State Farm Fire & Casualty Co. v. Carter

HOLLANDER, Judge. This case is rooted in a contractual dispute between Damon A. Carter, appellee and cross-appellant, and his automobile insurer, State Farm Fire & Casualty Company (“State Farm”), appellant and cross-appellee. Although State Farm insured Carter’s motor vehicle for theft, it refused to pay Carter’s claim of loss arising from the alleged theft of his ⁴⁰² automobile, because it considered the claim bogus. That decision prompted Carter to file suit against State Farm for breach of contract.

A jury in the Circuit Court for Baltimore County found in favor of Carter, awarding him damages of $22,749.18. At issue here is the ruling of the trial court allowing Carter to testify that criminal charges were brought against him with regard to his alleged loss, but that the charges were dismissed or “nolle prossed.” On appeal, State Farm asks: Whether the trial court committed reversible error in permitting the Appellee to introduce evidence regarding his nolle pros, on criminal charges stemming from the same occurrence underlying the present civil suit and/or abused its discretion by denying Appellant’s request for mistrial and subsequent Motion for New Trial. In his cross-appeal, Carter poses one issue: Whether the trial court erred in declining to award costs, expenses, and attorney fees, and in holding that State Farm’s defense,, was made with substantial justification, as State Farm never established a reason, in good faith, for denying cross-appellant’s claim. For the reasons stated below, we shall reverse and remand.

FACTUAL SUMMARY 1 Appellee claimed that he purchased a 1993 BMW 325i on August 27, 1998, for the sum of $14,000. He obtained a policy of insurance for the vehicle from State Farm. On November 17, 1998, Carter notified State Farm that the vehicle had been stolen. He also reported the theft to the police.

According to Carter, the vehicle was stolen from the rear of his place of employment and was never recovered. Several concerns surfaced during State Farm’s investigation of appellee’s claim. As a result, State Farm referred the ⁴⁰³ claim to its Special Investigative Unit. By letter of July 7, 1999, from Paul Holland to appellee, State Farm denied Carter’s claim.

Holland advised Carter that the investigation “revealed that no accidental loss has occurred as defined under ... this policy”; there were “material misrepresentations and concealments made by [appellee] following the loss,” and appellee had refused “to cooperate with appellant,” as required by the policy. In the meantime, in March 1999, Carter was arrested and charged, inter alia, with insurance fraud in connection with the alleged theft of his vehicle. On December 6, 1999, the date set for Carter’s criminal trial, the prosecutor entered a nolle prosequi (“nol pros”) as to the criminal charges. Thereafter, in September 2000, Carter sued State Farm for breach of contract. 2 State Farm asserted affirmative defenses in support of its denial of Carter’s claim, consistent with the contentions advanced by Holland in his letter of July 7, 1999.

At the outset of the jury trial in October 2002, State Farm moved in limine to bar evidence of the criminal prosecution of appellee and the subsequent nol pros. State Farm argued that appellee should not be permitted to suggest to the jury that, because the State declined to prosecute him, this established that he did not engage in any wrongdoing with regard to his insurance claim. In effect, the court denied the motion, stating that it would “wait and see.” Carter was called as the first witness at trial. An employee since 1984 of Michael Jacobs Audio Visual Electronics in Baltimore City, Carter testified that he purchased the BMW from Jacobs for the sum of $14,000.

Carter recalled that he borrowed the money from his mother and sister, and paid cash for the vehicle. According to Carter, on the night of November 16, 1998, he left the BMW in the alley behind his place of employment, ⁴⁰⁴ because he planned to install upgraded sound speakers the following day. The next morning, Carter discovered that the car was gone. He reported the theft to the police.

