IVETTE LIBUTTI et al. v. NUNEZ BROTHERS CONSTRUCTION, and MARIANO NUNEZ

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0314-05T30314-05T3

IVETTE LIBUTTI and FRANCIS LIBUTTI,

Plaintiffs-Appellants,

v.

NUNEZ BROTHERS CONSTRUCTION,

and MARIANO NUNEZ,

Defendants,

and

UNDERWRITERS AT LLOYD'S

LONDON, LLOYD'S OF LONDON,

Defendant-Respondent.

_________________________________________________

 

Argued May 23, 2006 - Decided July 19, 2006

Before Judges Axelrad, Payne and Sabatino.

On appeal from Superior Court of New

Jersey, Law Division, Hudson County,

L-6468-03.

Christopher P. Gargano argued the cause

for appellants.

Joseph M. Powell argued the cause for

respondent (Parsons, Powell & Lane,

attorneys; Mr. Powell of counsel, Mr.

Powell and Anthony J. Corino, on the

brief).

PER CURIAM

Plaintiffs Ivette and Francis LiButti filed suit against Nunez Brothers Construction, Mariano Nunez and the construction company's insurer, Certain Underwriters at Lloyd's, London, after excavation by Nunez of the dirt basement of the plaintiffs' two-family house, in preparation for casting a concrete floor, allegedly damaged plumbing and heating pipes and undermined the foundation of the house, causing the basement to flood with sewage, the heat to fail, and structural elements to shift.

In their claim against Lloyd's, plaintiffs sought only those damages arising from the alleged negligence of Nunez, which they allege caused damage to property and personal belongings stored in the basement, together with bodily injury damages for nausea and emotional distress. They did not seek from Lloyd's damages resulting from the work that was the subject of the contract with Nunez.

Plaintiffs' claim against Lloyd's was dismissed by summary judgment on various grounds, including the fact that any direct action by the LiButtis was premature, since they had not obtained a judgment against Nunez or an assignment of its rights. Additionally, the motion judge found that coverage had been forfeited by Nunez as the result of its lack of cooperation, and that coverage was excluded under various policy provisions.

Shortly thereafter, a default judgment was entered against Nunez in the amount of $91,289 (apportioned into $51,289 spent to repair damage caused by the work performed by Nunez, $15,000 for loss of personal property, and $25,000 for pain and suffering). Lloyd's did not participate in the proof hearing that resulted in the default judgment.

Plaintiffs have appealed the summary judgment in favor of Lloyd's. On appeal, they argue that their direct action was legally proper, and if it was not, any defect has now been cured by the entry of default judgment against Nunez. They argue further that they are entitled to coverage by Lloyd's of their claim, because none of the grounds cited by the motion judge in finding the absence of coverage is factually and legally sustainable. In this regard, plaintiffs assert that Lloyd's failed to submit competent evidence to establish that Nunez deliberately breached the cooperation clause of the Lloyd's policy in a material fashion and failed to offer evidence to demonstrate that it was prejudiced by any failure to cooperate. They argue also that the policy at issue covered the excavation activities conducted at their residence, despite the fact that Nunez described its business on the policy application as involving only carpentry and masonry. Additionally, they argue that the limited damages sought from Lloyd's fall outside of policy exclusions for damages resulting from work performed by Nunez. Finally, they claim that the copy of the policy issued to Nunez was not properly authenticated and therefore did not constitute competent evidence of the coverage provided by Lloyd's. We affirm.

We concur with the motion judge's conclusion that the LiButtis' action against Lloyd's, filed before their damages had been fixed by final judgment, was barred by the "no action" provision of the Lloyd's policy, which precluded joining it as a party in a suit "asking for damages from an insured." Cruz-Mendez v. ISU/Ins. Servs, 156 N.J. 556, 566-67 (1999); Tuckey v. Harleysville Ins. Co., 236 N.J. Super. 221, 226 (App. Div. 1989). This was not a case in which plaintiffs merely sought a declaration of rights under the policy, in which case their action might have been proper. Condenser Serv. & Eng'g Co. v. Am. Mut. Liab. Ins. Co., 45 N.J. Super. 31, 40-41 (App. Div. 1957), certif. denied, 24 N.J. 547 (1957). Instead, they asserted rights as third-party beneficiaries, and were rightfully precluded from doing so.

Plaintiffs contend that regardless of precedent such as we have cited, the fact that they obtained a default judgment against Nunez serves to cure any defect in the procedure in which they engaged. Because we see little benefit to be achieved by now requiring plaintiffs to re-file their action against Lloyd's, we will treat their action as properly filed and address the coverage issues presented.

