Appellate Court Says Responsible Party Must Be Informed That Fire-Damaged House Will Be Torn Down 

Subrogation & Recovery Alert

April 7, 2016

Common sense says that when a building is damaged by a fire or other catastrophe, either demolition or repair loom somewhere in the future. When a fire-damaged building remains untouched for any length of time, it is remarkable enough to cause neighborhood busybodies to inquire, suspiciously: “didn’t they have insurance?”

Sophisticated subrogation targets, such as electrical utilities, that are placed on notice of a potential subrogation claim should know, better than anybody, that a building damaged by fire or other catastrophe will not remain perpetually in the condition that it was in immediately after the event, and that arrangements should be made if the target wishes to inspect the property before it is altered. Nevertheless, in Cumberland Insurance Group v. Delmarva Power, 2016 WL 385209, 2016 Md. App. LEXIS 12 (February 1, 2016) the Maryland Court of Special Appeals put the onus on subrogated insurers to affirmatively tell already on-notice parties that a building is to be demolished, or potentially face dismissal of their claims.

In fairness, the outcome of the Cumberland case can be explained, if not justified, by the timeline of events in the case:

May 5, 2013 Fire occurred at the home of David Wickwire, who was insured with Cumberland Insurance Group
May 5, 2013 Lineman employed by Delmarva Power, the local electrical utility, responds to the house “evidently at the request of the fire department” to disconnect power to the house. The lineman conducts no investigation.
Prior to May 8, 2013 A Deputy Maryland State Fire Marshal concludes that the fire at the Wickwire residence started in the electric meter box, and takes custody of the remains of the meter and meter box.
May 24, 2013 Electrical engineer retained by Cumberland inspects the house and the remains of the meter and meter box. 
May 29, 2013

Delmarva concedes that it was somehow made aware, on or before May 29, 2013, that a claim might be asserted against it.

May 30, 2013 Cumberland sends Wickwire a check to cover the cost of demolition of his house.
June 4, 2013

Cumberland’s subrogation counsel sends Delmarva a notice letter which states, in part:

We wish to cooperate with your company in the investigation of this loss, and especially regarding preserving and inspecting all items retained from the scene. It is in this connection that I am contacting you, and looking for your company and/or its insurance company to likewise cooperate in the investigation process. Furthermore, to the extent that your company is in possession of, or is otherwise aware of, any items retained from this scene, or otherwise potentially relevant to this matter (including physical materials as well as electronic and hardcopy documents), I must insist that such items/materials/documents be preserved unaltered so that my client’s representatives may examine and/or test them.

Before July 3, 2013 Delmarva employee makes an internal note that Wickwire “needed info on demo.”
Before July 3, 2013 Delmarva employee makes an internal note that “claimant wants to turn garage into new living space but with no cost due to our fault.”
July 3, 2013 The house and contents are demolished. The meter and meter box were preserved.
July 3, 2013

Cumberland sends Delmarva a second letter which states, in part:

We advised that we intended to pursue recovery from the parties responsible for the subject fire. We believe that your company is responsible for the subject fire and the resultant damages. You failed to respond to our prior correspondence, in which we offered to make the subject premises available for your inspection. While you waived your rights to inspect the premises (demolition has begun) we have preserved those items identified as the cause and origin of the subject fire. If we do not receive a response to this letter within fourteen (14) days of the above date, then we will be left with no choice but to take appropriate action without further notice.

Delmarva never inspected the house prior to its demolition. Once the house was demolished, Delmarva was, of course, unable to conduct what the appellate court described as a “first-hand” evaluation of the fire scene. The question for the trial and appellate courts was whether Cumberland should be held to blame for Delmarva’s inability to independently inspect and evaluate the fire scene. Both courts concluded that Cumberland was to blame. Delmarva was aware, prior to demolition of the house, not only of the fire but also that Cumberland intended to hold Delmarva responsible for the fire. However, Cumberland never specifically told Delmarva that the house was to be demolished. This omission, coupled with the fact that the house was demolished within 60 days of the fire, sealed Cumberland’s fate. The appellate court noted that the fire scene, which was clearly “discoverable evidence” was “intentionally” destroyed, even though the destruction was not improperly motivated. As the court stated “No one mistakenly demolished the fire scene.” The court concluded that, particularly given the nature of Cumberland’s attack on Delmarva’s experts’ opinions, Delmarva had been so severely prejudiced by the demolition of the house that the appropriate remedy was dismissal of Cumberland’s claim.

Referring to the oft-cited (usually by subrogation defendants) decision in Allstate Insurance Co. v. Sunbeam Corp., 865 F. Supp. 1267 (N.D. Ill. 1994), aff’d 53 F.3d 804 (7th Cir. 1995) the trial and appellate courts in the Cumberland case both resorted to the trope that, as “sophisticated” plaintiffs, subrogated insurers should supposedly be subject to a more rigorous standard on spoliation issues than are, apparently, equally “sophisticated” defendants, such as electrical utilities. While the ultimate outcome of the Cumberland case can perhaps be defended on its unique facts, what is indefensible is the appellate court’s absurd statement that “knowing [as early as May 29, 2013] that a claim could potentially be filed didn’t give Delmarva any reason to think anything one way or the other about the (non) preservation of the scene.”

A subrogation target cannot be forced to inspect a loss site if it chooses not to. A target that chooses not to avail itself of the opportunity to inspect a loss site should be precluded from attempting to avail itself of spoliation remedies. However, to serve as an effective bulwark against spoliation claims, a notice letter should not only afford the target the opportunity to inspect, but also give the target incentive to avail itself of that opportunity in a timely fashion. While it is certainly prudent, especially after the Cumberland decision, to inform the responsible party that the scene will be altered, and to provide at least the outside time frame within which such alterations may occur, the disposition of spoliation arguments based upon such issues must be subject to a rule of reason. No party who receives a notice letter can reasonably assume that the site will remain undisturbed indefinitely. Even the trial court in the Cumberland decision suggested that the outcome might have been different if the house had been demolished six months after the fire, rather than within 60 days.

On the other hand, it also would not be reasonable to send a notice letter that made no mention as to when the site might be disturbed, and then commence demolition the next day. The Cumberland decision can best be explained because the facts of the case were closer to the latter scenario than the former.

There are other, practical benefits to giving subrogation targets specific time limits for arranging site inspections. The sooner a joint inspection can be completed, or a definitive determination can be made that a joint inspection will not be required, the sooner demolition and restoration activities can safely go forward, reducing the time element losses of the insured and, ultimately, of the liability target and its insurer. The time limits imposed must, again, be reasonable under the circumstances. A failed fitting in a plumbing or sprinkler system in an occupied building likely will have to be replaced immediately, effectively precluding an inspection of the scene in its pristine, post-loss condition. A building in imminent danger of collapse may well have to be shored up, partially demolished, or otherwise altered in the interests of safety, and such legitimate safety concerns should trump potential evidence spoliation concerns. However, in many other cases, the same imperatives for immediate restoration or alteration will not exist. Even under the facts of the Cumberland case, demolition could properly have taken place within the same 60 day time frame following the fire, if the subrogated carrier had been more proactive in informing the electrical utility of its potential exposure and of the need to conduct a timely inspection, if it chose to do so. 


Daniel Q. Harrington


(215) 665-2126

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