Case Background
After vandals damaged its hotel’s air conditioning units, Defendant (Best Inn Midwest, LLC) filed an insurance claim under its policy with Plaintiff (Ohio Security Insurance Company). Ohio at 1. Plaintiff’s employees believed the building was “vacant” as defined by the policy, excluding vandalism coverage. Id. at 3. Plaintiff sent Defendant a letter citing the policy language and requesting documentation on occupancy. Id. After Defendant ignored a follow-up request, Plaintiff filed a declaratory judgment action. Id. at 4. Defendant filed a counterclaim for bad faith. Id.
Plaintiff repeatedly requested occupancy documents, but Defendant did not comply with the requests. Ohio at 4-6. Ultimately, Defendant failed to comply with over a dozen requests for the occupancy documents and two court orders compelling production. Id. at 7. Plaintiff then moved for discovery sanctions, requesting an order declaring the hotel “vacant” under the policy. Ohio at 6.
When the district court heard arguments, Defendant asserted some occupancy documentation had been destroyed by employees and some had been destroyed in a fire that occurred months after Plaintiff’s first request. Id. The district court found Defendant knew of its discovery obligations but “utterly failed to disclose and/or preserve critical records in this case.” Id. With no factual dispute about vacancy remaining, the court granted summary judgment for Plaintiff. Id. Defendant appealed. Id.
Analysis of Appellate Court Ruling
The Seventh Circuit found the district court did not abuse its discretion in imposing sanctions. Ohio at p. 7. Federal Rule of Civil Procedure 37 gives trial courts broad discretion to sanction discovery violations but requires sanctions be proportional to the infraction. Id. at 6. Courts must consider the frequency and magnitude of noncompliance, its effect on the court’s time, prejudice to other litigants, and the merits of the suit. Id. at 7.
The appellate court agreed Defendant repeatedly failed to provide the occupancy documents, including noncompliance with two court orders. Ohio at 8. It noted the district court thoroughly evaluated lesser sanctions, such as a monetary sanction or a spoilation instruction. Id at 7. Because the Plaintiff’s case depended on evidence Defendant withheld or destroyed, the appellate court found the sanctions reasonable. Id.
Defendant argued the district court wrongly rejected its explanation for the destroyed documents. Ohio at 9. However, the appellate court deferred to the district court, which it noted was in the best position to determine Defendant’s credibility. Id. It also noted that Defendant admitted the documents were destroyed months after Plaintiff initially requested them. Id.
[i] See Ohio Security Insurance Co. v. Best Inn Midwest, LLC, 2025 U.S. App. LEXIS 16997 (7th Cir. 2025).