Hartford Ins Co v. American Automatic

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

HARTFORD INSURANCE
COMPANY OF THE MIDWEST,
Plaintiff-Appellant,

v. No. 98-2701

AMERICAN AUTOMATIC SPRINKLER
SYSTEMS, INCORPORATED,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-97-976-AMD)

Argued: October 26, 1999

Decided: January 18, 2000

Before NIEMEYER, WILLIAMS, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Williams and Judge Michael joined.

_________________________________________________________________

COUNSEL

ARGUED: Jeffrey Allan Wothers, NILES, BARTON & WILMER,
Baltimore, Maryland, for Appellant. Kevin Bock Karpinski, ALLEN,
JOHNSON, ALEXANDER & KARP, Baltimore, Maryland, for
Appellee. ON BRIEF: Jason C. Brino, NILES, BARTON & WIL-
MER, Baltimore, Maryland, for Appellant. Daniel Karp, ALLEN,
JOHNSON, ALEXANDER & KARP, Baltimore, Maryland, for
Appellee.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

We are presented with the question of whether "contractor," as
used in Maryland's 10-year statute of repose granting immunity from
suits arising from improvements to real property, includes subcontrac-
tors. See Md. Code Ann., Cts. & Jud. Proc.§ 5-108(b). We hold that
it does and therefore affirm the district court's entry of summary
judgment in favor of a sprinkler-system subcontractor for claims aris-
ing from work it performed in 1982. We also affirm the district
court's judgment that claims arising out of more recent renovation
work done by the subcontractor were not supported by any evidence.

I

On February 7, 1996, at the Holiday Inn in Timonium, Maryland,
a cap and a coupling on a sprinkler-system standpipe located in the
stairwell of the hotel broke, causing extensive flooding which dam-
aged the hotel's stairwell, halls, guest rooms, atrium, and exterior
facade. The hotel's building engineer, Paul Seekford, shut off the
water main and immediately began a general cleanup. He also
retained American Automatic Sprinkler Systems, Inc. ("American
Sprinkler") to make repairs to the standpipe. Two American Sprinkler
employees arrived at the hotel and noticed that the cap on the top of
the standpipe had blown off and that the fire hose valve, located half-
way down the standpipe, had cracked. They concluded that the pipe
had frozen.* They replaced the damaged section of the standpipe and
the other damaged parts, and presented Seekford with a work order,
_________________________________________________________________

*During the period before the flooding incident, Timonium had experi-
enced unusually cold winter temperatures, and there was evidence that
in the stairwell area where the standpipes were located, 1/8-inch standard
single-pane glass had been installed in lieu of the 5/8-inch insulated glass
that had been called for by the Holiday Inn's construction drawings.

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which he signed. The work order described the repairs and stated that
the cause of the standpipe cap's separation from the standpipe was
"extreme cold and inadequate heat in stairs." When the American
Sprinkler employees left, they took with them the damaged parts.

Shortly after the American Sprinkler employees left, an adjuster for
Hartford Insurance Company of the Midwest ("Hartford"), the hotel's
insurance company, instructed Seekford to retrieve the damaged parts
from American Sprinkler. Although Hartford claims that American
Sprinkler gave repeated assurances that the damaged parts would be
returned to Holiday Inn, a claim that American Sprinkler disputes,
American Sprinkler later informed Hartford that the damaged parts
were no longer in its possession because it had thrown them into a
trash dumpster in the ordinary course of business.

Hartford brought this subrogation action against American Sprin-
kler seeking to recover $1.6 million in damages resulting from the
February 7 flooding incident. Hartford alleged that the flooding was
caused either by American Sprinkler's faulty construction and instal-
lation of the standpipe and sprinkler system in 1982, when the Holi-
day Inn was originally constructed, or by American Sprinkler's
negligent renovation of the sprinkler system, completed a couple of
weeks before the flooding incident. The complaint, based on diversity
jurisdiction, relied on theories of negligence, strict liability, and
breach of contract under Maryland law.

On cross-motions for summary judgment, the district court entered
judgment in favor of American Sprinkler and against Hartford. See
Hartford Ins. Co. of the Midwest v. American Automatic Sprinkler
Systems, Inc., 23 F. Supp. 2d 623, 630 (D. Md. 1998). It ruled that
any claims arising out of American Sprinkler's installation of the
sprinkler system in 1982 were barred by Maryland's statute of repose,
Md. Code Ann., Cts. & Jud. Proc. § 5-108(b). It rejected Hartford's
claim that American Sprinkler's disposal of the damaged standpipe
parts warranted, under the doctrine of spoliation, judgment as a matter
of law or an inference adverse to American Sprinkler. Finally, it con-
cluded that Hartford failed to present any evidence that American
Sprinkler was negligent or breached its contract in performing the
1996 repairs to the sprinkler system.

