The fire at your insured’s second-floor offices six months ago caused heavy damage to his business and to the company on the first floor. Since then, you and the claims adjuster for the downstairs firm, along with your cause and origin experts have inspected the scene. As suggested by the evidence (and mutually agreed upon by the experts), fire was electrical in nature and originated in one of your insured’s computers or was caused by an electrical cord or power strip connected to a computer. The wires, cords, computer, and power strip were photographed by both experts and retained by yours.
About two months after you settle the claim, your expert e-mails, asking for permission to discard the evidence he collected. After considering the many photographs taken and that the other claims adjuster has paid his insured—and you are incurring a monthly storage fee on the file—you e-mail your expert to report that the file is closed and that he may destroy the evidence.
In modern times, spoliation may occur through negligence or intent and includes electronic as well as tangible evidence. In some states it can be a separate tort. Most importantly, it can cause big problems in defending or pursuing a claim.
Spoliation has numerous causes, such as simple carelessness, lack of information, and failure to fully understand the legal process, just to name a few. More often than not it is unintentional, and can result from the careless actions of an insured or even a third party, such as an expert.
Then you prepare a letter to the claimant’s lawyer stating that you will not make an offer because of no liability of the insured and you diary the file for the day after the statute of limitations expires. The insured, believing that his involvement with the matter has ended, discards the brake cylinder and goes about his business.
In the case of the discarded electrical items, the lawyer for the downstairs business (now the plaintiff in the third-party action against your insured) never requested the items or pursued this theory as a cause of the fire, and both sides had the opportunity to inspect and photograph the electrical evidence. Chances are, there won’t be summary judgment against your insured. Nevertheless, you have lost the opportunity to investigate a theory that might have bolstered your defense.
Some jurisdictions may hold the plaintiff responsible for the films, even if neither he nor his attorney ever possessed them, because they are his films and he is responsible for ensuring that third parties do not lose them.
Or, just consider a case where an insurance company paid a claim for water damage in a residence caused by an allegedly faulty condenser in the HVAC system and now has a subrogation lawsuit against your insured, the manufacturer of the system. A year or two later, while suit is pending, the property owner has the system replaced by a contractor not involved in the subrogation lawsuit, who then disposes of the unit, despite instructions from the plaintiff’s lawyer. You are prejudiced because your expert has lost the opportunity to inspect and test the condenser and there is a good argument to be made that the insurance company plaintiff is more sophisticated than its insured and should have known to take control of the HVAC equipment until its claim was resolved so third parties would not destroy or alter it.