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

• Court: New Jersey Superior Court Appellate Division
• Decided: September 4, 2017
• Docket: A-2221-15T4
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2221-15T4

LOYLE, LLC and ELYOL, INC., t/a LOYLE LANES BOWLING CENTER,

Plaintiffs-Respondents,

v.

GREATER NEW YORK MUTUAL INSURANCE COMPANY,

Defendant-Respondent,

and

BROUWER, HANSEN & IZDEBSKI ASSOCIATES, and JOHN H. IZDEBSKI, INC.,

Defendants/Third-Party Plaintiffs-Appellants,

Third-Party Defendant- Respondent.

Argued December 20, 2016 - Decided September 5, 2017

Before Judges Ostrer, Leone and Vernoia. On appeal from the Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-0669-11.

Patricia M. Henrich argued the cause for appellants (Reilly, Janiczek, McDevitt, Henrich & Cholden, P.C., attorneys; Ms. Henrich and Michelle B. Cappuccio, on the briefs).

Michael R. Perle and Raffi Momjian argued the cause for respondents Loyle, LLC and Elyol, Inc. (Raffi Momjian PC, attorneys; Mr. Perle, of counsel; Mr. Perle and Mr. Momjian, on the brief).

Allan Maitlin argued the cause for respondent Greater New York Mutual Insurance Company (Sachs, Maitlin, Fleming & Greene, attorneys; Mr. Maitlin, of counsel; Mr. Maitlin and Christopher Klabonski, on the brief).

PER CURIAM

Following a 2010 arson fire that destroyed the bowling

alley they owned and operated, plaintiffs discovered they were

underinsured for the property and business interruption losses

they sustained.

In this action, plaintiffs claimed their insurance broker,

defendant Brouwer, Hansen & Izdebski, Inc. (BHI), negligently

advised them concerning the insurance coverage limits required

to replace the bowling alley building and its contents in the

event of a total loss and to reimburse plaintiffs for losses due

to business interruption. The matter proceeded to trial and the

2 A-2221-15T4 jury agreed, resulting in the entry of a $1,998,808.77 judgment

against BHI.1

On appeal, BHI claims the trial court erred by: permitting

plaintiffs to introduce testimony and evidence based on two

documents that were not produced during discovery, and denying

BHI's mistrial motion and motion for a new trial based on the

admission of such testimony and evidence; granting plaintiffs'

in limine motion to bar application of comparative negligence;

granting the insurance carrier's motion for summary judgment;

determining the judgment credits to which BHI was entitled; and

misinforming the jury about the burden of proof. Based on our

review of the record, we are not persuaded by BHI's contentions

and affirm.

I.

A. Background

On January 11, 2010, an arson fire destroyed Loyle Lanes

Bowling Center (the bowling center), resulting in a total loss

of the building and its contents. At the time of the fire, the

1 The jury found plaintiffs' losses from the destruction of the bowling alley were $6,840,000. The $1,998,808.77 damage award against BHI represents plaintiffs' net loss after deducting credits based on plaintiffs' receipt of payments from their insurance carrier and monies from other parties. The calculation of judgment credits is one of the issues on appeal discussed later.

3 A-2221-15T4 bowling center was insured under a policy with Greater New York

Mutual Insurance Company (GNY) that became effective on April 1,

2009 (2009 policy). The policy provided replacement cost

coverage for the building with a limit of $3,425,000,

replacement cost coverage for the building's contents with a

limit of $200,000, and business interruption coverage with a

limit of $400,000.

An appraisal conducted after the fire, however, revealed

that the building's actual replacement cost was $6,395,247.32,

and the replacement costs of the contents exceeded the policy

limits. GNY paid plaintiffs the full payment of the coverage

limits under the policy, together with adjustments, for a total

of $4,070,000.

Plaintiffs and GNY Enter Into a Litigation Agreement

In March 2011, plaintiffs entered into an agreement

(litigation agreement) with GNY to pursue litigation related to

the losses resulting from the fire. The litigation agreement

states that "GNY [] paid [plaintiffs] the full amount of its

coverages" under plaintiffs' policy, which, after adjustments,

totaled $4,070,000, but that "losses in excess of the GNY policy

limits" remained. Plaintiffs and GNY agreed to sue "any and all

persons or entities that may be responsible for causing or

contributing to the fire loss."

4 A-2221-15T4 The litigation agreement provided that GNY would "institute

suit on behalf of itself by way of subrogation," and that

plaintiffs would institute separate litigation "to recover

monies for the damages sustained . . . in excess of the amounts

paid by GNY." GNY agreed to incur all litigation costs and that

any recoveries, "whether by way of settlement or judgment, with

respect to the lawsuit brought by GNY . . . [would] be shared

equally between [plaintiffs] and GNY." Plaintiffs and GNY agreed

that plaintiffs would retain all monies they recovered in their

malpractice action against BHI.

The Lawsuits Filed by Plaintiffs and GNY, and BHI's Third- Party Complaint Against GNY

In July 2011, GNY filed suit asserting subrogation rights

for plaintiffs' losses against the individuals alleged to have

set the fire and their employers,2 as well as Steven L. Holt,

Safe & Sound Security and Telecommunication (Safe & Sound), and

S.S. Sprinkler Co. (S.S. Sprinkler).3 The former provided

security alarm system services and the latter provided the

sprinkler system for the bowling center.

2 It was determined the fire was set by individuals affiliated with a competitor of the bowling center, and those individuals were criminally prosecuted. 3 The complaint was filed in the name of Strathmore Insurance Company, an affiliate of GNY.

5 A-2221-15T4 Plaintiffs filed a separate complaint alleging insurance

broker malpractice against BHI, claiming BHI negligently advised

plaintiffs concerning the amount of insurance required to

provide replacement cost coverage for a complete loss of the

bowling center building and its contents and, as a result,

plaintiffs' 2009 policy had grossly deficient coverage.

Plaintiffs also asserted negligence claims against Safe & Sound

and S.S. Sprinkler.

BHI answered plaintiffs' complaint, generally denying the

allegations and asserting affirmative defenses and cross-claims

against its codefendants for contribution and indemnification.

In March 2012, the court granted BHI's motion to consolidate

plaintiffs' and GNY's cases.

A month later, plaintiffs and GNY released their respective

claims against Safe & Sound and S.S. Sprinkler. Plaintiffs and

GNY each received $500,000 from Safe & Sound and $450,000 from

S.S. Sprinkler. Safe & Sound and S.S. Sprinkler were dismissed

from the consolidated lawsuits.

Two years later, in April 2014, BHI was granted leave to

file a third-party complaint against GNY for indemnification and

contribution. BHI alleged GNY was obligated under an agency

agreement to indemnify BHI from any civil liability arising out

of GNY's negligence "in processing or handling business placed

6 A-2221-15T4 by [BHI] with GNY." BHI also alleged GNY conducted annual

inspections to determine the appropriate replacement cost

coverage limits for the bowling center building, that GNY had a

duty to establish adequate annual policy limits, and that GNY

breached its duty by undervaluing the full replacement costs of

the building.

On May 16, 2014, plaintiffs amended their complaint adding

negligence claims against GNY and dismissing their claims

against all of the remaining defendants except BHI. Plaintiffs

subsequently dismissed their claims against GNY.

The Court Grants Summary Judgment and Dismisses BHI's Third-Party Complaint Against GNY

GNY filed a summary judgment motion seeking dismissal of

BHI's third-party complaint. On August 14, 2015, the motion

court issued a detailed written decision and entered an order

granting GNY's motion for summary judgment and dismissing BHI's

third-party complaint with prejudice. The court found GNY had

neither a contractual nor a common law duty to establish

coverage limits sufficient for the full replacement costs for

the bowling center, or to indemnify BHI for its negligence.

Plaintiffs' Negligence Claim Against BHI – Pretrial Rulings

As a result of the court's dismissal of BHI's third-party

complaint against GNY, the only remaining claim for trial was

7 A-2221-15T4 plaintiffs' insurance malpractice claim against BHI. In advance

of trial, plaintiffs moved to bar BHI from presenting evidence

of comparative negligence against plaintiffs, arguing BHI waived

the defense by failing to plead it in its answer. BHI admitted

it failed to plead comparative negligence but argued plaintiffs

were on notice it would pursue a comparative negligence defense

based on BHI's answers to interrogatories and expert reports.