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This appeal followed.

II

Hartford's principal argument on appeal is that the district court
improperly defined "contractor," as used in Maryland's statute of
repose, to include subcontractors. It argues that because the term
"contractor" is not understood in the construction industry to describe
subcontractors, the district court erred by creating a fourth class of
persons immune under the statute -- subcontractors-- when the stat-
ute provides for only three: architects, engineers, and contractors.
Hartford urges us to interpret the term "contractor" in accordance with
the usage of the American Institute of Architects ("AIA") in its rec-
ommended contract forms, which define a contractor as "the person
or entity identified as such in the Agreement and . . . referred to
throughout the Contract Documents as if singular in number." Ameri-
can Institute of Architects, General Conditions of the Contract for
Construction, art. 3.1.1 (1997). Hartford also notes that Maryland's
mechanic's lien statute, which distinguishes between contractors and
subcontractors, demonstrates that the terms have distinct meanings
under Maryland law. That statute defines a contractor as "a person
who has a contract with an owner," and defines a"subcontractor" as
"a person who has a contract with anyone except the owner or his
agent." Md. Code Ann., Real Prop. § 9-101. Finally, Hartford points
to a similar distinction made by the Maryland Court of Appeals in
Roland v. Lloyd E. Mitchell, Inc., 155 A.2d 691, 693-96 (Md. 1959).
Accordingly, it argues that the Maryland General Assembly's intent
in passing the statute of repose was to provide a shorter period of
exposure to liability for those persons in direct privity with the owner
of real property than for "subcontractors."

In rejecting these arguments, the district court interpreted the plain
meaning of the term "contractor" to include as a subset any "subcon-
tractor." It noted that this definition of "contractor" was consistent
with the intent of the statute "to shield those connected to the design
and construction of an `improvement to real property.'" 23 F. Supp.
2d at 629.

Reviewing this issue of statutory construction de novo, see
Scrimgeour v. Internal Revenue Serv., 149 F.3d 318, 326 (4th Cir.

4
1998), we must determine whether subcontractors enjoy the height-
ened protection from liability that Maryland's statute of repose con-
fers on "any architect, professional engineer, or contractor," Md. Code
Ann., Cts. & Jud. Proc. § 5-108(b). The Maryland courts have not
decided this precise issue. As with the interpretation of any legislative
enactment, our analysis must begin with the language of the statute.
If the statute conclusively reveals the intent of the Maryland General
Assembly, our analysis ends. See Rose v. Fox Pool Corp., 643 A.2d
906, 909-10 (Md. 1994).

The Maryland statute of repose grants immunity from suit based on
alleged defects in improvements to real property by providing for
repose after a 20-year period for all persons. The statute affords
heightened protections to a defined class -- architects, professional
engineers, and contractors -- by providing for repose after 10 years.
The statute states in relevant part:

(a) Injury occurring more than 20 years later. --
Except as provided by this section, no cause of action for
damages accrues and a person may not seek contribution or
indemnity for damages incurred when wrongful death, per-
sonal injury, or injury to real or personal property resulting
from the defective and unsafe condition of an improvement
to real property occurs more than 20 years after the date the
entire improvement first becomes available for its intended
use.

(b) Action against architect, professional engineer, or
contractor. -- Except as provided by this section, a cause
of action for damages does not accrue and a person may not
seek contribution or indemnity from any architect, profes-
sional engineer, or contractor for damages incurred when
wrongful death, personal injury, or injury to real or personal
property, resulting from the defective and unsafe condition
of an improvement to real property, occurs more than 10
years after the date the entire improvement first became
available for its intended use.

Md. Code Ann., Cts. & Jud. Proc. § 5-108(a), (b).

