Louisiana High Court Addresses Insurance Spoliation Issue

Claims Journal

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Louisiana High Court Addresses Insurance Spoliation Issue

By Steven Plitt | October 21, 2015

The issue of spoliation of evidence is becoming increasingly problematic for insurance companies. The Louisiana Supreme Court recently considered the question of whether an insurer can be held liable for negligent spoliation of evidence when it failed to preserve a vehicle after the accident took place until that vehicle could be inspected for defective equipment.

In Reynolds v. Bordelon, No. 2014-2362, 172 So.3d 589, 2015 WL 3972370 (La. 6/30/15), the Louisiana Supreme Court held that no private cause of action existed for negligent spoliation of evidence. The case involved a multi-vehicle accident in which the plaintiff, Richard Reynolds, sustained injuries. Reynolds filed suit against Robert Bordelon, the driver, that allegedly caused the accident. In that lawsuit, Reynolds asserted claims under Louisiana’s Product Liability Act against the vehicle manufacturer, Nissan North America (Nissan). Reynolds alleged that the airbag failed to deploy as designed causing injury. Reynolds alleged that his insurance company, Automobile Club Inter-Insurance Exchange (ACIIE), and the custodian of his vehicle after the accident, Insurance Auto Auctions Corporation (IAA), failed to preserve his vehicle for inspection purposes to determine whether any defects existed, notwithstanding being put on notice of the need for preservation. In response, ACIIE and IAA (hereinafter referred to collectively as “defendants”) asserted that Louisiana law only recognized an intentional destruction of evidence spoliation cause of action and that Reynolds’ Complaint did not allege any intentional act on their part.

Reynolds alleged that shortly after the serious motor vehicle accident, which occurred on March 15, 2008, IAA became the custodian of Reynolds’ vehicle in concert with ACIIE, the insurer. Reynolds asserted that defendants were on notice that the vehicle was to be preserved as evidence because a lawsuit was likely to be pursued.

In considering whether to adopt a cause of action for negligent spoliation, the Court looked to public policy considerations that might affect the recognition or rejection of such a tort. The first factor to be considered was “deterrence of undesirable conduct.” On this factor, the Court found that the act of “negligently spoliating evidence is so unintentional an act that any recognition of the tort by the courts would not act to deter future conduct, but would, rather, act to penalize a party who was not aware of its potential wrongdoing in the first place.” This result was particularly applicable in cases of negligent spoliation where the spoliation allegedly was committed by a third-party. A third-party would not be vested in the ultimate outcome of the underlying case and, therefore, would have no motive to destroy or make unavailable evidence that could tend to prove or disprove that unrelated claim. The Court concluded that this first factor weighed in favor of not imposing a duty on the insurance company.

The second public policy consideration involved compensation of the victim. Addressing this factor, the Court noted that there had been strenuous debate nationally among the various states that did recognize the tort of negligent spoliation because the damages are so highly speculative with this type of cause of action. By way of example of this divergence of judicial viewpoint, the Louisiana Supreme Court cited Smith v. Atkinson, 771 So.2d 429 (Ala. 2000), “wherein the Alabama Court held that the proper measure of damages in a negligent spoliation of evidence case is the compensatory damages that would have been awarded on the underlying cause of action, and not the probability of success in the underlying action,” and the District of Columbia’s decision in Holmes v. Amerex Rent-A-Car, 710 A.2d 846, 853 (D.C. 1998), wherein the District of Columbia Court “held the measure of damages in a negligent spoliation of evidence case should be compensatory damages in the underlying case adjusted by the estimated likelihood of success in the potential civil action.” Turning to the case at bar, the Louisiana Supreme Court noted that “[d]etermining the expected recovery in the underlying case—a case that was not fully adjudicated on evidence because that evidence was discarded—leaves room for substantial guess-work.” If negligent spoliation was allowed, the Court observed that because Louisiana was a comparative negligence jurisdiction, the Court would have to factor in the likelihood of success of the underlying case since that would be the measure of the proportional fault of the spoliator. In that situation, the parties and the trier of fact would be called upon to estimate the impact of missing evidence and guess at its ability to prove or disprove the underlying claim which is highly speculative. Therefore, regarding this factor, the Court found “these hypothetical and abstract inquires weigh against recognition of the tort of negligent spoliation.”

A third public policy consideration is the “satisfaction of the community’s sense of justice.” This consideration is based on society’s sense of fairness which is essential in determining whether a reasonable person should have acted or not acted in a certain manner. This factor had to be considered in relationship to a fourth public policy consideration: predictability. Addressing these two factors together, the Court stated:

Recognition of the tort of negligent spoliation would place a burden on society as a whole, causing third parties who are not even aware of litigation to adopt retention policies for potential evidence in cases, in order to reduce their exposure to liability. There is simply no predictability in requiring preservation and record keeping for unknown litigation. Moreover, broadening the delictual liability for negligent spoliation would place restrictions on the property rights of persons, both natural and juridical, insofar as the tort would act to limit the right to dispose of one’s own property. These policy concerns are readily apparent in the facts before this court where ACIIE paid to the plaintiff what was owed under his policy and received the title to the totaled vehicle. Then, IAA, in the normal course of its business, received the vehicle and disposed of it by auctioning it to a salvage yard for spare parts. To impose a requirement that all potential evidence be preserved for possible future litigation would wreak havoc on an industry whose very existence is sustained by destruction of possible subjects of litigation: totaled vehicles. It is easy to imagine the trickle-down effect that a preservation policy would have on insureds themselves; the longer an insurer or auction company is required to store a vehicle, the higher the costs, and the more likely insurance premiums would be increased to absorb those costs. Moreover, the delay in proceeds being remitted to the insurer at the time of the auction prevents those funds from being immediately available to offset the total loss payout the insurer pays to the insured. Again, this practice could result in higher costs for the public.

The Court found that these two factors, societal justice and predictability, weighed heavily against broadening the delictual obligation for negligent spoliation. .

The fifth public policy factor considered by the Court was the proper allocation of resources, including judicial resources. The Court found that allowing a derivative tort would invite litigation and would encourages parties to bring new lawsuits where the underlying lawsuits were not successful. This type of derivative litigation could open the floodgates for endless lawsuits where the loss was speculative at best. Allowing the lawsuits would also create confusion for fact-finders, particularly juries, inasmuch as it would allow a trial within a trial. By way of example, the Court noted that “triers of fact could be presented with the facts of the underlying case and also presented with the facts surrounding the alleged destruction of evidence, causing inconsistency and the potential for misunderstanding.” Therefore, the Court found that this factor did not favor recognition of the tort.

Finally, the Court addressed the last public policy factor regarding the availability of other avenues of recourse. Regarding this factor, the Court noted that plaintiffs who anticipated litigation were free to enter into a contract to preserve the evidence and, in the event of a breach, could avail themselves of contractual remedies. Court orders regarding preservation were also obtainable. Additionally, plaintiffs could retain control of the vehicle and not have released it to the insurer thereby guaranteeing its availability for inspection. Lastly, plaintiffs can buy the vehicle back from the insurer for a nominal fee. Therefore, there is the existence of alternative avenues of recovery.

After reviewing the public policy considerations, the Louisiana Supreme Court refused to recognize a duty to preserve evidence in the context of negligent spoliation.