The trial court found BHI waived the right to pursue a

comparative negligence defense by failing to raise it in its

pleadings in accordance with Rule 4:5-4. The court rejected

BHI's argument that plaintiffs were on notice that comparative

negligence would be at issue. However, the court ruled that BHI

could present evidence showing plaintiffs had "the best

knowledge and ability to determine [policy] limits" as relevant

to proximate causation.

BHI also moved in limine for an order permitting it to

introduce evidence showing plaintiffs received $4,070,000 from

GNY, and plaintiffs and GNY received a total of $1,900,000 from

Safe & Sound and S.S. Sprinkler. Plaintiffs were entitled to the

replacement costs under the policy only if they undertook to

8 A-2221-15T4 rebuild the bowling center.4 BHI sought to introduce evidence

showing plaintiffs received settlement funds and could afford to

rebuild the bowling center but opted not to do so. Plaintiffs

intended to introduce evidence showing that because of BHI's

negligence, they received insurance proceeds that were

insufficient to fund the rebuilding of the bowling center.

The court granted BHI's motion to introduce evidence

showing the funds plaintiffs received from GNY and the other

tortfeasors but denied BHI's request to inform the jury about

the $950,000 GNY received from by Safe & Sound and S.S.

Sprinkler.

B. The Trial

The record developed at trial showed that brothers Charles

and John Loyle opened the bowling center in 1970. Charles,5 John,

and the Loyle family, including Charles's son, Michael, operated

the bowling center thereafter.

4 Under the GNY policy, plaintiffs were entitled to receive replacement costs if they rebuilt the bowling center, and only actual costs if they did not rebuild. Generally, the amount of actual costs would be less than replacement costs because actual costs are calculated based on the actual cost of the building and contents less applicable amounts for depreciation. On the other hand, replacement costs are calculated on the cost of replacing the building and its contents following a loss. 5 Because this case involves multiple members of the Loyle family, we use first names for ease of reference. We intend no disrespect in doing so.

9 A-2221-15T4 A BHI employee, broker David Stanton, sold plaintiffs the

2009 policy. In their complaint, plaintiffs alleged that BHI,

through Stanton, negligently provided erroneous advice that the

2009 policy limits were sufficient to cover the full replacement

cost of the bowling center building and its contents in the

event of a total loss.

Although plaintiffs' negligence claim is founded on the

lack of sufficient insurance coverage under the 2009 policy, the

parties presented evidence at trial concerning the GNY policies

plaintiffs purchased through Stanton and BHI from 1998 to 2009.

Many of BHI's arguments on appeal are premised on the court's

rulings concerning evidence about the 1998 policy, and we

therefore summarize the testimony and evidence pertinent to the

judge's rulings concerning evidence of the 1998 policy that are

challenged on appeal.

Charles's Testimony and the 1998 Notes

Charles was the first witness to testify at trial. He

explained his interactions with Stanton concerning plaintiffs'

first purchase of a GNY policy in 1998. The policy was effective

April 1, 1998 to April 1, 1999, and provided replacement cost

coverage for the building with a limit of $2,300,000, personal

property insurance that covered the building's contents with a

limit of $200,000, and business interruption insurance with a

10 A-2221-15T4 limit of $400,000.

Charles testified that after purchasing the 1998 policy,

plaintiffs obtained an appraisal of the bowling center from the

Thompson-Loyle Company, Inc., a company owned in part by his

nephew. The appraisal was memorialized in a report that

estimated the bowling center's building and contents replacement

costs to be $3,650,000.

Charles was asked if he provided Stanton with a copy of the

Thompson-Loyle appraisal report. Charles responded that based on

his "internal notes," he believed he gave Stanton a copy of the

report during a September 1998 meeting. Charles then said, "I

checked my notes this morning." BHI's counsel objected, arguing

plaintiffs had not produced any notes concerning the September

1998 meeting during discovery and that Charles should not be

permitted to rely upon whatever notes he reviewed to refresh his

recollection about the meeting.

The court conducted an N.J.R.E. 104 hearing concerning the

late production of the 1998 notes. Charles, then eighty-eight

years old, testified that the 1998 notes were salvaged from the

fire and kept at his residence. He could not recall if he had

sent the 1998 notes to BHI's counsel. Plaintiffs' counsel

represented that the notes were not previously provided to him.

Charles stated he had other records with him in court that

11 A-2221-15T4 he reviewed prior to his testimony. He also said he had

additional records at his home that he reviewed in anticipation

of testifying. The court adjourned the proceedings to permit

counsel's review of the records Charles had in court and to

permit Charles to retrieve and provide counsel with the other

records from his home. All of the notes and records were

provided to counsel that day.

The next day, after reviewing the notes and records, BHI's

counsel requested that Charles be precluded from referring to or

testifying about two notes concerning his 1998 meetings with

Stanton. Counsel also requested that the jury be instructed to

disregard Charles's testimony from the previous day about the

notes. BHI argued the failure to produce the notes during

discovery prejudiced BHI because their production during trial

constituted unfair surprise, impacted counsel's trial strategy

including her opening statement, and improperly bolstered

Charles's credibility.

The court overruled BHI's objection and determined that

based on Charles's testimony at the N.J.R.E. 104 hearing,

Charles did not intend "to deceive" anyone by failing to produce

the 1998 notes, and plaintiffs' reliance on the 1998 notes would

not "substantial[ly] change . . . the theory of the case." The

court concluded that any prejudice to BHI could be remedied by

12 A-2221-15T4 permitting counsel to take Charles's deposition.

The court rejected BHI's request to depose Michael Loyle,

but Michael was in court, and provided sworn testimony outside

the presence of the jury that he never saw the notes prior to

trial. There was no evidence Michael was present during the

September 1998 meeting between Charles and Stanton. The court

also initially denied BHI's request to re-depose plaintiffs'

expert William C. Stewart, Jr. concerning the notes. The trial

was paused and BHI's counsel took Charles's deposition

concerning the notes that day.

The trial resumed and Charles testified that the 1998 notes

refreshed his recollection about conversations he had with

Stanton concerning plaintiffs' first GNY policy. Based on the

information contained in the first note, Charles testified that

he met with Stanton in September 1998 and provided Stanton with

the Thompson-Loyle appraisal report, which estimated the

insurable value of the bowling center building was $2,160,415,

and the replacement cost of equipment was $1,540,000, for a

total insurable value of $3,650,000 after adjustments.

Charles testified that the note concerning the September

1998 meeting refreshed his recollection that he gave Stanton a

copy of the appraisal, but that Stanton calculated a replacement

cost for the building at $2,145,750, based on an estimated cost

13 A-2221-15T4 of $75 per square foot multiplied by the 28,610 square footage

of the center.6 Stanton also estimated the replacement value of

the equipment was $960,000, based on a calculation of $30,000

for each of the center's thirty-two bowling lanes. According to

Charles, the equipment valuation was rounded up to $1,000,000,

and therefore Stanton's total replacement cost valuation for the

building and its contents was $3,145,750. Stanton applied an

eighty-percent coinsurance factor7 to the total valuation, which

6 The building valuation Charles attributes to Stanton was only $15,000 less than the valuation of the building in the Thompson- Loyle appraisal report. Approximately $485,000 of the $500,000 difference between the appraisal and Stanton's valuation is attributable to the values assigned by each to replacement costs for the building's contents. 7 As later explained by plaintiffs' expert, William C. Stewart, Jr., coinsurance rates require an insured to carry a policy limit equal to or above a specified percentage of the total replacement value of the property insured. A failure to carry a policy limit at the required percentage results in a penalty to an insured for a claim for less than a total loss. For example, where an eighty-percent coinsurance rate applies and a property is worth $200,000, the insurance policy must have a limit of at least $160,000 for the insured to collect 100 percent of any partial loss from the insurer. If the insured carries only a $120,000 limit, and suffers a $10,000 loss, the insurance company pays the insured only $7500 because $120,000 is only three-quarters of $160,000. The remaining $2500 of the loss would be borne by the insured because the policy limit was not eighty percent of the property's replacement value. The amount of the coinsurance percentage is not directly an issue in this case because there was a total loss. However, an accurate valuation of the replacement cost of the insured property is essential to ensure that after the coinsurance rate is applied, the insured can collect 100 percent for a partial loss claim.

14 A-2221-15T4 resulted in an insurance requirement of $2,516,600, and Stanton

recommended that Charles purchase insurance with a $2,700,000

limit. Charles asked Stanton to forward a letter recommending an

increase in the coverage from plaintiffs' then-current coverage

of $2,300,000 to $2,700,000, but he never received the letter.