Lloyd's argued before the motion judge and on appeal that it has no obligation to provide coverage in this case because of the failure of Nunez to cooperate in the investigation and defense of the claim as required by the insurance contract. The trial judge agreed with this position, and we affirm summary judgment on this ground. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Prudential Prop. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We thus do not reach the remaining coverage issues that have been raised.

Evidence in the record establishes that Nunez entered into the first of a series of contracts with plaintiffs on February 15, 2002. We reproduce the initial contract, noting its partial intelligibility.

Agreement between Mr. Frank Libutti resident at 151 west 26 street Bayonne NJ.

And Nunez Bros Construction locate at 196 Seaview Ave. J.C NJ

Nunez Bros Construction will does the following job.

Remove dirt front the basement open up basement by front side of The house to get the dirt out of there.

Have to be dig down 7'feet 5"inch to pour all concrete floor make Sure the foundation is in good condition to build block beside of The existing walls stacco over the walls have it look nice The landlord will povide the dive way to put the dump where the Dirt will be putin.

This job are including labor and materials the price convine for This job is $13,475.00

Two amendments to this contract, also dated February 15, 2002, appear in the record.

The documents of February 15 are followed by three proposals that were accepted by plaintiffs during the next three or more months. The first, dated March 27, 2002, provided:

* additional work added to 151 West 26th Street included:

1. While digging out the hole the findings were that there was not any existing foundation, therefore,

Nunez will build new footings, columns, foundation drains.

2. Recement alley way.

The cost of this work was stated to be $16,500.

The second proposal, which is dated May 8, 2002, provided:

Agreement between Mr. Frank LiButti resident at 151 W. 26th Street, Bayonne, NJ

and Nunez Bros Construction located at 196 Seaview Ave. J.C. NJ

Nunez Bros. will perform the following:

1. Will cut down floor, for a staircase to be installed

2. Brick face front of house, will also stucco all existing cynder blocks.

The cost of this work was $5,850.

The third, undated, proposal stated:

Build up two new wall foundation. The right side and the left side of the basement under the pin. Two others walls. The front one and the back one as well. Finish build up the back wall 8X8X16 sinder blocks reran into new foundation wall and be fill up with concrete solid.

Stairs to basement included in price of $3,200.00

The insurance coverage provided by Lloyd's became effective on March 15, 2002. It appears that work commenced after that date, although that fact is not certain, raising an issue as to whether coverage for the alleged damages existed at all. Plaintiffs have testified that the work began on or about April 1, but the content of the March 27 proposal suggests that the work began at an earlier time. At an unknown date, Nunez ceased work on the project, and plaintiffs hired others allegedly to perform repairs and complete the job.

By letter dated March 18, 2003, approximately one year after the events at issue, counsel for plaintiff wrote to the insurance agency that had placed coverage for Nunez, stating that pursuant to a contract dated February 15, 2002, Nunez "began some work" for plaintiffs "which was shoddy and substandard" and would have to be redone at a cost of $30,000. No mention was made in that letter of consequential damages. A handwritten note on the letter stated that on April 8 counsel was advised that Nunez had no insurance through the agency at the time of the claim. Following further discussion, an additional claim was made by counsel by letter dated June 19, 2003. That claim, unlike the first, gave an inception date for the work that was within the policy period. It, too, was for the cost of repairs and completion only, and was in the amount of $30,000. Plaintiffs have conceded that the coverage issued by Lloyd's excluded liability for repair or replacement of the work performed by Nunez. Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979).

Following notice by plaintiff's counsel, Raphael & Associates was retained as an insurance adjuster by Lloyd's or its agents to investigate the claim. After several unsuccessful attempts to reach Nunez by telephone, by letter dated July 8, 2003, Raphael requested Nunez to contact it to arrange to give a statement and produce documents. Later correspondence discloses that Raphael had left two messages for Nunez with a woman who described herself as a "neighbor," but had not received a response. Thereafter, additional correspondence was sent to Nunez that, likewise, did not provoke a response. Although plaintiffs have faulted Lloyd's for not conducting a further investigation into Nunez's whereabouts at this point, Ivette LiButti testified at the proof hearing that she and her husband had also attempted to find Nunez, and had been informed that he had returned to the Dominican Republic. The motion judge found in this regard that "[b]oth parties have been notified that Nunez will be out of the country until some undisclosed date."

Plaintiffs filed their complaint on December 9, 2003, and service upon Nunez was allegedly made on January 2, 2004. On August 27, 2004 (more than two years after the work had been performed), the court vacated an order dismissing the complaint for lack of prosecution, permitted a proof hearing with respect to the claim against Nunez, and allowed plaintiffs forty-five additional days to serve Lloyd's, which answered the complaint on August 31, 2004. A proof hearing, scheduled for October 1, 2004, was adjourned by plaintiffs. Thereafter, in February 2005, Lloyd's moved for summary judgment, and its motion was granted on May 25, 2005. The proof hearing that had been scheduled for October 2004 was conducted on August 11, 2005.

