Failure to Give Adverse Party Notice Could Lead to Spoliation Sanctions

Spoliation has become a “hot button” issue in New York and other states within the past decade.  New York used to define spoliation as the “willful or intentional” destruction of evidence. [1]  Not anymore.  A finding of “bad faith” or “evil motive” is no longer a prerequisite for imposition of sanctions for destruction of evidence.   Courts have concluded that one accused of starting a fire is prejudiced if it cannot have its own cause and origin expert inspect a fire scene for other potential causes. [2]

Last year, a federal court in Arizona granted defendant’s summary judgment motion and dismissed a subrogation action based on the subrogating carrier’s failure to give a potential defendant timely notice and an opportunity to inspect a fire scene. [3]    The subrogating carrier’s investigator concluded the fire was caused by a defective exhaust fan.  However, notice was not given to the manufacturer of the fan until two (2) months post-fire, by which time the premises had been repaired.  The Court found that “[a]s a large insurance company, Plaintiff is a sophisticated litigant aware of its obligations to preserve relevant evidence.” [4]   Plaintiff was fully aware that the fire scene would be the central focus of litigation yet advised its insured it could go ahead and repair the premises.  The court concluded that the spoliation of the fire scene affected the very heart of the matter in dispute:  whether defendant’s negligence cause the fire. Consequently, the court granted defendant’s motion dismissing the action.

Most courts have not imposed the ultimate sanction of dismissal for failure to give notice and opportunity to inspect a loss scene.  Instead, many courts have imposed the sanction of an “adverse jury verdict.”  What this means is that if the case proceeds to trial, the judge will read a special instruction to the jury that harms the subrogating carrier.  The instruction will inform the jury that, had defendant been given an opportunity to inspect the scene, the jury may infer that the defendant’s investigator would have reached a different conclusion regarding what caused the loss.  The jury does not necessarily have to find for the defendant on liability, but certainly such a jury charge is not very helpful when trying a subrogation lawsuit.

Bottom Line:  Always err on the side of caution.  If a preliminary loss scene investigation points to a potential culprit, the scene investigation should cease and the potential culprit given immediate notice and an opportunity to inspect the scene.

[1]   Baliotis v. McNeil, 870 F.Supp. 1285, 1291 (M.D. Pa. 1994).
[2]    Id. at 1291.
[3]   State Farm v. Broan Manufacturing Company, 523 F.Supp.2d 992 (D.AZ 2007)
[4]    Id. at 996