Charles also testified concerning a second note he used to

refresh his recollection that on October 1, 1998, he received a

notice changing the policy limits to $2,800,000, instead of the

$2,700,000 he had discussed with Stanton. He called Stanton's

office and left a message requesting that Stanton send a letter

recommending an increase in the coverage to the $2,800,000

amount in the notice.

Thus, the GNY policy plaintiffs first purchased through BHI

in April 1998 was amended effective November 1998 to increase

the building coverage from $2,300,000 to $2,800,000. The amended

policy did not, however, alter the $200,000 coverage limit for

the building's contents and the $400,000 coverage limit for

business income.

Charles testified to matters beyond those based on the 1998

notes. He explained the GNY insurance policy was thereafter

renewed annually through Stanton and BHI until the fire occurred

in 2010. According to Charles, each March plaintiffs and Stanton

discussed the annual policy renewal. Charles stated the initial

15 A-2221-15T4 "[$]2,800,000 [building] coverage existed for three years,"

following 1998, then increased to $3,120,000 for the policy

period of April 1, 2002 to April 1, 2003.

In March 2003, plaintiffs transferred $537,000 in bowling

equipment from Loyle, LLC, to Elyol, Inc.8 Charles drafted a

letter to Stanton dated March 20, 2003, explaining the equipment

transfer and asking if the contents coverage should be increased

from $200,000 to $600,000. Before Charles had a chance to mail

the letter, Stanton visited the bowling center and the parties

discussed the issue.

During their March 2003 meeting, Charles again took notes

memorializing his conversation with Stanton.9 Charles testified

that according to his March 2003 notes, Stanton advised Charles

there was no need to increase the contents coverage based on the

equipment transfer. Stanton explained that all of the bowling

equipment was considered part of the building and therefore was

covered under the building coverage.

Following the March 2003 meeting, plaintiffs renewed their

insurance coverage for the April 1, 2003 to April 1, 2004 policy

8 Charles explained that Loyle, LLC owned the bowling center real estate and Elyol, Inc. was the bowling center's operating company. 9 The March 2003 notes were produced in discovery and were not the subject of any objections at trial.

16 A-2221-15T4 period. The building coverage limit was increased to $3,425,000,

but the $200,000 coverage limit for the building's contents and

the $400,000 coverage limit for business income remained the

same. Following the changes to the 2003 policy, none of the

coverage limits were adjusted during any of the subsequent

annual policy renewals preceding the 2010 fire.

In 2008, plaintiffs invested $431,000 in renovations to the

bowling center. Michael testified that in March 2009, he showed

Stanton the renovations and asked if they needed more insurance.

According to Michael, Stanton said no additional insurance was

required because the renovations simply replaced existing

fixtures in the bowling center. Michael explained that he relied

on Stanton's advice because Stanton was the insurance expert.

Plaintiffs' Expert

Plaintiffs presented the testimony of William C. Stewart,

Jr., an expert on insurance producer and broker conduct. During

voir dire, Stewart explained that he reviewed the transcript of

Charles's mid-trial deposition. BHI's counsel objected to

Stewart testifying concerning the 1998 notes or Charles's

deposition testimony, arguing that the court did not allow her

to re-depose Stewart after Charles disclosed the existence of

the notes, and that any opinion Stewart might have about the

notes would constitute an unfair surprise. The court excused the

17 A-2221-15T4 jury to conduct an N.J.R.E. 104 hearing.

Stewart testified during the hearing that based on his

review of the 1998 notes, he believed Stanton wrongfully

discounted the Loyle-Thompson appraisal valuing the building at

"3.6 million" in favor of his personal appraisal of "2.7

million." Stewart noted that Stanton is not a licensed

appraiser. He opined:

[I]t was incorrect advice for [] Stanton to recommend [$]2.7 million in coverage because if you accepted the $3.6 million appraisal, [eighty] percent . . . would have been [$]2.88 million. . . . Stanton was, therefore, recommending underinsurance and a coinsurance penalty because the property would have not been insured to [eighty] percent of its value.

The court ruled BHI's counsel could use Stewart's N.J.R.E.

104 hearing testimony during her cross-examination of Stewart.

The judge also offered BHI's counsel the opportunity to depose

Stewart at plaintiffs' cost. BHI chose not to depose Stewart,

and the trial resumed.

Stewart's trial testimony concerning the 1998 notes was

consistent with his N.J.R.E. 104 hearing testimony. He opined

that Stanton's recommendation that plaintiffs increase building

coverage to $2,700,000 was at odds with the Thompson-Loyle

appraisal valuation of the building at $3,650,000, and resulted

in coverage insufficient to satisfy GNY's eighty percent

18 A-2221-15T4 coinsurance requirement. He stated that the 1998 amended policy

raising the insurance coverage from $2,300,000 to $2,800,000 did

not satisfy the eighty percent coinsurance requirement. On

cross-examination, Stewart admitted that the 1998 notes did not

specify that Stanton actually "recommended" anything.

Stewart testified concerning Stanton's advice to Charles

during the parties' March 2003 meeting. He opined that Stanton's

advice that plaintiffs did not need to increase their contents

coverage from $200,000 to $600,000, despite plaintiffs' $537,000

equipment transfer, was "absolutely incorrect." Stewart

explained that Stanton should have considered how long the

$200,000 contents limit had been in effect, whether plaintiffs

purchased any new equipment, and reassessed the replacement

value of the bowling center's contents.

Stewart also opined as to the sufficiency of Stanton's

advice to plaintiffs in 2008 and 2009. He testified that Stanton

failed to properly advise plaintiffs in 2008, when GNY increased

its coinsurance requirement from eighty to ninety percent.

Stewart believed Stanton should have recommended that plaintiffs

obtain an appraisal due to the coinsurance increase and because

the building coverage had been the same since 2004.

Stewart also testified that Stanton erred in March 2009 by

advising Michael that plaintiffs did not require additional

19 A-2221-15T4 insurance coverage as a result of the 2008 renovations. Stewart

admitted it was not the job of a licensed insurance broker to

determine the replacement value of a building, but testified

that if a client asks a broker whether more insurance is needed,

the broker "has an obligation to give an accurate answer because

. . . he's inviting reliance on his answer." Here, however,

Stewart observed that Stanton did not ascertain which items

included in the 2008 renovations were permanently affixed to the

structure and thus considered part of the building, and which

were moveable and thus considered contents under the policy.

Stewart also pointed to Stanton's failure to request the

costs of the renovations. Stewart testified that if Stanton was

unaware of the costs, he could have recommended plaintiffs

consult with "somebody qualified to appraise" the bowling

equipment, and then evaluated their coverage needs. Stewart had

no evidence Stanton took such action.

BHI's Mistrial Motion

Following Stewart's testimony, BHI moved for a mistrial,

arguing BHI was prejudiced by the introduction of Charles's 1998

notes that were not provided during discovery, and that the

prejudice was compounded by the fact that counsel was not

permitted to re-depose Michael or Stewart. The court denied the

motion, reiterating that Charles did not intentionally withhold

20 A-2221-15T4 the 1998 notes, and that any potential prejudice was ameliorated

because counsel had been permitted to depose Charles about the

notes, question Michael and Stewart outside of the presence of

the jury, and because BHI was permitted to depose Stewart but

opted not to do so. The court also noted it had ruled that BHI's

expert would be permitted to offer opinions based on the 1998

notes, and Charles's and Stewart's testimony about them, during

the expert's testimony on BHI's behalf.

Stanton's Deposition Testimony

Plaintiffs read portions of Stanton's deposition transcript

to the jury including his recollection of the March 2009

discussion with Michael about the 2008 renovations. Stanton

testified the renovations consisted of replacements of "like

quality equipment with like quality equipment," that was

"already covered in [plaintiffs' policy] building limit."

Stanton informed Michael "it was not necessary to add to the

building coverage at that time."

The jury also heard Stanton's deposition testimony

explaining his understanding of "replacement coverage." Stanton

was asked during his deposition "if one of your insured had

$100,000 coverage on the building and the loss is . . .

$150,000[,] and has a replacement coverage in the policy, does

the insured receive $150,000 or . . . $100,000?" Stanton

21 A-2221-15T4 replied: "[T]hey would receive the $150,000." Other evidence at

trial showed Stanton's understanding was incorrect.

Testimony of GNY's Underwriter, Phillip Wu

Plaintiffs called Philip Wu, a GNY employee and underwriter

for plaintiffs' 2009 GNY policy to testify that GNY conducted an

annual physical inspection of the bowling center and, based on

the inspection, entered data into a computer program called

Marshall-Swift, which calculated the replacement value of the

bowling center building. GNY used the Marshall-Swift analysis to

determine the policy limits and the policy premium for its

internal use. The report was not shared with brokers and the

reports for the bowling center were not provided to BHI.

