"Spoliation" is the intentional or negligent destruction, loss or alteration of evidence by one who has the responsibility for its preservation. NFPA 921 (2004), section 3.3.144. Within the last ten years, the legal doctrine of spoliation has been a powerful sword used against parties to destroy a claim that seemed like a sure winner. Many times, spoliation claims arise from a failure to alert potential responsible parties of their opportunity to inspect the scene prior to the clean-up. The tension for insurers occurs where the clean-up of a loss scene, such as a fire, is required by local government, and the insured wants to move back into his residence or to resume his business, but the insurer needs to preserve the scene to protect the evidence for any potential claim or lawsuit.
Where feasible, all potentially interested parties should be notified of their opportunity to have a representative at a fire scene before any alteration occurs. However, where a fire investigator cannot determine how the fire started, it's difficult to alert all potentially liable parties. If the investigator is able to determine the origin of the fire, for example, a refrigerator in the insured residence, further investigation should cease, and the manufacturer and seller should be put on notice, as well as given an opportunity to do their own investigation.
Of course, notice and investigation by those potentially liable must be prompt, since governmental officials will be interested in taking down the property as soon as possible. If necessary, counsel may need to obtain a court order to prevent destruction of the building prior to such an investigation. The court will be required to weigh the insurer's interest in investigating its claim against public safety concerns about a possible building collapse.
The insurer should meet with counsel early on to set out a preservation plan for any such evidence. For example, if it's determined that a fire started in the ceiling area of a business after a local electrician performed work the day before in that area, the plan should include preserving the remnants of the ceiling, as well as any exposed wiring that may be available. Further, the entire business should be preserved for a sufficient length of time for potential third parties to come and inspect the building.
If the evidence does not belong to the insured, a certified letter should be drafted to the property owner asking him to preserve any evidence, and putting him on notice of the potential use of such evidence in a lawsuit. The insurer could offer the owner money to hold the property or lease the premises until trial, and have the owner sign a written contract agreeing not to dispose of the property before that time. At the very least, this creates a paper trail to refute any allegation of spoliation later.
Another option would be to purchase the evidence from its owner. Finally, counsel might open a court action, if necessary, to request a temporary restraining order or permanent injunction forbidding the third party from destroying potential evidence, especially if it will be costly to preserve such evidence.
Indiana has not recognized any first-party duty to preserve evidence, but has recognized the duty of a third-party insurer to preserve evidence. In a 2005 decision, the Indiana Supreme Court in Gribben v. WalMart Stores, Inc., 824 N.E.2d 349 (Ind. 2005), determined that WalMart had no duty to preserve a surveillance videotape which would have assisted the plaintiff in her lawsuit against WalMart for injuries she incurred from a fall on its premises.
The remedy for spoliation that's intentional is the establishment of an inference that the spoliated evidence was unfavorable to the responsible party, the Court held. Also, according to Indiana Trial Rule 37(B), the court may order certain sanctions, like designating that certain facts be established, prohibiting the introduction of evidence, dismissing all or part of an action, entering a default judgment, or ordering a party to pay reasonable expenses, including attorney fees.
In 2006, the Indiana Supreme Court also held that an employer had no duty to preserve evidence for its employee's potential third-party lawsuit against the manufacturer, distributor and designer of a pump used to empty a holding tank of hazardous materials which exploded and killed the employee. Glotzbach v. Froman, 854 N.E.2d 337 ( Ind. 2006). An employee injured in a workplace accident to which worker's compensation applied, the Court held, had no claim against the employer for third-party spoliation relevant to claims from the accident. Even though in that case, the Indiana Occupational Health and Safety Administration had instructed the corporation to retain the debris from the incident, the court found no special relationship sufficient to require the employer to preserve the evidence.
However, the Indiana Court of Appeals has determined that a special duty existed with respect to a liability insurer which lost evidence relevant to a minor child's claim against a dog-cable restraint manufacturer. In Thompson v. Owensby, 704 N.E.2d 134 (Ind. App. 1998), a minor child was disfigured when a German Shepherd broke free of its restraining cable and attacked her. The child and her parents sued the dog owner and the cable manufacturer.
The Court held that the parents stated a claim against the insurance company for failure to preserve the evidence because once the claim was filed, the possibility of litigation was foreseeable and the insurer had a duty to maintain the evidence. The Court determined that the liability carrier had a duty in the ordinary course of its business to investigate and evaluate claims by insureds. To do so, the carrier must take possession of things that must be authenticated and investigated, giving rise to a relationship with third party claimants. Therefore, an independent spoliation claim against the insurer was allowed.
In conclusion, it's always prudent to collect every piece of evidence that may have evidentiary value somewhere down the road. When such evidence cannot be collected, such as a fire scene, parties should be put on notice immediately of their opportunity to investigate before the scene is cleared for demolition. It's also a good idea to take photographs of any evidence in its original state prior to the time that it's removed and collected as evidence.
Finally, parties should keep a chain of custody form so possession of the evidence is clearly documented, and claims of spoliation by opposing parties don't damage or destroy the prosecution or defense of the case.
* * *
Teresa Mysliwy, an associate in our Merrillville, Indiana office, concentrates her practice in subrogation, litigation, and collections. During her legal career, she has handled and/or arbitrated thousands of insurance subrogation disputes. She is also a certified civil mediator in the state of Indiana. After receiving her law degree, Ms. Mysliwy worked for 11 years for one of the nation's largest insurance carriers. Prior to joining Querrey & Harrow, Ms. Mysliwy was a partner at a large insurance defense firm, and subsequently, a sole practitioner. Should you have any questions about this article, please feel free to contact Theresa at 219-738-1820, or via tmysliwy@querrey.com.
