On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-10003-95.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges A.A. Rodriguez, Grall and C.L. Miniman.
Defendant/Third-Party Plaintiff Karl Koch Erecting Co., Inc. (Koch), appeals from a November 20, 2009, order that (1) vacated an earlier grant of summary judgment in favor of Koch on its third-party declaratory judgment action against third-party defendant CIGNA Property & Casualty Companies (CIGNA); (2) denied an award of counsel fees and costs to Koch; and (3) entered judgment in favor of CIGNA. That judgment declared that CIGNA had no duty to defend Koch in this 1995 Middlesex County action alleging spoliation and concealment of evidence that allegedly occurred during the successful defense by CIGNA's appointed counsel of a 1987 Camden County personal injury case against Koch and others. This appeal presents the issue of whether a spoliation claim growing out of the successful defense of a covered claim falls within the scope of coverage applicable to the covered claim or constitutes a new claim outside the scope of coverage. We now reverse; reinstate the May 1, 2009, judgment in favor of Koch; and remand for a determination of a reasonable award of counsel fees and costs.
The 1987 action (the bodily injury action) was filed by John T. Carlin, Barry Pennington, James Allen, and others (the injured plaintiffs) against their former employer, Cornell, Hegarty, and Koch (CHK), and its owners, including Koch (the CHK defendants). CHK was a partnership formed to perform bridge-rebuilding construction in New Jersey and elsewhere. The partnership consisted of Cornell and Co., Inc.; William F. Hegarty, Inc.; James Hegarty; and Koch. The Delaware River Port Authority (DRPA) retained CHK in 1985 on a rehabilitation project for the Benjamin Franklin Bridge. The injured plaintiffs were ironworkers who were employed on the rehabilitation project.
The complaint was filed after periodic tests of the injured plaintiffs' blood revealed increasing lead levels. The injured plaintiffs sought money damages for personal injuries allegedly suffered from exposure to toxic lead fumes during their work on the project. To avoid the exclusive remedy provision of the Workers' Compensation Act, N.J.S.A. 34:15-8, the injured plaintiffs alleged that the CHK defendants intentionally concealed information about lead exposure at the project site, thereby preventing the injured plaintiffs from learning about the nature and extent of the dangers to their health. The injured plaintiffs claimed that the CHK defendants endangered their health by allowing them to work while being exposed to toxic lead fumes, causing them to become ill as a result.
The injured plaintiffs were represented in the bodily injury action by the firm later known as Walker, Dansky & Katz. CIGNA, DRPA's carrier, provided a defense to CHK and its owners under the comprehensive general liability (CGL) policies issued to DRPA because CHK and its owners were additional insureds under those CGL policies. CIGNA retained defendant Montano, Summers, Mullen, Manuel, Owens & Gregorio, P.C. (the Mantano, Summers law firm) to represent the CHK defendants. The CHK defendants ultimately prevailed in a jury trial in January 1990.
On May 1, 1991, Carlin, his wife Nancy, and Pennington filed a complaint against Walker, Dansky, & Katz and its individual attorneys alleging that the firm's legal malpractice caused them to lose their bodily injury lawsuit. Carlin, his wife, and Pennington claimed that their former counsel failed to name DRPA and certain DRPA employees as defendants in the 1987 lawsuit and that certain documents were fraudulently concealed and not produced in the previous lawsuit. Allen filed a similar legal malpractice lawsuit. The parties settled these two suits (the malpractice actions) on November 30 and December 23, 1994, respectively.
In June 1995, the malpractice plaintiffs (hereinafter plaintiffs) filed a third suit, this time naming CHK, its partners, and the Montano, Summers law firm as defendants (the spoliation action). Plaintiffs alleged that they "were knowingly and intentionally exposed to toxic lead fumes by the defendants, excluding the attorney defendants" and that they suffered bodily injuries "[a]s a result of the said lead exposure." They further alleged that the CHK defendants were aware of the injuries but "deliberately, fraudulently, maliciously, willfully, and wantonly concealed that information" from plaintiffs.