Wu explained that GNY would not permit an insured to

purchase a policy with building replacement cost coverage limits

less than the amount calculated by the Marshall-Swift analysis.

However, if an insured showed that the replacement value was

more than the value generated by the Marshall-Swift analysis,

the insured could purchase insurance with a higher limit by

paying a higher premium. Based on the 2009 Marshall-Swift

analysis, Wu used a replacement cost of $3,306,000 to calculate

plaintiffs' insurance premium for the building coverage.

Stanton's Trial Testimony

Stanton testified as a defense witness. He has been an

22 A-2221-15T4 insurance broker since 1993, specializing in the field of

bowling alleys. He corrected his deposition testimony concerning

the meaning of "replacement cost," explaining he confused

"replacement cost" and "guaranteed replacement cost," and stated

he never told plaintiffs they could recover more from GNY than

their policy limit.

Stanton testified that over the course of his business

relationship with plaintiffs, they never wanted the building

coverage limit increased or expressed dissatisfaction with the

contents coverage limits. Stanton did not believe plaintiffs

ever wanted additional coverage because they were concerned

about the amount of their premiums.

Stanton was questioned about the Thompson-Loyle appraisal

report. He denied that Charles provided him with the report in

1998 or that they even met that year to discuss increasing

coverage. He also denied giving Charles a replacement cost

estimate of $2,700,000. On cross-examination, however, Stanton

stated he was "sure" and "guess[ed]" a meeting occurred in

September 1998. He admitted he had no reason to believe

Charles's 1998 notes were inaccurate and stated that the second

note accurately documented that Charles received a November 4,

1998 endorsement increasing the policy limits to $2,800,000.

Stanton was also questioned about his March 2003 meeting

23 A-2221-15T4 with Charles. Stanton initially testified that he had no memory

of a March 2003 meeting or if Charles asked if the bowling

center should increase its business contents coverage based on

its $537,000 equipment transfer. However, Stanton admitted on

cross-examination that the March 2003 meeting occurred and that

he advised plaintiffs the equipment transfer did not constitute

a change in the building's contents necessitating an increase in

the policy limits.

Stanton further testified that he could not recall if he

advised plaintiffs that between 2008 and 2009, GNY increased the

coinsurance requirement on plaintiffs' policy from eighty to

ninety percent but stated that in any event, the change was

reflected "in the document." On cross-examination, Stanton

stated he did not discuss the significance of the increase with

plaintiffs.

Stanton testified that in 2009, Michael showed him the

renovations that were made to the bowling center, but he denied

that Michael asked about an increase in coverage and that he

advised Michael not to buy more insurance. On cross-examination,

however, Stanton admitted that Michael asked him whether the

renovations warranted an insurance increase, and that he told

Michael the renovations were merely replacement costs that were

already "figured into the building [coverage] rate."

24 A-2221-15T4 Stanton also explained that he did not propose increasing

the building coverage for the April 1, 2009 to April 1, 2010,

policy year based on GNY's analysis and valuation of the

building. When asked why he did not propose an increase when the

coinsurance rate increased from eighty to ninety percent, he

replied, "I just relied on [GNY's] value." Stanton acknowledged

that the GNY policy contained a provision stating that its

reports and inspections were for GNY's internal purposes only.

He also acknowledged that GNY did not conduct an inspection of

the building for the 2009 policy until May 2009, yet he

submitted that year's policy proposal to plaintiffs in March

2009 and the policy, with unchanged coverage limits, was renewed

and became effective in April 2009.

BHI's Expert James R. Klagholz

James R. Klagholz testified as BHI's expert in the

profession of insurance brokers and producers. He opined that in

BHI's dealing with plaintiffs, its actions were consistent with

the customary standards of care in the industry. He explained

that it is not the job of an insurance broker to calculate the

actual replacement value of buildings, personal property, or

lost income. According to Klagholz, brokers are simply not

qualified to determine appropriate policy limits.

Klagholz testified the 1998 Thompson-Loyle appraisal report

25 A-2221-15T4 demonstrated plaintiffs were aware that a certified real estate

appraiser had inspected their building and estimated its

replacement cost as $3,650,000. He pointed out that Charles

resisted increasing the building coverage from $3,120,155 to

$3,425,000 for the period April 1, 2003 to April 1, 2004. He

opined that Charles's 2003 notes demonstrated that Charles was

not willing to purchase additional insurance coverage even when

it was suggested.

Klagholz testified that Stanton's advice to Michael during

their 2009 meeting was correct because plaintiffs had a

replacement cost policy; that coinsurance had absolutely no

applicability to plaintiffs' fire losses because plaintiff's

suffered a total loss; and that it was reasonable for Stanton to

rely on GNY's valuation in determining the building's

replacement cost value. Klagholz concluded that neither BHI nor

Stanton did anything incorrect in the sale of the 2009 GNY

policy to plaintiffs.

On cross-examination, Klagholz agreed it would be improper

for an insurance broker to do an independent calculation of a

building and its contents replacement cost to make a

recommendation for insurance coverage limits. He explained that

if a client asks a broker if insurance coverage limits should be

raised, the broker should not advise the client the coverage is

26 A-2221-15T4 adequate but should instead advise the client that the broker is

not qualified to calculate the value of a client's assets.

The Verdict

The jury returned a verdict finding BHI negligent, and that

BHI's negligence proximately caused plaintiffs' damages. The

jury found plaintiffs' total loss from the fire was $6,840,000,

representing the sum of its findings as to building loss

($5,600,000), business interruption ($750,000), and contents

loss ($490,000). The court molded the verdict by deducting the

sums paid by GNY under the policy ($4,070,000), and the amounts

recovered by plaintiffs from Safe & Sound and S.S. Sprinkler

($950,000) from the amount of plaintiffs' total loss

($6,840,000) for a damage award of $1,820,000. The court also

awarded $178,808.77 in prejudgment interest and costs for a

total judgment of $1,998,808.77.

BHI's New Trial Motion

BHI moved for a new trial, claiming the admission of the

1998 notes and Charles's corresponding testimony deprived BHI of

a fair trial. The court issued a detailed written opinion and

entered an order denying BHI's motion, finding there was

sufficient evidence to support the jury's determination, and

that the jury "evidently resolved the conflicting accounts of

the incident between Charles [] and Stanton by crediting

27 A-2221-15T4 [p]laintiffs' version, which was corroborated by trial testimony

and other statements."

The court acknowledged that Charles's 1998 notes

contradicted Stanton's trial testimony and likely affected his

credibility, but described the notes as "one of the numerous

evidential considerations" utilized by the jury to determine

credibility. The court also found the notes "did not involve a

wholesale-change in the presentation of [p]laintiffs' version of

the incident," and "did not deviate significantly from pre-trial

deposition testimony." Moreover, the court concluded it took

sufficient remedial measures in response to the late production

of the notes to ensure BHI received a fair trial.

II.

BHI first argues the court erred by permitting the

introduction of Charles's undisclosed 1998 notes memorializing

his September 1998 meeting with Stanton and allowing testimony

based on the notes. BHI contends the notes were integral and

material and, therefore, their late production caused prejudice

that could not be remedied. The notes, BHI argues, were the

"smoking gun" that altered the entire trial. We are not

persuaded.

BHI challenged the admissibility of the notes and

corresponding testimony in different contexts during the trial.

28 A-2221-15T4 First, BHI objected to both Charles and Stewart's testimony

concerning the notes.10 Second, BHI sought relief in the form of

a mistrial motion and motion for a new trial based on the

admission of testimony about the notes. We address the

objections and motions in turn.

A. BHI's Objections to Testimony and Evidence About Charles's 1998 Notes

BHI argues the court erred by permitting Charles to refresh

his recollection based on the 1998 notes and testimony

concerning the notes. BHI contends the court compounded its

error by permitting Stewart to supplement the opinion contained

in his expert report by testifying about the notes and expanding

his opinion based on the notes.

"When a party fails to comply with discovery, the trial

court, in its discretion, may impose appropriate sanctions."

Allis-Chalmers Corp. Prop. Liab. Tr. v. Liberty Mut. Ins. Co.,

305 N.J. Super. 550, 557 (App. Div. 1997). "The application of

sanctions is consigned to the sound discretion of the court."

