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What is Spoliation in Insurance Claims?

As a trusted business partner with your insureds, they often turn to you for advice, especially after a potential claim. Recently a question came into our Ask an Expert service about the following scenario.

“My insured called to tell me they had hired two casual laborers to work on the insured’s landscaping. A garden machine allegedly malfunctioned, which severed one of the worker’s fingers. Does the HO-3 ISO form typically respond to an incident of this type?”

While our experts were eager to help, there’s a another big issue at stake here. I immediately called the agent to remind him: “Warn your insured to keep the lawn implement that allegedly caused the injury.”

Why? Because adjusters, if they are on the ball, will want to obtain the evidence, show a chain of custody, and have a cause-and-origin expert examine the implement to determine if in fact the implement was faulty if fault is not obvious. The failure to retain that evidence could create an issue in our industry called “spoliation of evidence.”

Often savvy plaintiff counsel uses the spoliation defense against insurers, so it is critical that any time there is a malfunction that creates a potential claim, your insured keeps that faulty equipment. However, it is more than just a faulty lawnmower or defective product that creates the issue.

In a recent claim, a faulty electrical outlet caused a fire in a rental property rented by my friend. The insurer quickly sent in a restoration company and began cleanup. A few weeks later, she received a warning letter from her rental management company alerting her that she caused the fire and that they were going to bill her over $30,000 for “her negligence.”

Just wow, is all I can say. Glad I don’t rent because we increasingly see these types of tactics from property management companies. I told her to provide her adjuster with the letter, keep her laptop, which she had plugged in at the time of the fire, and urge her adjuster to hire a cause-and-origin expert to find the cause of the fire.

What is Spoliation?

Spoliation of evidence means someone has an obligation to preserve evidence regarding a claim or potential claim and either neglect or intentionally fails to protect that evidence.

Spoliation can occur in a variety of ways, including the following.

Beginning reconstruction after an event before the insurer has ample time to inspect and warn the opposing party (including an injured employee) of potential reconstruction or destruction. The insured must allow all the adverse parties time to inspect, including an employee after a workers’ compensation injury.
Destroying a lab specimen
A police officer losing evidence
Failing to establish a chain of custody in a motor vehicle accident that involves a serious injury and where the other party alleges product liability.
Destroying or altering emails, surveillance footage, or documents that may provide inculpatory (damaging to the insured) evidence.

Spoliation laws vary greatly by state, and by Federal jurisdiction. According to Matthiesen, Wickert & Lehrer Law Firm, the great state of California was the first to “recognize the tort of spoliation” in 1984. MWL’s handout on spoliation is a great resource, as are other resources on their website.

There is first-party spoliation and third-party spoliation. These claims involved a person or entity involved in the underlying litigation, for example, your insured or the plaintiff. Third-party litigation involves unrelated parties to the underlying, for example, a manufacturer not yet named in a complaint.

Sanctions can be high for “spoliators,” (those who destroy or fail to preserve evidence). I think “spoliator” is an amazing word, just for the record. Sanctions can include outright dismissal of a claim or precluding evidence from entry into the lawsuit, or the granting of summary judgment. Further, in some cases, the judge will order that jurors construe the missing evidence against the spoliating party, which is never good for the defense of a claim. This is known as an “adverse inference” and often seen in product liability claims.

What is an Agent to Do?

The former is just a short list of examples of spoliation. Landowners usually work to quickly repair faulty items if these hazards injure someone. For example, if a road defect injures a motorcyclist, the state will move quickly to repair that defect. That makes sense. It may be entirely reasonable to remediate hazards because we don’t want to leave others exposed to known hazards. But good photos taken post loss, especially with serious injuries, and ensuring the insurance carrier has investigated, can avoid a spoliation claim.

As insurance agents, we do not have to be experts at spoliation. However, it is always beneficial to warn your insureds after a loss that they should immediately consult with their assigned adjuster about any evidence that may require preservation before the insured repairs or disposes of items.

There are possible legal, financial and ethical implications at play in these spoliation considerations, because tampering with evidence such as deleting emails or destroying evidence can be a breach of public trust.

Here are some tips you can share with your insureds.

After any loss, even a workers’ compensation injury claim, warn your insureds to retain any documents or damaged items until they discuss the need for examination with their adjuster.

Warn insureds not to repair items until the adjuster has had a chance to inspect or otherwise work with the insured about repair.
Never suggest to your insureds that they do anything which could be detrimental to the defense of their claims, for example, to alter or destroy evidence.
If your insureds receive a notice to preserve certain evidence, it is imperative they get that information to their defending adjuster or attorney to help them comply with reasonable demands.

Insureds and agents alike should update their internal policies to document how employees should retain and communicate regarding evidence. The last thing an insured or agency principal should do is allow an employee without experience in litigation to respond to these inquiries.

The plaintiff bar is becoming increasingly aggressive in asserting spoliation allegations in litigation. It never is a good look when the opposing counsel accuses your insured of spoliation. No jury or judge likes that inference.

Publication Date: March 29, 2024

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