The U.S. Court of Appeals for the Eleventh Circuit, reversing adecision by the U.S. District Court for the Southern District ofFlorida, has ruled that a liability insurer had no duty to defendits insured against a claim for spoliation of evidence.

The case

James Rivera, a professional jockey employed by William P. WhiteRacing Stables, was paralyzed from the neck down by an accident atthe Calder Race Track in Miami Gardens, Florida, in November 2008.Rivera said he was riding a two-year-old filly named Flyfly FlyDelilah at full gallop during a workout when the horse suddenlycollapsed, taking him to the ground.

After the accident, Rivera sued White Racing, the Calder RaceTrack, and several veterinarians. Rivera asserted that Flyfly FlyDelilah had not been fit to be exercised or raced due to an injury,which had been covered up through steroids and other medications.He alleged that the negligence of nearly all defendants had causedhis injuries.

Rivera, however, did not state a negligence claim against WhiteRacing. Instead, he alleged that White Racing was liable fordamages caused by its failure to preserve Flyfly Fly Delilah'sremains after the accident so that the horse could be tested forperformance-enhancing drugs. In particular, he stated two countsagainst White Racing:

(1) A claim under Florida workers' compensation law for failureto cooperate in investigating and prosecuting his claims against athird-party tortfeasor, [see Fla. Stat. § 440.39(7)]; and

(2) A claim for spoliation of evidence.

Selective Insurance Company of the Southeast insured WhiteRacing under both a worker's compensation policy and an employer'sliability policy. Selective provided Rivera benefits under theworker's compensation policy for his injuries. Selectivemaintained, however, that it had no duty to defend White Racingagainst Rivera's lawsuit because it did not fall within the termsof the liability policy's coverage for damages arising from “bodilyinjury by accident.”

To that end, Selective filed a declaratory judgment actionseeking a declaration that it owed no duty to defend. Selectiveargued that Rivera's claims against White Racing were solely foreconomic losses – not bodily injury – flowing from its allegedbreach of its duties to preserve evidence after the accident.

In response, White Racing conceded that the two specific countsstated against it were not covered by the liability policy.Nevertheless, White Racing maintained that Selective owed a duty todefend because the factual allegations in Rivera's complaint couldsupport a negligence claim against White Racing for Rivera'sinjuries.

The district court agreed with White Racing and entered apartial declaratory judgment requiring Selective to defend WhiteRacing against Rivera's lawsuit.

Selective appealed to the Eleventh Circuit.

The Eleventh Circuit's decision

The circuit court reversed.

In its decision, the circuit court first ruled that lookingsolely to the specific claims that Rivera asserted against WhiteRacing — spoliation and failure to cooperate under Fla. Stat. §440.39 — Selective had no duty to defend because a liability policyapplying to “bodily injury by accident” did not provide coveragefor claims against an insured for breaching a duty to preserveevidence.

The Eleventh Circuit then rejected White Racing's contentionthat Selective owed a duty to defend because “the totality of thefactual allegations in the complaint, irrespective of the specificcounts pled,” could support a finding of negligence against WhiteRacing for Rivera's injuries.

The circuit court said that the “state of facts” allegedarguably could support a claim that White Racing's negligence hadcontributed to Rivera's bodily injuries. However, the circuit courtadded, perhaps due to complications arising from Rivera's receiptof worker's compensation benefits, the complaint “quite clearly”did “not seek recovery against White Racing for those injuries.” Inthese circumstances, the Eleventh Circuit decided, it could notconclude that the Florida Supreme Court would find a duty to defendbased on “the mere theoretical possibility” that Rivera could seekrecovery against White Racing for his injuries at some latertime.

In the circuit court's opinion, Rivera's complaint made clearthat the injury for which he sought to recover damages “was theinability to prove a cause of action, caused by White Racing'salleged breach of its duties to preserve evidence after theaccident.” Those damages, the Eleventh Circuit concluded, were notcovered by the Selective liability policy, which applied to “bodilyinjury by accident,” and Selective had no duty to defend WhiteRacing against Rivera's claims.

The case is Selective Ins. Co. of the Southeast v. William P.White Racing Stables, Inc., No. 16-16248 (11th Cir. Dec. 13,2017).

Steven A. Meyerowitz, Esq., ([email protected])is the director of FC&S Legal, the editor-in-chief of theInsurance Coverage Law Report, and the founder and president ofMeyerowitz Communications Inc. This story is reprinted withpermission from FC&S Legal, the industry's only comprehensivedigital resource designed for insurance coverage lawprofessionals.