In National Fire Insurance Company of Hartford a/s/o RX Plus Pharmacy Corp. v. Fair Only Real Estate Corp., Index No., 157143, Judge Nancy M. Bannon of the Supreme Court of the State of New York, New York County, denied defendant’s motion pursuant to CPLR 3126 to dismiss the plaintiff’s claim for damages for injury to plaintiff’s insured’s property and to preclude it from offering evidence in support of its damages claim at the time of trial, based upon the plaintiff’s alleged spoliation of evidence.

This matter involves a subrogation action to recover insurance benefits paid to the plaintiff’s insured RX Plus Pharmacy Corp. (“RX”), for damages to injury to RX’s property, arising out of an April 11, 2010 fire that allegedly started at the defendant’s property and spread to the adjacent property leased by RX. As a result of the fire, RX, a pharmacy, inventory was damaged which consisted primarily of pharmaceutical products. RX submitted a claim under its policy to the plaintiff and the plaintiff hired a salvage company, non-party Callan Salvage & Appraisal Co., Inc. (“Callan”) to handle the contents and inventory of RX’s leased premises, dispose of the salvaged material, and provide a valuation of RX’s losses. The plaintiff also retained counsel, who in nine days after the fire, advised the defendant of the plaintiff’s intention to pursue its subrogation rights. After Callan removed all the debris from RX’s premises and inventoried the damage, Callan destroyed all the pharmaceuticals and controlled substance found at the premises and assessed the value of RX’s damaged inventory to be in excess of $322,181.49, RX’s maximum coverage limit. Defendant moved to dismiss plaintiff’s claims for damages or preclusion based on the disposal of the salvaged materials and ability to view the damaged evidence.

The Court in deciding defendant’s motion stated that the Supreme Court has “broad discretion to provide proportionate relief to the party deprived of the lost evidence, such as precluding proof favorable to the spoliator to restore balance to the litigation… or employing an adverse inference instruction at the trial of the action.” Ortega v. City of New York, 9 NY3d 69, 76, (2007); see CPLR 3126; Voom HD Holdings LLC v. Echostar Satellite LLC, 93 AD3d 33 (1st Dept. 2012); General Security, Ins. Co. v. Nir, 50 AD3d 489 (1st Dept. 2008). However, “striking a pleading is a drastic section to impose in the absence of willful or contumacious conduct.”Ianucci v. Rose, 8 AD3d 437 (2nd Dept. 2004). The Court also cited to Kirkland v. New York City Housing Authority, 236 AD2d 170, 173 (1st Dept. 1997), which stated the following:

under New York Law, spoliation sanctions are appropriate where a litigant, intentionally or negligently, disposes of crucial items of evidence involved in an accident before the adversary has an opportunity to inspect them and after being placed on notice that such evidence might be needed for future litigation.

The Court stated that in this matter the parties do not dispute that RX’s damaged pharmaceuticals and other inventory were destroyed while future litigation was contemplated and prior to the defendant’s inspection of such evidence. However, the court determined that the defendant failed to establish that the destroyed inventory is crucial to its defense and that it was severely prejudiced by the destruction of the items. The court reasoned that the destroyed items solely relate to the measure of damages, and not to the defendant’s liability, if any, in causing the fire. Thus, the court surmised that the destruction of RX’s damaged inventory, effects the plaintiff’s ability to sustain its burden of proving its damages, rather than the defendant’s ability to defend its case, and has not given the plaintiff an unfair advantage in the litigation. The court noted that the defendant has obtained the plaintiff’s claim file which contains invoices, photos, a detailed inventory and other records relating to the damaged items, deposed the adjuster who handled the claim and thus, the defendant has failed to show that the absence of the damaged items themselves is fatal to its case or that it has been otherwise prejudiced by the destruction of RX’s damaged inventory.

The decision is important as it depicts how the court views spoliation relating to the destruction of damaged items. However, when relying on this decision, is it important to differentiate whether your case is related to spoliation of damaged items vs. spoliation of evidence relating to liability of the defendant which the court may view differently depending on the circumstances.