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We agree with the district court that the plain meaning of the statu-
tory term "contractor" encompasses subcontractors. This conclusion
is confirmed by reference to any dictionary. For example, "contractor"
is defined by one dictionary as "one that contracts, a party to a bar-
gain, one that formally undertakes to do so something for another,"
or as "one who contracts on predetermined terms to provide labor and
materials and to be responsible for the performance of a construction
job in accordance with established specifications or plans." Webster's
Third International New Dictionary 495 (1961). Similarly, Black's
Law Dictionary describes the term "contractor" as

strictly applicable to any person who enters into a contract,
but . . . commonly reserved to designate one who, for a fixed
price, undertakes to procure the performance of works or
services on a large scale . . . generally classified as general
contractors (responsible for entire job) and subcontractors
(responsible for only a portion of job; e.g., plumber, carpen-
ter).

Black's Law Dictionary 295 (5th ed. 1979).

An inclusive definition of "contractor" is consistent with the appar-
ent purpose of § 5-108(b) to insulate from liability for latent defects
those parties responsible for the design and construction of improve-
ments to real property. The original version of the statute, passed in
1970 and providing for repose after a 20-year period, was "an attempt
to relieve builders, contractors, landlords, and realtors of the risk of
latent defects in design, construction, or maintenance of an improve-
ment to realty." Allentown Plaza Assocs. v. Suburban Propane Gas
Corp., 405 A.2d 326, 330 (Md. Ct. Spec. App. 1979) (quoting Revi-
sor's Note to Md. Code Ann., Cts. & Jud. Proc. § 5-108 (1974)). The
Maryland General Assembly passed the original version of the statute,
declining to include proposed language that would have limited the
statute's protections to "`persons performing or furnishing the design,
planning, supervision of construction or construction' of an improve-
ment." Rose, 643 A.2d at 913 (quoting identical language contained
in four Senate Bills and one House Bill proposed in 1967, 1968, and
1969). In 1979, the General Assembly amended § 5-108 to confer
heightened protection on architects and engineers in the form of a 10-
year repose period, "[i]n apparent response" to complaints from archi-

6
tects and engineers that the existing 20-year repose period provided
them insufficient protection from liability. Id . And in 1980, the Gen-
eral Assembly added contractors to the list of parties afforded height-
ened protection under § 5-108(b). See id .

As the Maryland Court of Appeals explained in Rose, "two devel-
opments in the law -- the elimination of the `privity of contract' doc-
trine as a defense and the application of the `discovery rule' [when
applying a statute of limitations] -- provided the impetus behind the
enactment of [the statute of repose]." Id. at 911 (footnote omitted).
These changes in tort law had the effect of dramatically expanding the
liability of persons designing or constructing improvements to real
property. See id. Hartford's argument that the heightened protection
of § 5-108(b) was meant to apply only to those in privity of contract
with the owner of realty is at odds with the legislative motivation
behind the statute, as characterized by the Maryland Court of
Appeals. The impetus behind the legislation appears to have come
from a concern about legal developments that expanded liability to
those not in privity with the owners of real property. Consistent with
this concern, § 5-108(b) explicitly granted heightened protections to
"any architect, professional engineer, or contractor," without refer-
ence to whether the owner of real property had directly contracted
with the party performing the improvement or not. Md. Code Ann.,
Cts. & Jud. Proc. § 5-108(b) (emphasis added).

Hartford's argument, that we should read § 5-108(b) to import dis-
tinctions made in the construction industry between contractors and
subcontractors, is unpersuasive. In each of the sources to which Hart-
ford points -- AIA contracts, the mechanic's lien laws, and related
court decisions -- the contract or statute involved focuses on the dis-
tinction between a general contractor and a subcontractor in further-
ance of the regulation of the relationship between the two. The AIA
recommends a different contract form for each participant in a con-
struction project, including the architect, general contractor, construc-
tion manager, and subcontractor, reflecting the distinct role each
performs. Similarly, the thrust of the mechanic's lien law is to provide
protection to contractors and specified subcontractors who are in priv-
ity with the construction project but not with its owner. The purpose
of the statute of repose, in contrast, would not be fulfilled by observ-
ing a distinction between general contractors and subcontractors. On

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the contrary, because it was meant to address the problem of
increased liability arising from construction projects, particularly for
subcontractors who were not in privity with owners but who no lon-
ger could raise lack of privity as a defense, the statute of repose
should be construed to provide protection for all contractors.

Moreover, it would make little sense to provide protection to a gen-
eral contractor who provided a specific improvement to real property,
such as landscaping, but to withhold the same protection from another
person hired by the general contractor to perform the same task.
Every indicator suggests that the Maryland General Assembly did not
intend to distinguish between a contractor and a subcontractor when
it enacted the statute of repose. On the contrary, by using the all-
inclusive phrase "any contractor," it afforded protection to all contrac-
tors, including subcontractors.