In addition, he notified State Farm that the vehicle had been stolen. During Carter’s direct examination, Carter’s attorney questioned him about an interview conducted by James Reichlin, a claims specialist in State Farm’s Special Investigative Unit. The following testimony is in issue: [APPELLEE’S ATTORNEY]: So [Mr. Reichlin] said that you were going to be charged with insurance fraud and that the police were on their way? [APPELLEE]: Yes, he did. [APPELLEE’S ATTORNEY]: Do you know who called the police? [APPELLEE]: No, I don’t. [APPELLEE’S ATTORNEY]: Did there come a time when you, in fact, were charged? [APPELLEE]: Yes, I was. [APPELLEE’S ATTORNEY]: And were you charged in Baltimore City? [APPELLEE]: Yes, I was. [APPELLEE’S ATTORNEY]: And was there a disposition of this matter? [APPELLEE]: Yes, there was. [APPELLANT’S ATTORNEY]: Objection. [THE COURT]: Overruled. [APPELLEE’S ATTORNEY]: Was there a disposition for this matter set? [APPELLEE]: Yes, there was. [APPELLEE’S ATTORNEY]: And what happened? [APPELLANT’S ATTORNEY]: Objection. [THE COURT]: Overruled. [APPELLEE]: I went to court for it and got a not process [sic]. ⁴⁰⁵ [APPELLEE’S ATTORNEY]: Case was dismissed? [APPELLEE]: Case was dismissed. [APPELLEE’S ATTORNEY]: No further questions, Your Honor. * * * [COUNSEL FOR STATE FARM]: Yes, Your Honor. May we approach quickly? [THE COURT]: Yes.

(Bench conference on the record.) [COUNSEL FOR STATE FARM]: Your Honor, for the record, at this point I would move for a mistrial based on the motion in limine that I filed, indicating that the testimony that [appellee’s attorney] just elicited which he actually said, I think earlier, that he didn’t intend to elicit is inadmissible under the cases and is attempting to mislead the jury as to the wrong standard of proof and the fact that a nol pros — I believe the testimony is unfairly prejudicial to State Farm, and I would move for a mistrial at this time. [THE COURT]: You talk very quickly. I reviewed the motion in limine as well as the cases that are cited. I do not agree that the case stands necessarily for the propositions for which they were cited. I believe the testimony’s probable in the circumstances, so the objection’s overruled and the request for mistrial is denied.

(Emphasis added). Michael Jacobs, appellee’s employer, was called as a witness by State Farm. Jacobs testified that he purchased the vehicle in New York for $7,000. At the time, the vehicle was inoperative, had minor body damage, and there was mud in the interior.

Moreover, Jacobs did not know the mileage at the time of purchase, because the car had no battery and the mileage display required electricity. Jacobs shipped the vehicle to Maryland for repair; the engine and transmission were replaced and the car was cleaned for the total sum of $7,000. ⁴⁰⁶ Jacobs testified that he sold the BMW to Carter for $14,000 in “cash.” He also claimed that the mechanic had the vehicle inspected and showed him (Jacobs) the certificate. Jacobs stated that he had no reason to believe that the inspection was inadequate or fraudulent. Reichlin, State Farm’s claims specialist, testified that State Farm had previously insured the same vehicle in 1997, when it was involved in a mud slide in California.

At that time, the vehicle was declared a total loss and was sold for salvage value. Reichlin claimed that State Farm became suspicious about appellee’s claim for several reasons. Reichlin noted that Carter made several inconsistent statements in regard to the vehicle. For example, Reichlin said that concerns arose when Carter tried to claim the loss of after-market stereo equipment that was allegedly in the BMW, because in the earliest days after the loss, Carter had not mentioned this equipment.

State Farm also regarded as questionable the receipts Carter provided to State Farm for the equipment, because State Farm was unable to verify the existence of the company, “Wheel-A-Deal,” from which Carter allegedly purchased the equipment. When State Farm went to the address on the receipts, it found a church at the location. Moreover, despite claiming that the faceplate to his after-market car stereo was not stolen, Carter refused to produce it for State Farm’s inspection. In addition, State Farm claimed that appellee failed to cooperate with State Farm, as required by the insurance policy.

Among other things, Carter refused to produce the key to the vehicle, as well as financial information concerning his ability to purchase it. State Farm’s investigation also generated concerns about whether the purported seller had legal title to the car on the date Carter claimed to have purchased it; the amount of the purchase price; the vehicle’s mileage; and the validity of the inspection. After the jury found in favor of Carter, he requested counsel fees pursuant to Rule 1-341. The court determined that “the defense set forth by [appellant] was made with ⁴⁰⁷ substantial justification and therefore, not made in bad faith.” Accordingly, the court denied appellee’s request.

