Cumberland Insurance Group v. Delmarva Power

NAZARIAN, J. David Wickwire’s house in Hurlock, Maryland sustained major damage from a fire. His homeowner’s insurer, Cumberland Insurance Group (“Cumberland”), paid his claim, and came to believe that the fire was caused by faulty wiring in the house’s electric meter box. Cumberland seeks subrogation from Delmarva Power (“Delmarva”), Mr. Wickwire’s electric company, but the Circuit Court for Dorchester County granted Delmarva’s motion for summary judgment on the ground that Cumberland destroyed the fire scene, which deprived Delmarva of the opportunity to investigate or defend the claim. Cumberland appeals, and we affirm.

I. BACKGROUND Mr. Wickwire insured his home with Cumberland, and Delmarva provided his electric service. A fire broke out at the house on the morning of May 5, 2013, and local fire department personnel responded and put out the fire. Delmarva also responded by sending a lineman, Jeff Willoughby, to disconnect the power supply to the house, evidently at the request of the fire department. Mr. Willoughby did not serve in any investigative capacity that day 1 ; his job was to “make things safe” — ie., to “[m]ake sure the wire was dead going to the house” — so he “[w]ent to the transformer, figured out ⁶⁹⁴ which wire went to that house, [and] disconnected it in the transformer ...” Thomas Harr, a Senior Deputy State Fire Marshal, investigated the fire, and noted significant smoke and water damage throughout the interior of the house.

The worst fire damage was in the utility room: “[t]he ceiling was down and the remains of the rafters were exposed. The roof was consumed above this room extending up to the peak. The wires in this are[a] suffered heavy fire damage.” The Fire Marshal concluded that the fire originated in the meter box. He based his conclusion on burn patterns, witness statements, and the heavy fire damage to the meter box (which showed that the contact lugs in the box were loose at the point where they connected with the wire).

He removed the meter and meter box from the scene. Cumberland retained a fire cause and origin expert, Timothy Hattwick, who inspected the property on May 8, 2013, three days after the fire. He walked through the house and took pictures, but he did not take any evidence from the scene. 2 He reasoned from what he saw “that the fire had moved in from the exterior[, and at] that point combining that knowledge or that observation with what I observed on the exterior, I refocused my examination on the exterior as the area of origin.” Mr. Hattwick concluded that the fire “originated in the area of the meter.” He contacted Fire Marshal Harr and asked him to return to the scene to bring with him the remains of the meter. The Fire Marshal was unavailable, but the two spoke about the investigation.

On May 24, 2013, Cumberland’s electrical engineering expert, Michael Wald, also inspected the house and examined the remains of the meter and meter box (or, as he put it, a “paper bag with remains of electrical devices in it”). As the Cumberland investigation proceeded, it does not appear that Delmarva sent any personnel to inspect the ⁶⁹⁵ property. Nonetheless Cumberland got an estimate for demolition of the property and issued a check to Mr. Wickwire on May 30, 2013, that appeared to include the cost of demolition. The house and its contents were demolished on July 3, 2013.

We will discuss in greater detail below what Delmarva knew, and when Delmarva knew anything, about its potential liability and the eventual destruction of the scene. Delmarva concedes in its brief that “Delmarva knew about the fire on May 5, 2013, and knew as early as May 29, 2013 that a claim may at some point be made against it.” Beyond that, though, the parties dispute when, if at all, Cumberland notified Delmarva about the fact that the house was to be demolished, and that question underlay Delmarva’s motion for summary judgment (the “Motion”). Delmarva filed the Motion in December 2014. Delmarva argued, among other things, that Cumberland destroyed the fire scene and irreversibly crippled Delmarva’s ability to mount a meaningful defense.

The trial court held a hearing on January 22, 2015; we will detail the dialogue below, but it will suffice for now that the court ruled from the bench after argument and granted the Motion: We’re here on a motion in limine and a motion to compel and a motion for summary judgment. After reviewing the motions, the exhibits attached thereto and the — considering the arguments of Counsel there is — the Court is going to grant the motion for summary judgment. Specifically without addressing all of the various arguments the argument that the Court is going to grant summary judgment on ... the destruction of the house. The Court finds that based on the factors in Clumpt v. Krongberg, [sic 3 ] which talk[s] about an act of destruction, discoverability of the evidence, an intent to destroy the evidence an occurrence of the act at a time when the filing of a lawsuit is fairly perceived as imminent that [Delmarva] in this case will not have the opportunity or did not have the ⁶⁹⁶ opportunity to adequately prepare a defense.