Because American Sprinkler contracted to provide improvements
to real property at the Holiday Inn -- by installing the sprinkler sys-
tem in 1982 -- it is a "contractor" that became immune from suit ten
years after the entire hotel first became available for its intended use.
See Md. Code Ann., Cts. & Jud. Proc. § 5-108(b).

III

Our ruling -- that claims relating to alleged improper installation
of the sprinkler system in 1982 are barred by Maryland's statute of
repose -- does not dispose of Hartford's claims arising from the
repairs American Sprinkler completed in January 1996, less than two
weeks before the cap and coupling on the standpipe broke and caused
the flooding of the Holiday Inn. Hartford contends that in reviewing
these claims, the district court did not consider the facts in the light
most favorable to Hartford and improperly failed to draw inferences
adverse to American Sprinkler because of its spoliation of evidence.

In mid-January 1996, American Sprinkler began renovations of the
automatic sprinkler system at the Holiday Inn, completing them on
January 26, 1996. Holiday Inn had to perform several upgrades to its
facility, including the renovation of its sprinkler system, to obtain
"Holiday Inn Select" status. The hotel contracted with American
Sprinkler to perform the sprinkler-system renovations, which required

8
replacement of the escutcheon plates underneath the sprinkler heads.
The sprinkler system was designed to be drained zone-by-zone, with-
out disturbing the entire sprinkler system, and the renovation required
American Sprinkler employees to drain the areas of the system where
they worked. The renovations did not involve work on the standpipe
risers, however, and did not require employees to work in the stair-
wells where the standpipe risers were located.

Hartford advances a theory that American Sprinkler drained and
repressurized the entire sprinkler system each day when performing
the renovations, and that this activity somehow weakened the stand-
pipe cap and coupling that ultimately broke on February 7, causing
the flooding. But Hartford offers no evidence either that daily drain-
ing and repressurization occurred or that a properly constructed stand-
pipe would break or separate as a result of such draining and
repressurization. At most, Hartford's evidence -- the testimony of the
hotel's building engineer that American Sprinkler employees asked
him on one occasion to open a water valve under the stairwell --
demonstrates that the entire system may have been drained and
repressurized on one occasion. But Hartford presented no evidence
that this draining and repressurization would overtax a properly
designed and installed sprinkler system, causing the standpipe cap and
coupling to separate and fail. It has thus failed to make out a prima
facie case of negligence or breach of contract with respect to the 1996
renovations of the sprinkler system.

Hartford argues that it is entitled to judgment as a matter of law
against American Sprinkler or, at least, an adverse inference as a
sanction against American Sprinkler because it did not preserve the
damaged parts from the standpipe despite Hartford's request.

We conclude that the district court did not abuse its discretion in
declining to impose the drastic sanction of awarding judgment on the
merits as a matter of law when it had concluded that Hartford failed
to produce evidence probative of willful or bad-faith conduct on the
part of American Sprinkler. Cf. Cole v. Keller Indus., Inc., 132 F.3d
1044, 1047 (4th Cir. 1998) (finding abuse of discretion in district
court's dismissal of claim as sanction for spoliation of evidence where
bad faith was not shown); Vodusek v. Bayliner Marine Corp., 71 F.3d
148, 156 (4th Cir. 1995) (stating that an adverse inference about a

9
party's consciousness of the weakness of its case"requires a showing
that the party knew the evidence was relevant to some issue at trial
and that his willful conduct resulted in its loss or destruction").

Moreover, the adverse inference requested by Hartford as an alter-
native sanction would not help it survive summary judgment on its
claims regarding the 1996 renovations of the sprinkler system. With-
out evidence that draining and repressurization of a sprinkler system
could cause the end cap and coupling of the standpipe in a properly
designed and installed sprinkler system to separate, any adverse infer-
ence under the doctrine of spoliation would be irrelevant to Hartford's
claims that American Sprinkler performed its 1996 renovations negli-
gently or in breach of contract. Any adverse inference would, at most,
create a presumption that the standpipe parts were defective -- a fact
that would relate only to the 1982 installation of the sprinkler system,
not the 1996 renovation. Since we have already ruled that Maryland's
statute of repose shields American Sprinkler from claims based on the
1982 installation work, Hartford's requested inference could not
advance its case.

For the foregoing reasons, we affirm the judgment of the district
court.

AFFIRMED

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