon the estimate prepared by Rodriguez, P-18. The only evidence of causation for these claims was the negligence or poor workmanship of Woods and its subcontractors. Indeed, the predicate question for each of the claims was "whether the item listed was damaged by Woods and/or its subcontractors[.]" Both the claims and the supporting evidence thus fell squarely within the faulty workmanship exclusion.

In addition to the exclusion, Chubb also argued that the evidence was insufficient to support this claim in its motion. The claim was purportedly based upon plaintiffs' allegation that Chubb failed to pay what it was required to pay under the terms of the Policy. The only evidence identified by plaintiffs to support the claim was P-18, the estimate prepared by Rodriguez of work to be done that was not completed. Plaintiffs' counsel then argued that the amount Chubb paid should be deducted from the P-18 estimate, resulting in a net claim for uncompleted work of $112, 383.06. However, this calculation rested upon an inadequate evidential basis. Rodriguez did not review the original estimates prepared by Woods and admitted he had no knowledge as to whether the amount Chubb paid, based on those estimates, was insufficient.

Therefore, even giving plaintiffs the benefit of all favorable inferences, the claim presented to the jury was barred by the faulty workmanship exclusion and the evidence was insufficient to support a verdict against Chubb. It was, therefore, error to deny Chubb's motion for involuntary dismissal.

Following the jury verdict, Chubb moved for judgment notwithstanding the verdict, pursuant to Rule 4:40-2, or in the alternative, for the court to mold the verdict based upon the faulty workmanship exclusion. At this point, the jury had rejected plaintiffs' claims that Chubb had breached its obligations under the Policy regarding both the concrete slab and the kitchen replacement. The status of the claim and supporting evidence was crystallized and limited to those items the jury explicitly found were "damaged by Woods and/or its subcontractors[.]" As we have noted, the evidential standard for this motion was the same as that for Chubb's motion for involuntary dismissal. See Filgueiras, supra, 426 N.J.Super. at 455-56. The trial judge did not make this determination, however, concluding that Chubb had failed to plead or preserve this issue.

Rule 4:5-4 requires that "[a] responsive pleading shall set forth specifically and separately a statement of facts constituting an avoidance or affirmative defense[.]" Although the failure to set forth an affirmative defense in a responsive pleading may constitute a waiver of that defense, see Cole v. Jersey City Med. Ctr., 425 N.J.Super. 48, 57 (App. Div.), certif. granted, 212 N.J. 198 (2012), this "rule of pleading" is not an "absolute mandate." Hardwicke v. Am. Boychoir Sch., 368 N.J.Super. 71, 98 (App. Div. 2004), aff'd as mod., 188 N.J. 69 (2006); see also McNeil v. Legislative Apportionment Comm'n, 177 N.J. 364, 399 (2003) (stating that "the pleading requirement is not absolute").

In its answer to the complaint, Chubb asserted several affirmative defenses, including that plaintiffs' complaint failed to state a claim upon which relief could be granted. In addition, Chubb asserted that plaintiffs' claims were subject to applicable policy provisions and exclusions, and specifically identified the faulty workmanship exclusion. Chubb did not, however, list any of its affirmative defenses in its answer to the amended complaint.

It is apparently this omission in the answer to the amended complaint that is the basis for the trial court's conclusion that "Chubb failed to include in its pleadings . . . a demand that the Court determine whether its policy includes coverage for faulty workmanship[, and therefore, ] the issue of Chubb's policy coverage is not fairly before the Court[.]" Plaintiffs contend that Chubb's failure to plead the exclusions in its answer to the amended complaint constituted a waiver of its right to argue the applicability of the exclusions.

Plainly, this is not a situation in which the affirmative defense was never pleaded and the defense was raised for the first time in an untimely fashion. A review of the record shows, moreover, that Chubb's reliance upon the exclusions was evident in its defense from its opening statement through verdict.

In his opening statement, Chubb's counsel told the jury, "You['re] going to see in the policy of insurance, in fact, that there's specifically an exclusion for negligent workmanship[.]" Although plaintiffs' counsel posed an objection to the opening statement of another defense counsel, no objection was made to that of Chubb's counsel and no argument was made that Chubb had waived its right to rely on the exclusions in its defense.

The subject of the policy exclusions was repeatedly discussed at trial. The trial judge stated several times that it was up to him to interpret the exclusions. Chubb's counsel asked that he do so in moving for involuntary dismissal at the close of the plaintiffs' case. In opposing this motion, plaintiffs did not argue that Chubb had waived any defense based upon the exclusions. And, when he declined to interpret the exclusions, the trial judge did not state Chubb had failed to preserve that defense, but rather said a fact issue had to be determined by the jury before the exclusions' applicability could be determined. The pervasive understanding that the exclusions were a part of the case is further evident from the fact that the trial judge included instructions regarding the exclusions in the charge to the jury. Plaintiffs' counsel did not object to such instructions.

While it is true that the affirmative defenses were not included in the answer to the amended complaint, there is no evidence that Chubb abandoned this defense or that plaintiffs relied upon such abandonment in preparing their case. In short, plaintiffs do not contend that Chubb's reliance caused any "unfair surprise, substantial prejudice, or undue interference with the administration of justice[, ]" see Hardwicke, supra, 368 N.J.Super. at 98, and could not do so on this record. To the contrary, it would be manifestly unjust to deprive Chubb of this defense after it had been asserted in an initial pleading and consistently argued at trial without objection. We are therefore satisfied that the issue of the exclusions in the Policy, as pleaded and argued by Chubb, was properly before the court.

As noted, the faulty workmanship exclusion barred coverage for the claims that formed the basis of the judgment against Chubb. We therefore reverse and remand for entry of a judgment in favor of Chubb, and need not address Chubb's remaining arguments.

In its cross-appeal, Woods presented the following arguments:

POINT I
POINTS I AND III THROUGH VII OF CHUBB'S APPEAL ARE NOT DIRECTED TO WOODS RESTORATION SERVICES.
POINT II
CHUBB WAS NOT ASSESSED DAMAGES VICARIOUSLY FOR THE NEGLIGENCE OF THE CONTRACTORS.
POINT III
CHUBB'S SUBROGATION CLAIMS AS TO WOODS WERE WAIVED.
POINT IV
THE IMPROPER VERDICT SHEET CONSTITUTES REVERSIBLE ERROR.
POINT V
THE COURT ERRED IN ALLOWING THE TESTIMONY OF PLAINTIFF'S EXPERT, GILBERT CHEVALIER, AS HIS OPINIONS WERE IMPERMISSIBLE NET OPINION.
POINT VI
THE TRIAL COURT ERRED IN CHARGING ADVERSE INFERENCE.

In light of our decision to reverse the judgment against Chubb, the arguments raised in Points I, II, and III are moot. After reviewing the arguments contained in Points IV, V, and VI in light of the record and applicable legal principles, we are satisfied that they lack sufficient merit to warrant discussion in a written opinion, R. 2:11-3(e)(1)(E), and affirm.

Reversed as to Chubb and affirmed as to Woods.


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