Their experts did not have an opportunity to review or to examine the house. [Cumberland’s] position of we preserved what we thought caused the fire and took a bunch of pictures I’m not persuaded that that actually is fair to [Delmarva] in the preparation and their experts’ preparation of their case. Further I don’t find that there was — that in effect what was a constructive notice argument to [Delmarva] carries weight especially in light of the fact that the demolition had commenced not even sixty days after the fire. If we were six months out maybe my feelings would be different, but I think due to the close nature I think due to the fact that there was no correspondence provided that actually in effect what I would say put [Delmarva] on the clock as to the fact that demolition was contemplated within a soon to be time period. And that, you know, there was correspondence that put them on notice I guess in effect that at some point litigation was being contemplated or that liability was contemplated which is one of the factors.

So there was the idea that a lawsuit was imminent but no effort to preserve the evidence that the other side would need to be able to review to have a fair trial and a fair proceeding. So for those reasons the Court grants the motion for summary judgment in favor of Delmarva Power. (Emphasis added.) The court entered a written order on January 22, 2015. Cumberland moved for reconsideration on January 30, 2015, and the trial court denied the motion on March 6, 2015.

Cumberland filed a timely notice of appeal.

II

DISCUSSION The doctrine of spoliation 4 is grounded in fairness and symmetry. Stated simply, a party should not be allowed to ⁶⁹⁷ support its claims or defenses with physical evidence that it has destroyed to the detriment of its opponent. In this case, Cumberland controlled the fire scene and informed Delmarva for the purpose of pursuing its subrogation claim, but never told Delmarva of the fire scene’s impending destruction. And as a practical matter, this prevented Delmarva (and, perhaps more to the point, its experts) from assessing the causes of the fire first-hand.

Cumberland says, correctly, that it preserved the meter box, which was the culprit in its view. But this case is not just about the meter box — it’s about the cause of the fire, and specifically whether the cause, whatever it was, was attributable to Delmarva. And the destruction of the scene deprived Delmarva of the opportunity to test Cumberland’s hypothesis or establish the possibility that the fire was caused by anything else. 5 ⁶⁹⁸ A. Standard Of Review. Delmarva moved for summary judgment on a variety of grounds, and the circuit court granted the motion as a discovery sanction, so we review its decision through that lens.

See Erie Insurance Exch. v. Davenport Insulation, Inc., 659 F.Supp.2d 701, 702 (D.Md.2009) (granting summary judgment based on spoliation and dismissing case). We are bound by a trial court’s factual findings in the context of discovery sanctions unless we find them to be “clearly erroneous,” Md. Rule 8—131(c); see also Klupt, 126 Md.App. at 192-93, 728 A.2d 727 . The trial court has broad discretion to impose sanctions for discovery violations, “and the decision whether to invoke the ‘ultimate sanction’ [of dismissal] is left to the discretion of the trial court.” Valentine-Bowers v. Retina Grp. of Washington, P.C., 217 Md.App. 366, 378 , 92 A.3d 634 (2014). Sanctions may be justified even without “ ‘willful or contumacious behavior’ ” by a party.

Warehime v. Dell, 124 Md.App. 31, 44 , 720 A.2d 1196 (1998) (quoting Beck v. Beck, 112 Md.App. 197, 210 , 684 A.2d 878 (1996)). We explained in Sindler v. Litman that “[o]ur review of the trial court’s resolution of a discovery dispute is quite narrow; appellate courts are reluctant to second-guess the decision of a trial judge to impose sanctions for a failure of discovery.” 166 Md.App. 90, 123 , 887 A.2d 97 (2005). B. The Spoliation Doctrine. The spoliation doctrine is well-established in Maryland.

See Klupt v. Krongard, 126 Md.App. 179 , 728 A.2d 727 (1999). Klupt lays out the elements of spoliation (and we look at those elements next), albeit in the context of a willful destruction of documents and recordings unlike anything that occurred here. We have concluded in other contexts that destruction of evidence is not an independent tort that itself gives rise to a cause of action. See Goin v. Shoppers Food Warehouse Corp., ⁶⁹⁹ 166 Md.App. 611, 613, 619 , 890 A.2d 894 (2006) (affirming dismissal of plaintiffs claim and declining to recognize a separate cause of action for “[n]egligent and/or reckless spoliation” by the defendant’s employee).