We shall include additional facts in our discussion. DISCUSSION Appellant contends that the court committed reversible error by allowing Carter to testify about the nol pros of the criminal charges “stemming from the same occurrence underlying the present civil action.” According to State Farm, “[tjhere is a strong likelihood that the evidence of the nolle pros, misled the jury to conclude that Appellee was innocent of the crime alleged.” State Farm maintains that the admission of evidence of the nol pros was irrelevant, misleading, and prejudicial. Recognizing that, ordinarily, an underlying criminal conviction is not admissible in a related civil suit, appellant insists that “the justification to exclude evidence of a nolle pros., or even an acquittal, is more compelling than the rationale behind excluding convictions.” In support of its position, State Farm points to the subjective nature of a prosecutor’s decision to nol pros a case, and the distinct burdens of proof that apply in criminal and civil cases. Preliminarily, we shall consider Carter’s contention that State Farm waived its claim of error by failing to object to all questions regarding the criminal investigation and Carter’s arrest.

Appellee points to numerous places in the record where Carter, Detective James Burger, Ferdinand Greeff (the owner of an automobile body repair shop), and James Reichlin were questioned about various aspects of the investigation and arrest of Mr. Carter, without objection. In light of the “extensive reference to [the] criminal prosecution,” without objection from State Farm, Carter contends that State Farm’s claim is not preserved. Appellee asserts: State Farm does not explain, in its brief, why it objected to the mention of nolle pros, on a single occasion; yet allowed multiple references to pass, as to police investigation, ⁴⁰⁸ charges, State’s Attorney Offices, etc. Plaintiff submits that State Farm should have consistently objected to all such references (many of which came from witnesses called by State Farm), if State Farm wishes to complain now that it suffered prejudice. Clearly, the jury was allowed to hear that criminal charges were brought against [appellee]----As State Farm failed to object to such multiple references, State Farm should be held to have waived objection.

In our view, appellant adequately challenged the admission of the evidence concerning the nol pros. As we noted, prior to trial appellant unsuccessfully moved in limine to bar appellee’s testimony as to the arrest and nol pros. To be sure, when a party seeks a trial court’s ruling on a motion in limine, the party must object to the admission of the evidence at the time it is actually offered at trial, in order to preserve the objection. See Brown v. State, 373 Md. 234, 242 , 817 A.2d 241 (2003); Reed v. State, 353 Md. 628, 640 , 728 A.2d 195 (1999) (requiring contemporaneous objection to the admissibility of evidence in order to preserve an issue for appellate review); Maryland Rule 2-517 (“An objection to the admission of evidence shall be made at the time the evidence is offered or as soon thereafter as the grounds for objection become apparent.

Otherwise, the objection is waived.”). Carter was called as the first witness in the case. When Carter was asked about the “disposition” of the charges against him, State Farm renewed the objection embodied in its motion in limine. The objection was overruled, however.

Immediately thereafter, State Farm moved for a mistrial, which was denied. Appellee seeks to broaden the narrow issue raised by State Farm. Appellant challenged below, as it does here, appellee’s testimony that the charges against him were dismissed by the State. Carter has not referred us to any place in the record where State Farm failed to object to a question concerning the disposition of the criminal charges.

State Farm’s failure to object to questions posed by Carter’s attorney regarding the criminal investigation or Carter’s arrest does not defeat State ⁴⁰⁹ Farm’s prompt and repeated objections to Carter’s testimony about the nol pros. In addition to his waiver claim, Carter contends that “no Maryland appellate case has ever held that mention of a prosecutor’s nolle pros, is inadmissible in a subsequent civil action.” Moreover, appellee argues that since a prior conviction is sometimes admissible in a related civil case, a nol pros ought to be admissible, since it “is no judgment at all, one way or the other.” Because a “nolle pros is no conclusion at all,” appellee asserts that it “would have less effect ... at a subsequent civil trial.” Further, Carter underscores that he was charged with giving a “false statement to police officer” and “insurance fraud,” but that the underlying civil action did not involve a claim for damages arising from a false statement to a policeman or insurance fraud. Rather, he sued State Farm for breach of contract. Alternatively, appellee argues that any error was harmless. 3 The parties’ contentions require us to determine whether the trial court committed reversible error by admitting at a civil trial for breach of contract a nol pros entered in a prior criminal case that involved the same underlying conduct.