Brown v. Mortimer, 100 N.J. Super. 395, 401 (App. Div. 1968).

We have recognized that "[p]reclusion of evidence as a

10 BHI did not challenge the authenticity of the notes, the admissibility of the notes had they been timely produced in discovery, or Charles's right to testify about the 1998 conversations with Stanton without reference to the notes.

29 A-2221-15T4 sanction for failure to provide notice or make required

disclosures is available 'in the limited circumstances where a

lesser sanction is not sufficient to remedy the problem caused

by an inexcusable delay . . . thereby resulting in substantial

prejudice to the non-disclosed party.'" Manorcare Health Servs.,

Inc. v. Osmose Wood Preserving, Inc., 336 N.J. Super. 218, 235

(App. Div. 2001) (emphasis added) (quoting Mitchell v. Procini,

331 N.J. Super. 445, 453-54 (App. Div. 2000)).

In exercising its discretion, the trial court's chosen

"sanction must be just and reasonable." Lindenmuth v. Holden,

296 N.J. Super. 42, 52 (App. Div. 1996), certif. denied, 149

N.J. 34 (1997). The court can suspend the imposition of

sanctions "(1) where there is an absence of a design to mislead;

(2) where there is an absence of the element of surprise if the

evidence is admitted; and (3) where there is an absence of

prejudice which would result from the admission of the

evidence." Ibid.; see also Manorcare, supra, 336 N.J. Super. at

235 (suggesting lesser sanctions may be adequate to remedy

surprise).

These standards apply whether the surprise evidence is

proffered through the form of lay or expert witness testimony.

See State v. Wolfe, 431 N.J. Super. 356, 363 (App. Div. 2013),

certif. denied, 217 N.J. 285 (2014). The trial court's decision

30 A-2221-15T4 to exclude or admit expert testimony on a subject not covered in

the written report must "stand unless so wide of the mark that

it results in a manifest denial of justice." Bitsko v. Main

Pharmacy, Inc., 289 N.J. Super. 267, 284 (App. Div. 1996).

Based on our careful review of the record, we discern no

basis to conclude the court abused its discretion in allowing

Charles and Stewart to testify concerning Charles's 1998 notes

and allowing introduction of the notes into evidence. Faced with

plaintiffs' failure to produce the notes during discovery, the

court immediately conducted an N.J.R.E. 104 hearing to determine

why the notes had not been produced during discovery and the

appropriate remedy for the failure.

The record supports the court's determination following the

hearing that Charles's failure to produce the notes during

discovery was not the result of any design to mislead, and BHI

agreed.11 The court, however, recognized that the existence of

the notes and Charles's intended reliance on them constituted a

surprise for BHI. In order to ameliorate any prejudice from the

surprise, the court permitted BHI to take Charles's deposition.

11 After hearing testimony from Charles, the court found there was "probably . . . no intention to deceive," and offered BHI's counsel the opportunity to cross-examine Charles on the issue. BHI declined and stated, "I don't have any reason to believe that [Charles] was intending to deceive anybody."

31 A-2221-15T4 BHI was permitted to question Charles concerning the notes prior

to continuing Charles's direct testimony. Charles was the first

witness, his revelation concerning the notes came early in his

testimony, and his deposition afforded BHI ample time to address

the testimony and the notes on cross-examination. BHI was

thereafter well-positioned to address the testimony and evidence

with all subsequent witnesses at trial.

BHI contends that the opportunity to depose Charles during

the trial could not remedy the prejudice from the late

production of the notes because the notes changed plaintiffs'

theory of the case. BHI argues it was prejudiced because prior

to the discovery of the notes, plaintiffs' theory was that

Stanton and BHI were negligent by never recommending that

plaintiffs obtain an appraisal report to determine the

replacement value of the building and its contents. BHI asserts

that after the notes were discovered, plaintiffs' theory was

that Stanton was negligent by making his own calculation of the

value of the building and contents.

As correctly determined by the trial court, the record does

not support BHI's contentions. Although Charles's 1998

conversations with Stanton provided context for the ensuing

annual renewals of the policy, the jury's verdict was based on a

determination that Stanton was negligent eleven years later in

32 A-2221-15T4 2009. Plaintiffs' theory of negligence was that Stanton never

requested an appraisal in connection with the 2009 policy

renewal and that he was negligent in advising plaintiffs they

did not need increased coverage based on their improvements to

the bowling center. That theory never changed. Charles's notes

concerning the 1998 policy did not alter plaintiffs' theory of

BHI's negligence concerning the insurance coverage limits in the

2009 policy, which was the policy at issue in the litigation.

Moreover, the evidence showed that the policy limits were

increased in 2003 based on conversations between Charles and

Stanton that were wholly unrelated to the 1998 notes. Charles's

notes concerning the 2003 conversations, that were timely

produced during discovery, supported plaintiffs' consistent

theory that Stanton was negligent in advising them there was no

need for changes in the policy limits. The evidence also showed,

without reference to the 1998 notes, that Stanton never advised

plaintiffs about the 2008 increase in the coinsurance and

otherwise provided erroneous advise about coverage limits at the

time the 2009 policy was purchased.

Charles's testimony concerning the 1998 notes did not alter

plaintiffs' theory of the case or surprise BHI in a manner

requiring the exclusion of the evidence. This case does not

resemble the cases cited by BHI where exclusion was required.

33 A-2221-15T4 See, e.g., McKenney v. Jersey City Med. Ctr., 167 N.J. 359, 369-

76 (2001) (finding the court abused its discretion in denying a

mistrial motion where defense counsel withheld disclosure of

expert's intention to deviate from his earlier opinion and

elicited the testimony after the plaintiff's case-in-chief);

Wymbs v. Twp. of Wayne, 163 N.J. 523, 545-46 (2000) (reversing

the admission of defendant's surprise expert witness produced

twelve days into trial, who opined on a pivotal issue in the

case regarding the scene of an accident); Thomas v. Toys "R" Us,

Inc., 282 N.J. Super. 569, 580-82 (App. Div.) (concluding the

trial court properly excluded expert's references to x-ray films

plaintiff discovered on the day of trial in part because it left

defendant unable to rebut the evidence with his own expert),

certif. denied, 142 N.J. 574 (1995).

We are therefore convinced that although BHI was surprised

by the production of the notes, it did not suffer any prejudice

that was not ameliorated by the court's curative measures of

requiring production of the notes and allowing BHI's counsel to

depose Charles.

The court was not required to sanction plaintiffs by

barring the testimony and evidence, and did not abuse its

discretion in permitting the testimony and evidence after BHI

deposed Charles. The court struck a balance and alleviated any

34 A-2221-15T4 prejudice to BHI by allowing its counsel to depose Charles

before resuming trial. See, e.g., Gaido v. Weiser, 227 N.J.

Super. 175, 192 (App. Div. 1998) (finding exclusion of expert

testimony not contained in the expert's report was not required

where the court permitted the expert's deposition at trial and

the testimony expanded upon the parties' defense, but did not

assert an unexpected defense), aff'd, 115 N.J. 310 (1989).

For substantially the same reasons, we find the court took

sufficient measures to eliminate potential prejudice concerning

Stewart's expert testimony based on the 1998 notes. The court

again paused the trial in order to ascertain Stewart's intended

testimony outside the presence of the jury at an N.J.R.E. 104

hearing. At the hearing, Stewart explained that based upon the

1998 notes "as well as the [Thompson-Loyle] appraisal [report],"

Stanton incorrectly performed a valuation of the property and

its contents. Stewart further testified that Stanton was not a

licensed appraiser and he incorrectly advised plaintiffs to

obtain $2,700,000 in building coverage, an amount that "did not

satisfy GNY's minimum [eighty percent coinsurance] requirement."

The court stated that BHI's counsel could cross-examine Stewart

with his N.J.R.E. 104 hearing testimony, and offered BHI's

counsel the opportunity to depose Stewart, which counsel elected

not to pursue. We discern no abuse of discretion in the trial

35 A-2221-15T4 court's chosen remedial measures because Stewart's testimony

concerning the 1998 notes did not change his ultimate opinion

that BHI grossly underinsured the bowling center based on

Stanton's erroneous and careless advice about the 2009 policy.

See ibid.

Stewart's opinion at trial was primarily based upon

Stanton's failure to discuss with plaintiffs the impact of GNY's

increase of its coinsurance rate before renewing the policy in

2008, and his response to Michael's inquiries in 2009 about

whether the insurance limits should be increased. Stewart was

deposed on three occasions but was only asked about the parties'

1998 meeting at his first deposition, where he opined that BHI

should have advised plaintiffs to have the property appraised

before underwriting the 1998 policy.