Plaintiffs claimed that defendants "fraudulently concealed information from [plaintiffs] which they knew they were obligated to disclose, with the intent and purpose of thwarting plaintiffs' ability to recover against the named defendants to [the bodily injury] action." Plaintiffs asserted that they relied on the CHK defendants' responses to discovery to their detriment because the CHK defendants' fraudulent representations and concealments during discovery resulted in the dismissal of their claims in the 1987 trial with prejudice. They alleged spoliation and falsification of documents during the bodily injury action and asserted that they were "deprived of proper compensation and of the economic gain to be expected from a punitive damage verdict [on their Millison*fn1 claim] as a result of that fraud." Plaintiffs sought compensatory damages, punitive damages, interest, attorneys' fees, and costs of suit.
We pause briefly in our exposition of the relevant facts to discuss spoliation claims and the remedies available to injured parties. The topic was thoroughly reviewed by our Supreme Court in Tartaglia v. UBS PaineWebber Inc., 197 N.J. 81 (2008). A spoliation claim is essentially a claim for fraudulent concealment or destruction of evidence prior to or during litigation. Id. at 116. In a spoliation action, the plaintiff must prove:
(1) That defendant in the fraudulent concealment action had a legal obligation to disclose evidence in connection with an existing or pending litigation;
(2) That the evidence was material to the litigation;
(3) That plaintiff could not reasonably have obtained access to the evidence from another source;
(4) That defendant intentionally withheld, altered or destroyed the evidence with purpose to disrupt the litigation; [and]
(5) That plaintiff was damaged in the underlying action by having to rely on an evidential record that did not contain the evidence defendant concealed. [Id. at 118 (internal quotation marks omitted).]
"[T]he choice of remedies would depend in part on the timing of the discovery of the spoliation." Id. at 117. If the spoliation is discovered during the underlying litigation, the injured party is entitled to an adverse inference and "may amend his or her complaint to add a count for fraudulent concealment." Ibid. (internal quotation marks omitted). In that case, the fraudulent concealment counts must be bifurcated at trial "because the fraudulent concealment remedy depends on the jury's assessment of the underlying cause of action." Id. at 117-18 (internal quotation marks omitted). A verdict for a plaintiff on the underlying claim does not preclude relief on the bifurcated claim. Id. at 120.
Instead, in that circumstance, the subsequent prosecution of the bifurcated claim will not create a duplicative recovery because the focus in that proceeding will be on the damages, both compensatory and punitive, incurred in having to proceed without the destroyed evidence. That is to say, if a plaintiff has already prevailed on the substantive claim with the benefit of the adverse inference, the bifurcated proceeding cannot be an opportunity for the jury to consider anew whether its substantive verdict would have been different had the missing evidence been considered. In that context, the bifurcated counts will offer the plaintiff a chance to recover additional compensatory damages limited to the further costs of proceeding without the spoliated evidence, or costs incurred in an effort to replace that evidence, together with, if appropriate, a punitive award. [Id. at 120-21 (emphasis added).]
If the spoliation is not discovered until after the underlying action is concluded, then "the plaintiff may file a separate tort action." Id. at 119 (internal quotation marks omitted). In that case, "the cause of action for the fraudulent concealment will be entirely separate and, depending on the outcome of the original trial, may include both consideration of the substantive counts as well as the further spoliation-based damages." Id. at 121 (emphasis added).
Therefore, whether a plaintiff succeeds on the claim in the original litigation or not, there are damages that might be recovered, including punitive damages, in the event that the plaintiff can demonstrate that the loss of the evidence caused that plaintiff to incur costs or expenses in the litigation that would not otherwise have been incurred. Thus, for example, a plaintiff who is deprived of evidence due to a defendant's spoliation and is therefore required to hire additional experts or to develop and rely on alternate proofs might well sustain damages separate and apart from those incurred as a result of the underlying cause of action. Likewise, a plaintiff who is deprived of the use of a tangible thing and is forced to employ an expert to create a model based on photographs or verbal descriptions might well be entitled to those costs as an element of ...