Std Fire Ins Co. v. Fed Pac Elec. Co.

• Decision Date: 07 December 2004
• Docket Number: 4038A.,4038.
• Parties: THE STANDARD FIRE INSURANCE COMPANY, as Subrogee of MARK D'ANDREA, Respondent, v. FEDERAL PACIFIC ELECTRIC COMPANY, Appellant, et al., Defendant.
• Court: New York Supreme Court — Appellate Division

14 A.D.3d 213

786 N.Y.S.2d 41

2004 NY Slip Op 09023

THE STANDARD FIRE INSURANCE COMPANY, as Subrogee of MARK D'ANDREA, Respondent, v. FEDERAL PACIFIC ELECTRIC COMPANY, Appellant, et al., Defendant.

4038.

4038A.

Appellate Division of the Supreme Court of the State of New York, First Department.

December 7, 2004.

Appeal from two orders of the Supreme Court, New York County (Walter B. Tolub, J.), entered February 6, 2003 and October 16, 2003. The first order denied defendant-appellant's motion to strike the complaint, and the second order denied its motion for summary judgment dismissing the complaint.

Steven J. London, New York City (David Samel of counsel), for appellant.

Speyer & Perlberg, LLP, New York City (Joseph B. Wolf of counsel), for respondent.

OPINION OF THE COURT

SULLIVAN, J.

In this subrogation action by The Standard Fire Insurance Company arising out of a fire loss covered by its insurance policy, the issue on appeal is whether the action against Federal Pacific Electric Company, which allegedly manufactured the electrical panel and circuit breakers claimed to have malfunctioned and contributed to the cause of the fire, should be dismissed, on the ground of spoliation of evidence, because of the irretrievable loss of the electrical panel and circuit breakers after Standard alone had inspected them.

The fire occurred on February 24, 1997, at the Staten Island residence of Standard's insured, Mark D'Andrea. It is alleged that some seven months earlier, in July 1996, Walsh Electric, also a defendant, performed electrical repairs at the D'Andrea home and installed an electrical service panel manufactured by Federal. Several weeks after the fire, Standard's engineer inspected the damaged premises and observed the electrical panel, a metal cabinet that housed circuit breakers. In his report, the engineer concluded: "[I]t is possible, but not certain, that an electrical fault ignited the subject fire. Furthermore, if the fire had an electrical cause, it is probable that a malfunction of the electrical service panel was a significant contributing factor." The report indicated that the electrical panel had been manufactured by Federal, but it did not identify the manufacturer of the circuit breakers. There is no evidence that Standard took any measures to preserve either the panel or the circuit breakers.

In August 1998, D'Andrea sued Standard under the policy to recover for his fire loss. Apparently, that lawsuit has been settled by a loss payment to D'Andrea, which gives rise to Standard's right of subrogation (see J & B Schoenfeld, Fur Merchants v Albany Ins. Co., 109 AD2d 370, 372-373 [1985]). Thereafter, in February 2000, Standard, as subrogee of D'Andrea, commenced this action against Federal and Walsh, basing its claim solely on the information obtained during the course of its engineer's inspection of the damaged premises. After the commencement of the action, Federal, to no avail, wrote to Standard's counsel inquiring about the availability for inspection of the allegedly defective electrical service panel. Federal subsequently sought to compel Standard to produce the equipment, obtaining two court orders, on April 12 and July 12, 2002, to produce, if still in existence, the electrical panel at issue as well as to comply with other unanswered discovery demands. Based on Standard's failure to respond to the first two orders, Supreme Court issued a third order, entered October 4, 2002, conditionally precluding Standard and dismissing the complaint unless, by October 28, 2002, Standard fully complied with the demands.

When Standard failed to comply with the conditional order by the date specified, Federal moved to strike the complaint or, alternatively, to preclude Standard from offering any evidence at trial. Federal also pointed out that Standard was required to identify not only the allegedly defective electrical panel but the circuit breakers, as well. In that regard, Federal submitted an affidavit from its assistant secretary stating that it had ceased manufacturing circuit breakers in 1986, a decade before Walsh's electrical repair at the D'Andrea home, and that it had sold the trademark right to its Stab-lok circuit breakers in that same year. The assistant secretary noted that two other companies — American Circuit Breaker and a Chinese company, VAB — manufactured circuit breakers that would have fit inside the electrical panel at the subject premises. According to the assistant secretary, only a physical examination of the circuit breaker would reveal the identity of the circuit breakers housed in the panel in question.