During his subsequent depositions, however, Stewart only

addressed Stanton's encounters with plaintiffs and the adequacy

of their insurance in 2003 and 2009. At trial, Stewart remained

largely focused on those encounters, and his testimony

concerning the 1998 notes was brief and consistent with his

testimony during the N.J.R.E. 104 hearing. Stewart relied on the

1998 notes as additional support for the theory that Stanton was

negligent by failing to properly advise plaintiffs of their

insurance coverage requirements, and not in support of an

36 A-2221-15T4 altered theory of negligence. See Gaido, supra, 227 N.J. Super.

at 192.

We thus find no abuse in the court's discretion in allowing

Charles or Stewart to testify concerning the 1998 notes because

there was an absence of any design to mislead, and any prejudice

to BHI was cured by the court's remedial measures.

B. BHI's Motions for a Mistrial and New Trial

Following Stewart's testimony, BHI moved for a mistrial,12

arguing again that BHI was prejudiced by the late production of

the notes, and that the prejudice was compounded by the fact

that counsel was not permitted to re-depose Michael or Stewart.13

The court denied BHI's motion, reiterating that Charles did

not intentionally withhold the existence of the 1998 notes, and

that the court took sufficient measures to eliminate any

12 BHI inaccurately asserts that it moved for a mistrial twice: (1) during Charles's testimony on August 27, 2015, when the existence of the 1998 notes first became apparent; and (2) after Stewart's testimony. The record shows that BHI's counsel indicated that she might move for a mistrial depending on the court's remedial measures, but did not move for a mistrial until Stewart's testimony concluded. 13 As noted, BHI was offered the opportunity to depose Stewart but opted not to do so. Michael was questioned briefly under oath concerning the 1998 notes and testified he had never seen them prior to the night before Charles's disclosure of them during the trial. In addition, there is no evidence Michael was present during the September 1998 meeting between Charles and Stanton referred to in one of the 1998 notes.

37 A-2221-15T4 potential prejudice. The court noted that it allowed BHI's

counsel to depose Charles, permitted counsel to question Michael

on the record about his knowledge of the notes, conducted an

N.J.R.E. 104 hearing regarding Stewart's testimony, afforded

defense counsel the opportunity to depose Stewart, and allowed

BHI's expert to opine about the notes without amending his

expert report.

"The grant of a mistrial is an extraordinary remedy to be

exercised only when necessary 'to prevent an obvious failure of

justice.'" State v. Yough, 208 N.J. 385, 397 (2011) (quoting

State v. Harvey, 151 N.J. 117, 205 (1997), cert. denied, 528

U.S. 1085, 120 S. Ct. 811, 145 L. Ed. 2d 683 (2000)). "For that

reason, an appellate court should not reverse a trial court's

denial of a mistrial motion absent a 'clear showing' that 'the

defendant suffered actual harm' or that the court otherwise

'abused its discretion.'" Ibid. (quoting State v. Labrutto, 114

N.J. 187, 207 (1989)). "A decision by the trial court to deny a

motion for a mistrial 'is reviewable only for an abuse of

discretion.'" Khan v. Singh, 397 N.J. Super. 184, 202 (App. Div.

2007) (quoting State v. Winter, 96 N.J. 640, 647 (1984)), aff'd,

200 N.J. 82 (2009).

In exercising its discretion in deciding a mistrial motion,

a trial court must consider the unique circumstances of the

38 A-2221-15T4 case, and whether an alternative course of action short of a

mistrial is appropriate. State v. Smith, 224 N.J. 36, 47 (2016).

"For example, a curative instruction, a short adjournment or

continuance, or some other remedy, may provide a viable

alternative to a mistrial depending on the facts of the case."

Ibid.

On appeal, BHI asserts the prejudice it suffered from the

late production of the 1998 notes was not cured by the court's

remedial measures. BHI asserts that the late disclosure of the

notes prevented it from deposing John E. Loyle, who drafted the

Thompson-Loyle appraisal report, and from obtaining any related

documents pertinent to the report. BHI further asserts it would

have approached its depositions of Charles and Michael with a

focus on whether they relied on Stanton's advice over that of

the appraiser of the Thompson-Loyle appraisal report, and

retained an expert to opine concerning their decision.

As noted, we discern no prejudice to BHI in the admission

of the testimony and evidence concerning the notes that was not

directly addressed by the court's remedial actions during the

trial. The record supports the trial court's decision that it

undertook sufficient alternative actions to ameliorate any

surprise or alleged prejudice created by the late discovery of

the 1998 notes.

39 A-2221-15T4 We are not persuaded by BHI's arguments that it would have

pursued a different course of discovery had it known about the

notes earlier. BHI obtained the Thompson-Loyle appraisal report

during discovery and knew it was prepared in part by Charles's

nephew, John E. Loyle, but chose not to depose him during

discovery. In addition, BHI's assertion that it would have

retained an expert to address plaintiffs' purported comparative

negligence is contradicted by BHI's own position because BHI did

not plead comparative negligence as an affirmative defense, and

its expert's report did not opine that plaintiffs' disregard of

the appraisal report constituted negligence.14

Moreover, and as noted, the 1998 notes did not establish

BHI's negligence in 2009, when the policy at issue was sold by

BHI. Again, the undisputed evidence showed that Stanton did not

advise plaintiffs to obtain an appraisal at that time, there was

no evidence Stanton calculated the value of the building and its

contents at that time, and the jury was asked only to determine

if BHI was negligent in its actions concerning the 2009 policy.

In sum, the court did not abuse its discretion in denying

BHI's motion for a mistrial. BHI fails to make a clear showing

that the court's denial of its mistrial motion constituted "an

14 As explained infra, we affirm the trial court's decision barring BHI from pursuing a comparative negligence defense.

40 A-2221-15T4 abuse of discretion that result[ed] in a manifest injustice."

Harvey, supra, 151 N.J. at 205.

For the same reasons, we reject BHI's claim that the court

erred in denying its request for a new trial. "A trial judge may

only grant a motion for a new trial 'if, having given due regard

to the opportunity of the jury to pass upon the credibility of

the witnesses, it clearly and convincingly appears that there

was a miscarriage of justice under the law.'" Hill v. N.J. Dep't

of Corr. Comm'r Fauver, 342 N.J. Super. 273, 302 (App. Div.

2001) (quoting R. 4:49-1(a)), certif. denied, 171 N.J. 338

(2002). A "miscarriage of justice" may occur where there is a

"manifest lack of inherently credible evidence to support the

[jury's] finding," or where it is obvious the jury overlooked or

undervalued crucial evidence. Lindenmuth, supra, 296 N.J. Super.

at 48 (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 598

(1977)).

In applying this standard, the judge must evaluate the

evidence with an eye toward correcting "clear error or mistake

by the jury." Dolson v. Anastasia, 55 N.J. 2, 6 (1969). The

judge is to "take into account, not only tangible factors

relative to the proofs as shown by the record, but also

appropriate matters of credibility, generally peculiarly within

the jury's domain, and the intangible 'feel of the case' which

41 A-2221-15T4 it has gained by presiding over the trial." Kita v. Borough of

Lindenwold, 305 N.J. Super. 43, 49 (App. Div. 1997) (quoting

Dolson, supra, 55 N.J. at 6).

The court addressed BHI's new trial motion in a detailed

and well-reasoned written opinion. For the reasons already

noted, as well as those set forth by the trial judge, we find no

miscarriage of justice in the jury's verdict and no merit to

BHI's contention that the court erred in denying the mistrial

motion. Hill, supra, 342 N.J. Super. at 302.

III.

Next, we consider BHI's argument that the trial court erred

in molding the verdict without crediting BHI $950,000 against

the jury's damage award for the amount GNY received from Safe &

Sound and S.S. Sprinkler. BHI contends it is entitled to the

credit because GNY did not have a right to subrogation of

plaintiffs' claims against the tortfeasors.

Subrogation is an equitable device designed "to compel the

ultimate discharge of an obligation by the one who in good

conscience ought to pay it [and] . . . to serve the interests of

essential justice between the parties." Culver v. Ins. Co. of N.

