This article is based upon a presentation Mark Chilson made at the ExecuSummit Conference in New York on October 26, 2006.

The proper collection and preservation of evidence is critical to any successful subrogation program. Education at the claim representative level is vital to preventing spoliation of evidence. Proper adherence to “best” practices in evidence collection and preservation is the cornerstone of every successful subrogation department. Proper evidence collection and preservation is not only an aspirational goal of an insurer, it is a mandatory legal obligation which must be incorporated into the business practices of a subrogation department. Without proper evidence retention, the insurer probably will lose its own subrogation case. Even worse, it may also expose itself to extra contractual damages when its own insured is unable to proceed with uninsured litigation.

Duty to Preserve Evidence

In order to avoid engaging in evidence spoliation and to more effectively spot evidence spoliation, it is key to know the parameters of spoliation. There must be a duty to preserve the evidence in order to be liable for evidence spoliation. Generally, no such duty arises before litigation is either filed, threatened, or reasonably foreseeable unless the duty is voluntarily assumed or imposed by a statute, regulation, contract, or other special circumstances. Absent notice of litigation or some other source of a duty to preserve evidence, a company or individual generally has the right to dispose of his own property, including documents and tangible objects without liability.

However, a duty to preserve evidence can arise independent of pending or reasonably foreseeable litigation. Contracts, statutes, document retention policies, or ethical attorney duties can all create a duty to preserve evidence. Where such items create a duty, the duty to preserve may arise long before litigation is even contemplated.

In addition to recognizing when a duty arises, it is also crucial to recognize what must be preserved. The general test is “reasonableness” as seen from the perspective of the party charged with the duty to preserve. Daniel F. Gourash et al., Spoliation of Evidence, p.14 (2nd ed. 2006). That is, would the party on notice of a lawsuit, or threatened lawsuit, reasonably believe that evidence in its possession is relevant? Id. To determine reasonableness, courts will often look to safety, expense, and the cumbersomeness of retaining the evidence in question. Conderman v. Rochester Gas & Elec. Corp., 262 A.2d 1068.

Methods and Types of Remedies

There are two basic methods available to remedy spoliation: (1) recognition of an independent cause of action for intentional and/or negligent spoliation, and (2) civil discovery or evidentiary sanctions in the pending litigation. Courts have broad discretion to impose a variety of sanctions against a party that fails to produce evidence in violation of the discovery rules. However, these discovery rules only extend to acts of spoliation that occur during the pendency of the lawsuit. Events prior to the filing of a lawsuit are unaffected by discovery rule authority.

A second source of authority is the court’s inherent authority. This authority is appropriate where litigation has not yet been commenced or where a specific court order has not been violated. Destruction of evidence via spoliation inhibits a court’s ability to hear evidence and accurately determine the facts. Therefore, the inherent authority to protect against the destruction of evidence is necessary to ensure the proper administration of justice.

In determining whether and to what extent to remedy acts of spoliation, courts consider a number of factors, including (1) the culpability of the offender, (2) the degree of prejudice caused by the spoliator, (3) the degree of interference with the judicial process, (4) whether lesser sanctions will remedy the harm and deter future acts of spoliation, (5) whether evidence has been irretrievably lost, and (6) whether sanctions will unfairly punish a party for misconduct by the attorney. Id. at 59–60. The first two factors are decidedly the most important and the most widely recognized. Id. at 59; Gates Rubber Co. v. Bando Chem. Indus., Ltd. (D. Colo. 1996), 167 F.R.D. 90, 101–102.

After determining that sanctions are appropriate, a court must next select a suitable remedy. There are numerous types of sanctions available to address evidence spoliation. These include: (1) an adverse jury inference, (2) the exclusion of evidence of expert testimony, (3) a dismissal or default judgment, and (4) independent causes of action for intentional and negligent spoliation.

Case Summaries

The following are examples of what various courts have determined does and does not constitute punishable spoliation of evidence:

Hirsch v. General Motors Corp. (N.J. Super. Ct. Law Div. 1993), 628 A.2d 1108

Plaintiffs bought a new car that they brought in for repairs two years after purchase. Less than two months after the repairs, the car caught fire and was destroyed. After settling with the owners, the insurance company examined the car and determined a manufacturing defect caused the fire. The vehicle was then sold and never recovered. The manufacturer, after being sued by the insurance company, claimed spoliation of evidence by the insurer. The court determined that the exclusion of all evidence regarding the insurer’s inspection was the appropriate remedy.

Vodusek v. Bayliner Marine Corp. (4th Cir. 1995), 71 F.3d 148

In a case involving negligence and product liability claims against a boat manufacturer arising from a deadly explosion, the boat owner’s expert destroyed the boat in the course of his inspection, thereby precluding the manufacturer’s expert with the opportunity to conduct a thorough investigation. Even absent proof of bad faith, the court concluded that an adverse inference instruction was appropriate.

Indemnity Insurance Co. of North America v. Liebert Corp. (S.D.N.Y. 1998), 1998 U.S. Dist. LEXIS 9475

Plaintiff’s insurance company sought recovery for the amount paid to its insured after the defendant manufacturer’s allegedly defective air conditioning units exploded. Some of the air conditioner parts were destroyed or lost by the plaintiff. The court found that the plaintiff did not act in bad faith in losing the parts, but did act negligently. The court refused to impose a sanction of dismissal, but did order that the defendants were entitled to all documents in plaintiff’s or its counsel’s possession relating to inspections of the unit, whether plaintiff intended to rely on them or not. Further, the court ordered plaintiff to produce all responsive material created in anticipation of the litigation. The court stated that these measures were aimed at overcoming any “residual prejudice” experienced by the defendants.

Dillon v. Nissan Motor Co. (8th Cir. 1993), 986 F.2d 263

In a case involving a car accident and claims of a product defect, the court held that exclusion of evidence was appropriate where plaintiff’s expert inspected the vehicle and then had it destroyed prior to the filing of the lawsuit.