And we have affirmed a spoliation instruction that permits an adverse inference even without a showing of bad faith. See Anderson v. Litzenberg, 115 Md.App. 549, 560 , 694 A.2d 150 (1997) (permitting a jury instruction stating that “ ‘destruction of evidence by a person gives rise to an inference or presumption unfavorable to [the] spoiler, and ... if the intent was to conceal the nature of the defect the destruction must be inferred to indicate a weakness in the case’ ”). But Maryland appellate courts have not established how to apply the spoliation doctrine in the context of a situation, like this one, where the physical object (or in this case, the building) that was destroyed is itself the subject of the case. We look below at how other jurisdictions have applied the doctrine in that context, and we conclude that it is appropriate to balance the degree of fault (or, in some instances, intent) on the part of the spoliator, on the one hand, with the level of prejudice that inures to the defense because the evidence has been destroyed, on the other.

If a trial court finds that this balance favors imposing some sort of sanction, the question then becomes what remedy is appropriate and whether a remedy less drastic than dismissal can cure the prejudice to the defendant. See Adkins v. Wolever, 554 F.3d 650, 652 (6th Cir.2009) (“[A] proper spoliation sanction should serve both fairness and punitive functions.”); Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir.1995) (fashioning a sanction to serve the “purpose[s] of leveling the evidentiary playing field and ... sanctioning the improper conduct”). It also recognizes the common-sense principle that “one does not ordinarily -withhold evidence that is beneficial to one’s case.” Anderson, 115 Md.App. at 562 , 694 A.2d 150 . 1. Klupt — Establishing when spoliation takes place.

There is no suggestion in this case that Cumberland behaved anything like Mr. Klupt in Klupt v. Krongard. That ⁷⁰⁰ case related to Mr. Klupt’s invention of a disposable videocassette and its licensing and production by other companies. 126 Md.App. at 184 , 728 A.2d 727 . A number of corporations and counsel became embroiled in the litigation, and several of Mr. Klupt’s one-time business partners sought a declaratory judgment against him and his corporation, claiming that they were defrauded into investing in the manufacture and distribution of his product. Id. at 184-85, 728 A.2d 727 .

Mr. Klupt filed a separate action claiming that the plaintiffs and others had conspired to deprive him of the value of the invention, and the actions were consolidated, with Mr. Klupt’s claim designated as a counterclaim. Id. at 185, 728 A.2d 727 . In the course of discovery, the plaintiffs sought all documents between the parties, including any records of phone conversations. It was discovered later that Mr. Klupt had recorded a number of conversations with some of the plaintiffs, but destroyed the tapes — along with memoranda he had written to memorialize their contents — early on in the litigation and after the plaintiffs had sought them in discovery.

Id. at 188, 728 A.2d 727 . To make matters worse, he did not admit to the destruction until his deposition three years into the litigation, and after he attempted on numerous occasions to obstruct discovery and evade answering questions seeking such information. Id. at 189-90, 728 A.2d 727 . The plaintiffs moved to dismiss Mr. Klupt’s counterclaim based on “discovery abuse and contempt of court”: The motion alleged [that] Klupt made surreptitious recordings of telephone conversations from which he made memo-randa; he intentionally destroyed the tape recordings; he created dummy versions from the original memoranda; he withheld both the original and dummy memoranda; he falsely affirmed in his deposition that he had produced all documents.

Id. at 190, 728 A.2d 727 . The trial court granted the motion and Mr. Klupt appealed. We began our review of the law by noting that Maryland’s discovery rules do not deal separately with the destruction of evidence, but do permit dismissal ⁷⁰¹ based on failure to respond to discovery requests. We pointed out that destruction of evidence would render meaningless a discovery request, or render moot an order to compel: If dismissal is permissible in those cases, it would seem to be a fortiori permissible in a case of destruction of discoverable evidence.

Cf. White v. Office of the Public Defender for the State of Md., 170 F.R.D. 138 , 148 n. 8 (D.Md.1997) (“A party who has removed any possibility of warnings by destroying evidence before a court order can be issued cannot in fairness thereby immunize herself from the ultimate sanction of dismissal.”). Id. at 194 , 728 A.2d 727 . We concluded first that the Maryland discovery rules would permit sanctions for destruction of evidence.

Id. at 195-96, 728 A.2d 727 . But we also looked to cases interpreting analogous federal rules, and found “inherent authority” for the court to regulate discovery. Id. at 196-97, 728 A.2d 727 (citing Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 72 (S.D.N.Y.1991)). From there, Klupt looked at whether the court could impose the sanction of dismissal or was limited to the less severe sanction of permitting the fact-finder to “draw a negative evidentiary inference or presumption against the spoliator.” Id. at 197, 728 A.2d 727 .