Am., 115 N.J. 451, 455-56 (1989) (quoting Std. Accident Ins. Co.

v. Pellecchia, 15 N.J. 162, 171 (1954)). "In an insurance

context, [subrogation] fulfills the dual purposes of avoiding

42 A-2221-15T4 unjust enrichment to an insured who obtains recovery for the

same injury from both his insurer and the tortfeasor and, in the

absence of such double recovery, of precluding the tortfeasor

from escaping all liability for damages that the tortfeasor has

caused." McShane v. New Jersey Mfrs. Ins. Co., 375 N.J. Super.

305, 309-10 (App. Div. 2005).

Relying on Culver, supra, BHI claims GNY was not entitled

to subrogation of plaintiffs' claims until plaintiffs were made

whole. 115 N.J. at 456. BHI argues plaintiffs had not been made

whole at the time GNY asserted claims against Safe & Sound and

S.S. Sprinkler and therefore GNY did not have a subrogation

right to assert claims on plaintiffs' behalf against the

tortfeasors.

In Culver, the Court considered an insured's challenge to

an agreement it reached with the insurer to divide the sums

recovered by the insurer from the tortfeasors. Id. at 453. The

insured sought a declaration the agreement was unenforceable in

part based on the argument that BHI makes here: that the insurer

had no right to subrogation because the insured had not yet been

made whole. Id. at 452.

The Court rejected the argument, explaining that

"[s]ubrogation rights are created in one of three ways: '(1) an

agreement between the insurer and the insured, (2) a right

43 A-2221-15T4 created by statute, or (3) a judicial "device of equity to

compel the ultimate discharge of an obligation by the one who in

good conscience ought to pay it."'" Id. at 456-59 (citations

omitted). The Court recognized subrogation rights existed under

the insurance policy, and that equitable principles generally

permitted the assertion of subrogation rights only after an

insured was made whole, but held that an insured and insurer

could enter into an enforceable agreement permitting the insurer

to assert subrogation rights prior to the insured being made

whole. Id. at 457. The Court expressly rejected a requirement

that "the insured be made whole first from the settlement of a

subrogation action" where the insured and insurer had "a

contractual agreement to the contrary." Id. at 459.

We therefore reject BHI's assertion that it was entitled to

a credit for the $950,000 recovered by GNY from the tortfeasors

because GNY could not properly assert subrogation rights on

plaintiffs' behalf. Pursuant to the litigation agreement between

GNY and plaintiffs, GNY was authorized to assert subrogation

claims on plaintiffs' behalf without any requirement that

plaintiffs first be made whole. See id. at 458-59. BHI's

44 A-2221-15T4 contentions to the contrary lack merit.15

IV.

BHI also argues the court erred by granting GNY's motion

for summary judgment on BHI's indemnification claim because

there were genuine issues of material fact concerning whether

GNY owed a duty to BHI and plaintiffs. BHI asserts that GNY

conducted annual inspections of the property and calculated a

replacement value for the building that was used to determine

the policy premiums, and therefore GNY owed BHI a duty to

accurately calculate the building's replacement value. BHI

contends GNY's actions in calculating a replacement value that

BHI relied upon created a special relationship between GNY and

BHI that imposed a duty on GNY to calculate the replacement

15 Because we find no support in the law for BHI's contention that it was entitled to the $950,000 credit because GNY could not be properly subrogated to plaintiffs' rights until plaintiffs were made whole, we need not address plaintiffs' assertion that no credit was required because their agreement with GNY constituted a reasonable effort to mitigate their damages. We note only that plaintiffs had an obligation to take reasonable steps to mitigate their damages, Covino v. Peck, 233 N.J. Super. 612, 616 (App. Div. 1989), and that BHI does not dispute on appeal that plaintiffs' entry into the agreement with GNY constituted a reasonable effort to mitigate damages. BHI offers no evidence that the agreement or the agreed upon sharing of the proceeds was an unreasonable exercise of plaintiffs' duty to mitigate damages. See Prospect Rehab. Servs., Inc. v. Squitieri, 392 N.J. Super. 157, 164 (App. Div.), certif. denied, 192 N.J. 293 (2007); Covino, supra, 233 N.J. Super. at 619; Spaulding v. Hussain, 229 N.J. Super. 430, 444 (App. Div. 1988).

45 A-2221-15T4 value accurately. BHI claims GNY breached that duty by

understating the replacement value of the building, and the

court erred by granting summary judgment by finding no duty

existed.16

When reviewing a grant of summary judgment, we employ the

same standard used by the motion judge under Rule 4:46. Henry v.

N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010). First, we

determine whether the moving party has demonstrated there were

no genuine disputes as to material facts, and then we decide

whether the motion judge's application of the law was

correct. Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J.

Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104

(2006). In doing so, we view the evidence in the light most

favorable to the non-moving party. Brill v. Guardian Life Ins.

Co. of Am., 142 N.J. 520, 523 (1995). We accord no deference to

the motion judge's legal conclusions, which we review de novo.

Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,

16 BHI sought indemnification against GNY only for plaintiffs' losses due to the underinsurance for the full replacement cost for the building. There was no evidence GNY conducted inspections or valuations of the contents of the bowling center to determine their replacement costs, or of plaintiffs' potential business interruption losses. Thus, BHI does not claim the court erred in dismissing its indemnification claim based on plaintiffs' underinsured losses for the replacement costs of the building's contents or the interruption of plaintiffs' business.

46 A-2221-15T4 378 (1995). Applying these standards, and based on the summary

judgment record provided by the parties on appeal,17 we affirm

the court's grant of GNY's summary judgment motion.

Notably, BHI alleged before the motion court that it was

entitled to contractual indemnification from GNY in part because

BHI was GNY's agent pursuant to an agreement between the

parties. See Johnson v. MacMillan, 233 N.J. Super. 56, 61 (App.

Div.) (holding that "[a]s a matter of elementary agency law, the

negligence of an employee-agent is imputable to the employer-

principal, who must answer for it"), remanded on other grounds,

118 N.J. 199 (1989); accord Mazur v. Selected Risks Ins. Co.,

233 N.J. Super. 219, 226 (App. Div. 1989); Avery v. Arthur E.

Armitage Agency, 242 N.J. Super. 293, 300-01 (App. Div. 1990).

The court dismissed the claim, finding BHI was not entitled to

indemnification pursuant to the agency agreement because BHI

terminated the agreement on April 3, 2007, two years prior to

the 2009 policy was executed. The record supports the court's

finding, BHI does not point to any evidence in the record

showing otherwise, and BHI does argue the court erred in

17 We rely upon the documents, affidavits, deposition transcripts, and other materials that were submitted in BHI's appendix pursuant to Rule 2:6-1(a)(1)(I). BHI represents these materials comprised the record before the motion court, and GNY does not argue otherwise.

47 A-2221-15T4 rejecting its agency theory on appeal. An issue not briefed on

appeal is deemed waived. Jefferson Loan Co. v. Session, 397 N.J.

Super. 520, 525 n.4 (App. Div. 2008); Zavodnick v. Leven, 340

N.J. Super. 94, 103 (App. Div. 2001).

BHI challenges the court's dismissal of its indemnification

claim to the extent the claim is premised on basic negligence

principles. In order to prevail on a negligence claim, the

plaintiff must prove: "(1) that the defendant owed a duty of

care; (2) that the defendant breached that duty; (3) actual and

proximate causation; and (4) damages." Fernandes v. DAR Dev.

Corp., 222 N.J. 390, 403-04 (2015). The motion court dismissed

BHI's indemnification claim finding there was no competent

evidence supporting a finding that GNY assumed a duty of care to

provide BHI or Stanton with an accurate valuation of the total

replacement costs of the building. Based on our review of the

motion record, we agree.

"The existence of a duty to exercise reasonable care to

avoid risk of harm to another is a question of law." Fackelman

v. Lac d'Amiante du Quebec, 398 N.J. Super. 474, 486 (App. Div.

2008). The existence of a duty "is largely a question of

fairness or policy," and the inquiry involves the weighing of

the relationship of the parties, the nature of the risk and the

public interest in the proposed solutions. Wang v. Allstate Ins.

48 A-2221-15T4 Co., 125 N.J. 2, 15 (1991). "[T]he legal determination of the

existence of a duty may differ, depending on the facts of the

case." Ibid.

An insurer and its agents have "no common law duty . . .

to advise an insured concerning the possible need for higher

policy limits upon renewal of the policy. If such a duty would

be in the public interest, it is better established by

comprehensive legislation, rather than by judicial decision."

Wang, supra, 125 N.J. at 11-12. However, it has been held that

brokers are liable for the negligent procurement of insurance on

behalf of an insured where the "broker agrees to procure a

specific insurance policy for another but fails to do so." Aden

v. Fortsh, 169 N.J. 64, 78 (2001); accord Rider v. Lynch, 42

N.J. 465, 477 (1964).