By way of analogy, we note that, ordinarily, “a criminal conviction is inadmissible to establish the truth of the facts upon which it is rendered in a civil action for damages arising from the offense for which the person is convicted.” Aetna Casualty & Surety Co. v. Kuhl, 296 Md. 446, 450 , 463 A.2d 822 (1983). In Kuhl , the Court of Appeals considered whether a conviction for assault and battery was admissible in a subsequent civil action arising out of the same incident. 246 Md. at 448, 229 A.2d 388 . The insurer sought to introduce evidence of the convictions to show that the conduct was intentional, ⁴¹⁰ because if the conduct was intentional it would defeat coverage of the occurrence under the insurer’s policy of insurance. Concluding that the conviction was inadmissible, the Court explained in KvAl: “The reasons for this exclusion of the judgment in a criminal case as evidence of the plaintiffs claim against the traverser are various.

There is a weighty difference in the parties, objects, issues, procedure, and results in the two proceedings with different rules with respect to the competency of the witnesses and the relevancy, materiality, and weight of the testimony. In a civil proceeding, the act complained of is the essential element, but in a criminal prosecution it is the intent with which the act is done.” Id. at 450-51 , 463 A.2d 822 (citation omitted). The Court continued: [A] judgment of conviction in a criminal case is not admissible in a civil case as evidence of the facts upon which it is based. The parties to the criminal prosecution are different.

The rules of evidence are different and the purposes and objects sought to be achieved are different. Id. at 452 , 463 A.2d 822 . See also Eisenhower v. Balto. Transit Co., 190 Md. 528, 538 , 59 A.2d 313 (1948) (stating that, in an automobile tort action, evidence of a driver’s criminal traffic conviction was “not competent evidence, to establish the truth of the facts upon which it has been rendered, in a civil action for damages occasioned by the offense of which the party stands convicted.”).

On the other hand, there are instances in which a piior conviction may be admissible in a related civil suit. In Eagan v. Calhoun, 347 Md. 72, 86-87 , 698 A.2d 1097 (1997), for example, which involved a wrongful death action, evidence of the husband’s guilty plea to manslaughter of his wife was deemed admissible as a judicial admission that the defendant had committed the killing and that the killing constituted voluntary manslaughter. Nevertheless, the Court of Appeals noted that, ordinarily, an admission is not considered as conclusive evidence that the killing was non-accidental; it is ⁴¹¹ generally subject to rebuttal. See also Cothran v. Brown, 350 S.C. 352 , 566 S.E.2d 548 (App.2002) (In a subsequent civil action for wrongful death brought against the man convicted of driving under the influence and reckless homicide, the court held that judicial estoppel applied to prevent the defendant from contradicting his previous guilty plea.).

Although there are reported Maryland decisions addressing the matter of whether or when prior convictions are admissible in related civil cases, we have found reported decisions concerning the admissibility of prior acquittals only in the context of cases in which the disposition of the prior criminal charges is an element of the subsequent civil cause of action. For example, in Caldor, Inc. v. Bowden, 330 Md. 632, 656 , 625 A.2d 959 (1993), the Court recognized that, in order for a plaintiff to establish a claim for malicious prosecution, the plaintiff must prove, inter alia, that a criminal proceeding was instituted by the defendant against the plaintiff and the proceeding was terminated in favor of the accused. Our research reveals that many jurisdictions have addressed the issue of whether a prior acquittal or nol pros is admissible in a subsequent civil case involving the same operative facts. Almost without exception, when the acquittal is not an element of the civil claim, these jurisdictions prohibit admission of an acquittal or a nol pros in a later civil proceeding involving the same or similar underlying conduct.

See, e.g., Rabon v. Great Southwest Fire Ins. Co., 818 F.2d 306, 309 (4th Cir.1987) (“We adopt and apply here the rule that a federal trial court commits reversible error when it permits the plaintiff in a suit for fire insurance proceeds to present evidence of his nonprosecution or acquittal on related criminal arson charges”); McSweeney v. Utica Fire Ins. Co. of Oneida County N.Y., 224 F.2d 327, 328 (4th Cir.1955) (applying South