The failure by an insured to cooperate in the defense of a claim can, in a case such as this in which insurance coverage is not statutorily mandated, acts to bar recovery by a claimant. Giannetti v. Fenwick, 166 N.J. Super. 491, 495 (App. Div. 1979). This is so because,

[c]ompliance with the cooperation clause of an insurance policy is a condition precedent to the carrier's liability thereon. However, the burden of proving a failure to cooperate rests on the insurance carrier. In order to relieve itself of liability under the policy the insurance carrier must show that the cooperation clause was deliberately breached in a material or essential particular. Ordinarily, the issue is one of fact, unless the evidence is such that reasonable men could not differ as to the conclusion to be reached.

[Mariani v. Bender, 85 N.J. Super. 490, 500 (App. Div. 1964), certif. denied, 44 N.J. 409 (1965).]

See also Cooper v. Gov't Employees Ins. Co., 51 N.J. 86, 94 n.2 (1968); Pearl Assur. Co. Ltd. v. Watts, 58 N.J. Super. 483 (App. Div. 1959).

In this case, the motion judge found a deliberate breach of the cooperation clause of the Lloyd's policy, observing that "it is clear to the court that the defendant Nunez Brothers had been less than helpful and cooperative with Lloyd's. The defendant has clearly avoided aiding in the investigation of the claim and for all purposes has ceded any defense in this case." Additionally, the court found that Lloyd's had "clearly been prejudiced" as the result of its inability to develop defenses to plaintiffs' suit.

We find that conclusion to have been amply supported by the record. In this case, Lloyd's acted promptly when informed of a potential claim within its period of coverage to attempt to locate Nunez, despite the fact that counsel's description of the claim strongly suggested that coverage was excluded by its policy. Compare Dougherty v. Hanover Ins. Co., 114 N.J. Super. 483, 486-88 (Law Div. 1971) (declining to enforce cooperation clause when insurer had made no effort to locate the insured). We also find that Lloyd's sustained its burden of demonstrating prejudice. As our prior discussion of the evidence makes clear, because of the manner in which the contracts in this matter were framed, it is almost impossible to determine the scope and timing of the work Nunez contracted to perform. It further cannot be determined on the basis of the documentary record what the condition of the space under plaintiffs' home was prior to Nunez's work or what he was told by plaintiffs regarding the integrity of the foundation and other structural elements, the location or prior condition of the sewer pipe that he allegedly broke, or what was the cause of the heating shut-down. Although in some instances, such information could be developed from alternative sources, such an opportunity for reconstruction of the evidence does not appear to be possible, here. Morales v. Natn'l Grange Mut. Ins. Co., 176 N.J. Super. 347, 356 (Law Div. 1980) (discussing prejudice from breach of a notice provision).

Additionally, it cannot be ascertained with any reliability whether Nunez was at fault in causing the breakage of the sewer line or lack of heat, or in undermining the structural members of the house. The execution of successive contracts between plaintiffs and Nunez may, as they claim, have been necessitated by the cascading effects of his negligence. However, it is also possible that plaintiffs were initially satisfied by his work, and that the dire events that they have recounted either did not occur or were less significant than reported. There is simply no way to verify which of these views is correct.

As a further matter, the failure by Nunez to cooperate has deprived Lloyd's of the opportunity to verify that plaintiffs were indeed storing items in the basement that Nunez was in the process of excavating and whether those items were subjected to subsequent flooding. Lloyd's likewise lacks the ability to verify plaintiffs' medically unsupported claims of physical injury and emotional distress as the result of a lack of knowledge of what the alleged flooding entailed or its scope and duration.

In these circumstances, we concur with the motion judge's conclusion that Lloyd's sustained appreciable prejudice as the result of the failure by Nunez to cooperate in the investigation of plaintiffs' claims. That failure prevented a reasonable evaluation of the factual basis asserted by plaintiffs for their claims of damage. It also deprived Lloyd's of the ability to properly develop defenses that appear to have existed to plaintiffs' action as the result of the absence of a solid foundation for their claim of damages. Id. at 356 (requiring evidence of both the loss of an opportunity to investigate the claim and a showing of the existence of the likelihood of a meritorious defense). We thus affirm the motion judge's conclusion that Nunez breached the cooperation clause of coverage afforded to him by Lloyd's, voiding that coverage.

Affirmed.

 

This figure may include the cost of the installation of a bathroom.

(continued)

(continued)

13

A-0314-05T3

July 19, 2006