Spoliation of the Physical Subject of the Case Can Lose It

By Brad McCullough

When we hear the word “spoliation,” we tend to think about the loss of electronically stored information, such as e-mail messages or other computer generated data. That’s because the loss of that type of evidence, and the drastic sanctions that result, is highlighted and seared into our consciousness by legal-news services. But earlier this week the Court of Special Appeals decided a spoliation case that concerned the destruction of a physical object – a house – that was “itself the subject of the case.” Cumberland Ins. Group v. Delmarva Power, No. 72 Sept. Term 2015, Slip Op. at 8 (Feb. 1, 2016). Balancing the fault of the destroying party with the level of prejudice suffered by the other party, the Court held that spoliation had occurred, that sanctions were warranted, and that the circuit court had not abused its discretion by granting summary judgment in favor of the prejudiced litigant.

The case involved a fire insurance claim. Three days after a house was heavily damaged in a fire, the insurer, Cumberland Insurance Group, sent a fire cause and origin expert to the property to inspect it. He concluded that the fire originated around the house’s electric meter. The Senior Deputy State Fire Marshal had earlier investigated the fire and determined that the fire originated in the meter box. About two weeks later, Cumberland’s electrical engineering expert inspected the house and what remained of the meter and meter box.

Delmarva Power provided electric service to the house. As the fire investigation proceeded, however, Delmarva did not send anyone to inspect the property. Cumberland honored its insured’s claim and sent the homeowner a check that included the cost of demolishing the house. A little more than a month after that check was issued, and nearly two months after the fire and without prior notice to Delmarva, the house was demolished.

Cumberland thought that faulty wiring in the house’s electric meter box caused the blaze, so it exercised its subrogation rights and sued Delmarva in circuit court. Delmarva eventually moved for summary judgment, arguing, “among other things, that Cumberland destroyed the fire scene and irreversibly crippled Delmarva’s ability to mount a meaningful defense.” Slip Op. at 3. The circuit court granted the motion and the Court of Special Appeals affirmed.

Writing for the Court, Judge Douglas Nazarian explained that “[t]he spoliation doctrine is well-established in Maryland.” Id. at 7 (citing Klupt v. Krongard, 126 Md. App. 179 (1999)). But Judge Nazarian also recognized that “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.” Id. at 8. The Court concluded “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.” Id. Where a trial court concludes that the balance tilts in favor of imposing a sanction, “the question then becomes what remedy is appropriate and whether a remedy less drastic than dismissal can cure the prejudice to the defendant.” Id. (citations omitted).

The Court then discussed its seminal decision in Klupt v. Krongard – including Klupt’s adoption of a four-part test for determining whether spoliation had occurred: (1) an act of destruction; (2) discoverability of the destroyed evidence; (3) an intent to destroy the evidence; and (4) whether the act occurred either after suit has been filed or at a time when filing is fairly perceived as imminent. Id. at 11 (citing Klupt, 126 Md. App. at 199, quoting White v. Office of the Public Defender, 170 F.R.D. 138, 147 (D. Md. 1997)). In the course of that discussion, the Court quoted from the Fourth Circuit’s decision in Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001). There, that court noted that bad faith need not exist for a sanction of dismissal to be appropriate, because, “even when conduct is less culpable, dismissal may be necessary if the prejudice to the defendant is extraordinary, denying it the ability to adequately defend its case.” Slip Op. at 12-13 (internal quotation marks omitted) (emphasis added by the Cumberland Insurance court).[1] Thus, while some degree of fault must exist, conduct short of bad faith or intentional wrongdoing can justify drastic sanctions, if the harm is severe.   

Applying those standards, the Court held that the lower court did not abuse its discretion by dismissing the insurer’s case. It was clear that there was an intentional destruction of “unquestionably discoverable” evidence that occurred at a time when litigation was imminent. Id. at 16. The parties, however, disagreed “about the degree of discoverability of the ‘fire scene,’” as Cumberland maintained that it had preserved the meter and the meter box, which collectively represented what it viewed as the major evidence in the case. But that argument was rejected, for while “Cumberland sees its case as centering on the meter and the meter box, the destruction of the scene deprived Delmarva of any opportunity to look to other possible causes.” Id. at 16, 17 (emphasis added) (footnote omitted) (citation omitted).

Moreover, “Cumberland was at fault for the destruction of the fire scene, and it cannot defend on the basis that Delmarva had notice.”  Id. at 17. While Delmarva had notice that a claim could be made against it, “there is no evidence to suggest that Delmarva had reason to think that the property was at risk of destruction until it was too late.” Id. at 18 (emphasis in original). Although Cumberland sent Delmarva two letters “notifying Delmarva of its intention to assert a claim,” those letters “said nothing about the fire scene’s impending demolition, nor did any of the evidence to which Cumberland pointed in the circuit court.” Id.

Indeed, one letter that Cumberland sent Delmarva was seemingly intended “to put Delmarva on notice that it could be responsible for the fire and, ironically, to ensure that Delmarva not destroy any items relating to the scene.” Id. at 19 (emphasis added). Although the property was not actually destroyed by Cumberland – it was demolished by the homeowner – that fact was ultimately immaterial. “[W]hile it’s true that Cumberland did not directly engineer the demolition, it was heavily involved in, aware of, and financed the process that [the homeowner] put into place.” Id. at 20. In short, “Delmarva did not have an opportunity to prepare a defense.” Id.

Finally, the Court concluded that Delmarva’s defenses had been fatally prejudiced and that dismissal was an appropriate remedy. Deposition testimony from Cumberland’s expert witness drove this point home. Delmarva’s two expert witnesses had prepared a report opining that the fire had started in the attic.

During his deposition, Cumberland’s expert criticized that report, largely because Delmarva’s experts had never gone to the scene and had never inspected the house. As the Court explained, however, “they didn’t perform a thorough investigation because they couldn’t do so once the house had been demolished.” Id. at 22-23. Judge Nazarian summarized for the Court: “The defense, and especially its experts, never had the opportunity affirmatively to rule in or rule out the other parts of the house as the area of origin, which irreparably prejudiced their ability to defend, and which made dismissal altogether appropriate.” Id. at 23.

[1] Silvestri was a product liability claim concerning an allegedly defective airbag system in an automobile. The plaintiff failed to preserve the car, and thus the manufacturer could not inspect it. The Fourth Circuit affirmed the trial court’s dismissal for the case as a sanction for the plaintiff’s spoliation. Silvestri, 271 F.3d at 593-95.