In opposing the motion, Standard alleged that it had only recently — in January 2003, more than two months after the conditional order's deadline — contacted its insured, D'Andrea, and learned that none of the house's fixtures, including the electrical panel and circuit breakers, had been salvaged. The motion court denied dismissal but precluded Standard from offering in evidence the electrical panel, which, as noted, had allegedly already been lost or destroyed. It did not, however, preclude Standard from offering other evidence regarding the missing or destroyed equipment.

Federal thereafter moved for dismissal of the complaint on the basis of Standard's spoliation of evidence, arguing that without the allegedly defective service panel or circuit breakers, Standard would be unable to make out a prima facie case. Federal also sought sanctions for bringing a frivolous lawsuit. In that regard, Federal submitted Standard's own engineer's report, which indicated that it was "possible, but not certain" that the fire was caused by an electrical fault. Federal also submitted the affidavit from the assistant secretary in support of the prior motion attesting to Federal's 1986 cessation of circuit breaker manufacturing, as well as an additional affidavit from him stating that three companies that had acquired the legal rights to Federal's circuit breakers were all inscribing the Federal logo on their own circuit breakers.

In opposition, Standard submitted the affidavit of the engineer who had investigated the fire on its behalf. His report indicated that the electrical service panel had malfunctioned, that it was "probable" that the malfunction was a "significant contributing factor" in causing the fire, and that a "properly functioning electrical panel would have terminated the electrical current through the faulted circuit by tripping the breaker." According to the engineer, the panel was manufactured by Federal, whose panels had "attained a certain degree of notoriety for this type of malfunction." Standard argued that dismissal was unwarranted because of the absence of any showing that it or its subrogor, D'Andrea, deliberately or negligently caused the loss of the panel and circuit breakers and that, even without the panel and circuit breakers, Federal could still defend the action by showing that there was no evidence that the circuit breakers caused the fire and calling the fire marshal as a witness.

Supreme Court denied the motion, concluding that spoliation did not warrant the harsh remedy of dismissal since the parties could use other evidentiary sources to establish their positions. Specifically, it held, Federal "may be able to establish [its] position[ ] after [examinations before trial] of [Standard's] experts and cross examination of those experts at trial." The court further found that issues of fact precluded the grant of summary judgment dismissing the complaint. Both orders are before us on appeal. The complaint should have been stricken.

It is undisputed that Standard defaulted on the conditional order of preclusion and dismissal entered October 4, 2002. It could not dispute that it had failed to respond timely to the single most important directive under all three orders, namely, the identification and production of the allegedly faulty electrical equipment. Although a motion for an unconditional order of preclusion was unnecessary (see Lopez v City of New York, 2 AD3d 693 [2003]), Federal made such a motion nonetheless and Standard, in order to defeat the motion, was "required to demonstrate both a reasonable excuse for [its] default and the existence of a meritorious cause of action" (id. at 694; see also Frankel v Hirsch, 2 AD3d 399 [2003]).

As its excuse, counsel for Standard's sole explanation was that "[o]nly last week . . . was [he] able to obtain" the wireless telephone number of Standard's subrogor and policyholder, D'Andrea. Tellingly, there was no statement as to any other efforts undertaken to communicate with D'Andrea, much less any documentary proof thereof. When contacted, D'Andrea is alleged to have told counsel that "as far as he was aware, no part of the destroyed home, including the electric panel, had been salvaged." Yet, as the record shows, Standard's engineer states that he inspected the electrical panel and circuit breakers in March 1997, less than one month after the fire. According to Standard, the electrical panel and circuit breakers survived the fire and were available for inspection. Standard's engineer not only visually examined the assembly, but he even took a photograph of the panel bearing Federal's name. There are, however, no photographs from which the brand names of the circuit breakers themselves can be seen.

In any event, as a result of its investigation...