We opted for the former for two reasons. First, we pointed out that the court (as opposed to a subsequent trier of fact) was in charge of the discovery process, and therefore best suited to fashion a remedy to address a discovery violation, rather than leaving it for a jury at trial. Second, we noted that the spoliation doctrine was “flexible and versatile,” so it could be perfectly appropriate to permit a sanction of dismissal when such an issue was addressed during discovery, “while the same offense may raise only an evidentiary presumption when dealt with during trial.” Id. at 198, 728 A.2d 727 . We ultimately adopted the test laid out in White v. Office of the Public Defender, 170 F.R.D. 138, 147-48 (D.Md.1997), for determining whether spoliation had occurred: (1) An act of destruction; ⁷⁰² (2) Discoverability of the evidence; (3) An intent to destroy the evidence; (4) Occurrence of the act at a time after suit has been filed, or, if before, at a time when the filing is fairly perceived as imminent.

Id. at 199 (quoting White, 170 F.R.D. at 147 ). We approved the trial court’s finding that Mr. Klupt had destroyed the tapes, which were discoverable. The trial court found that Mr. Klupt had destroyed them intentionally, although we pointed out that constructive knowledge could also suffice to satisfy this element. Id. at 200 .

Mr. Klupt also destroyed the tapes not just after suit was filed, but possibly months after they had been requested in the course of discovery. We concluded that the trial court’s findings were not clearly erroneous, and then addressed the sanction of dismissal. Given that Mr. Klupt acted not just willfully but “contumaciously,” deliberately concealing the existence of the tapes, and given the timing of the destruction, we found no abuse of discretion in the trial court’s decision to dismiss Mr. Klupt’s counterclaims. Id. at 203 . 2.

Fault on the part of the spoliating party. From there, Klupt moved on to analyze the appropriate remedy, and held that dismissal was appropriate given Mr. Klupt’s behavior, which fell at the far end of the spectrum, where he wasn’t just at fault but acted intentionally, with bad faith and ill-will. Id. Most plaintiffs probably aren’t as brazen as he was — he concealed and lied about the tapes, then destroyed them with a hammer.

But intent to destroy isn’t a prerequisite to a finding of spoliation — courts look as often to fault. So, for example, in Silvestri v. Gen. Motors Corp., 271 F.3d 583 (4th Cir.2001), the United States Court of Appeals for the Fourth Circuit affirmed the District Court’s dismissal of a plaintiff’s claim against General Motors, noting that “a court must find some degree of fault to impose sanctions.” Id. at 590 . The court noted that bad faith need not be present, and that “even when conduct is less culpable, dismissal may be necessary if the prejudice to the defendant is extraordinary, ⁷⁰³ denying it the ability to adequately defend its case.” Id.

(emphasis added). As the court explained, sometimes even the inadvertent, albeit negligent, loss of evidence will justify dismissal because of the resulting unfairness: “The expansion of sanctions for the inadvertent loss of evidence recognizes that such physical evidence often is the most eloquent impartial ‘witness’ to what really occurred, and further recognizes the resulting unfairness inherent in allowing a party to destroy evidence and then to benefit from that conduct or omission.” Id. at 593 (quoting Kirkland v. New York City Housing Auth., 236 A.D.2d 170 , 666 N.Y.S.2d 609, 611 (1997)). Silvestri balanced the nature of the conduct and the effect of that conduct — a lack of intent could yet be trumped by a high degree of prejudice and still support dismissal. And in the specific context of preservation of a fire scene, the second half of that balancing test becomes more important, i.e., where the defendant’s ability to mount a defense can be obliterated by the spoliation of the scene.

Indeed, in Erie Insurance Exchange v. Davenport Insulation, Inc., 659 F.Supp.2d 701 (D.Md.2009), the United States District Court for the District of Maryland applied Silvestri in a situation similar to this case. After a house fire, the insurer of the home, Erie Insurance Exchange, sued the homebuilder, Builder Services Group (“BSG”), for negligently installing a fireplace. Erie destroyed all physical evidence three months after the fire took place — fully seventeen months before it notified BSG of its subrogation claim. Id. at 706 .

The court read Silvestri to impose a two-part “either/or test” that warrants dismissal if (1) “the spoliator’s conduct was so egregious as to make forfeiture of its claim an apt remedy” or (2) “if the loss of the evidence is so prejudicial that it substantially denies the defendant the ability to defend the claim,” id. at 707 , and the court found both prongs satisfied. First, it noted that Erie’s conduct justified forfeiture of its claim because it had reports about a viable subrogation claim within weeks of the incident, saw the fireplace as the likely cause, and still did not try to preserve the scene or notify the targets, decisions that ⁷⁰⁴ could “only be characterized as negligent.” Id. Second, the court noted that BSG would have conducted a different, and more exhaustive, search of the scene to identify the safety strip that allegedly was responsible for the fire, and that it also was deprived of the