"Liability resulting from the negligent procurement of

insurance is premised on the theory that the broker 'ordinarily

invites [reliance] on his expertise in procuring insurance that

best suits their requirements.'" Aden, supra, 169 N.J. at 78

(quoting Rider, supra, 42 N.J. at 477). "Because of the . . .

complexity of the insurance industry and the specialized

knowledge required to understand all of its intricacies, the

relationship between an insurance agent [or broker] and a client

is often a fiduciary one." Sobotor v. Prudential Prop. &

49 A-2221-15T4 Casualty Ins. Co., 200 N.J. Super. 333, 341 (App. Div. 1984).

The fiduciary duty exists in part because an agent or broker is

sophisticated in the field of insurance and the client is not.

Id. at 341-42. "Insurance brokers (and agents) have a

responsibility in law to act toward their less expert clients in

a way that is responsible in fact." Id. at 343 (quotation

omitted).

The undisputed evidence showed that at all times relevant

to the issuance of the 2009 policy, BHI and Stanton acted as

independent insurance brokers. Generally, "[s]o separate are the

broker and the insurer that when the insured recovers against

the broker, the broker may not obtain indemnification from the

insurer." Weinisch v. Sawyer, 123 N.J. 333, 341 (1991); accord

Avery, supra, 242 N.J. Super. at 310-11. However, where a broker

can establish that the insurer is negligent, the insurer owes a

duty of contribution to the broker. See Johnson, supra, 233 N.J.

Super. at 64 (explaining that "if [the insurer] had been

negligent, it would have been a joint tortfeasor owing joint and

several liability to plaintiffs and a duty of contribution to

[the broker]"); see also Rider, supra, 42 N.J. at 475 (observing

that regardless of the insurance broker's negligence, an insurer

would be liable to the insured if it had been negligent in

issuing the insurance policy).

50 A-2221-15T4 Here, the motion court found GNY did not owe a duty to

provide BHI with an accurate statement of the full replacement

costs of plaintiffs' building because "no evidence has been

presented that GNY agreed to take on the duty of valuing the

insured's property." The undisputed facts support the court's

conclusion.

The evidence showed that GNY only used the Marshall-Swift

analysis internally, the valuation reports generated by the

analysis were not provided to BHI or Stanton prior to the fire

and subsequent lawsuits, and Stanton never communicated with GNY

or Wu concerning the valuations. Moreover, the GNY policy

Stanton sold to plaintiffs expressly provided that any

inspections or reports undertaken by GNY related only to

insurability and the premiums to be charged.

GNY never advised BHI that the 2009 policy limits were

based on a dispositive determination of the building's full

replacement costs. In addition, Stanton and BHI knew GNY would

insure the building up to its appraised value and that the

policy limit for the building's replacement cost could be

increased to its appraised value, but did not recommend an

appraisal in connection with the 2009 policy renewal.

As noted by the motion court, BHI produced no letters or

certifications supporting its claim that GNY invited reliance on

51 A-2221-15T4 its internal valuations that it used to determine insurability

and premiums. BHI did not submit an expert report supporting its

claim that GNY owed a duty to supply an accurate valuation of

actual replacement costs. There is no evidence GNY made any

representations that the policy limits it set based on its

inspection and valuation constituted an accurate and complete

statement of the full replacement costs for plaintiffs'

building. Moreover, Doreen Dulowski, the only BHI employee who

interacted with Wu and whose testimony was considered by the

motion court, acknowledged in her deposition testimony that the

most important factor in determining full replacement cost value

was "an appraisal from [the] insured showing what their value is

on [the] building."

Thus, BHI's reliance on GNY was not a matter of any

imbalance of sophistication in the insurance industry or any

information asymmetry between the parties. See Sobotor, supra,

200 N.J. Super. at 342-43 (considering that the insured was "not

a sophisticated insurance consumer" in determining that an

insurer and its agent had an affirmative duty to advise the

insured that increased coverage was available, and breached that

duty because the parties were not equally situated to make

policy decisions). Rather, GNY, BHI and Stanton were

sophisticated parties with expertise in the insurance industry,

52 A-2221-15T4 BHI was well aware of its own independent duty to its client,

see id. at 341-42, and of its own obligations under the renewal

process to obtain the requisite information, including an

appraisal, in order to accurately assess the replacement costs

for plaintiffs' building.

As the motion court correctly recognized, the record is

bereft of evidence that Stanton relied on any determination by

GNY concerning the replacement cost of the building when he

erroneously advised plaintiffs in 2009 that no additional

coverage was needed. Stanton never spoke with GNY's underwriter,

Wu. Thus, Stanton's deposition testimony concerning GNY's

alleged actions constitutes inadmissible hearsay and is not

competent evidence sufficient to defeat GNY's summary judgment

motion. R. 1:6-6; Chicago Title Ins. Co. v. Ellis, 409 N.J.

Super. 444, 457 (App. Div.) (explaining that hearsay statements

"cannot be considered evidence in the summary judgment record

showing a disputed issue of fact"), certif. denied, 200 N.J. 506

(2009).

In addition, the evidence showed that Stanton could not

have relied upon any GNY valuation of plaintiffs' building at

the time plaintiffs purchased the 2009 policy from him. First,

the information submitted to BHI for the renewal of the policy

indicated only that the coverage limits were based on the prior

53 A-2221-15T4 year's policy. Second, although GNY provided BHI with policy

renewal information in March 2009, and the policy was renewed in

April, GNY's inspection that year was not completed until late

May 2009. Therefore, neither BHI nor Stanton could have relied

on any Marshall-Swift or other valuation analysis conducted by

GNY when Stanton advised plaintiffs that no additional insurance

was required and sold them the deficient 2009 policy. See

Johnson, supra, 233 N.J. Super. at 62-63 (finding absent special

circumstances, an insurance broker's negligence is not imputed

to the insurer, and no special circumstances existed where

broker was acting solely in insured's interests in evaluating

its insurance needs and making recommendations).

In sum, we find no reason to disturb the motion court's

finding that the evidence presented was insufficient to support

BHI's claim that GNY acted in a manner that imposed a duty upon

GNY to provide an accurate value of the full replacement costs

of the building.

BHI's remaining arguments lack sufficient merit to warrant

a written discussion in an opinion. R. 2:11-3(e)(1)(E). We offer

only the following comments.

We reject BHI's contention that the court erred in

precluding BHI from asserting comparative negligence against the

54 A-2221-15T4 plaintiffs at trial. BHI did not plead comparative negligence as

an affirmative defense, and thus, waived its right to the

defense. R. 4:5-4; see also Brown v. Brown, 208 N.J. Super. 372,

384 (App. Div. 1986) ("[A]n affirmative defense is waived if not

pleaded or otherwise timely raised."). In addition, BHI's

argument that plaintiffs were aware BHI would rely on

comparative negligence is not supported by the record and is

contradicted by BHI's counsel's representation to the court.

Following the close of discovery and denial of plaintiffs'

summary judgment motion, BHI's counsel stated, "I am not

claiming comparative negligence. I'm not even saying

[plaintiffs] were negligent." Moreover, and as the court

correctly recognized, New Jersey courts generally preclude

comparative fault defenses in professional malpractice cases,

and confine allegations of a client's negligence to issues of

proximate causation. Aden, supra, 169 N.J. at 75-78.

We also reject BHI's argument that the court incorrectly

instructed the jury that BHI had the burden of proving it relied

on GNY's Marshall-Swift analysis in its determination of the

replacement cost of the building. The instruction was proper

because BHI asserted an affirmative defense that plaintiffs'

losses were caused by "third parties over whom" BHI exercised no

control, and BHI argued at trial that it relied on GNY. BHI had

55 A-2221-15T4 the burden of proving its affirmative defense. Walker Rogge,

Inc. v. Chelsea Title & Guar. Co., 254 N.J. Super. 380, 387

(App. Div. 1992). In addition, BHI did not object to the

proposed instruction, and we find no plain error in its use, R.

2:10-2, because the jury was properly instructed concerning what

plaintiffs were required to prove to sustain their cause of

action against BHI. We therefore discern no basis to conclude

the challenged instruction was clearly capable of producing an

unjust result. Bldg. Materials Corp. of Am. v. Allstate Ins.

Co., 424 N.J. Super. 448, 487 n.14 (App. Div.), certif. denied,

212 N.J. 198 (2012).

Affirmed.

56 A-2221-15T4