On December 29, 1998, the Indiana Court of Appeals handed down its opinion in Thompson v. Owensby, et al, in which it recognizes an independent cause of action for spoliation of evidence. The facts involved in the case are as follows. Six year old Nicole Thompson was injured when she was attacked by a German shepard dog. The dog had been restrained by a cable in its owners' (Jeff and Rhonda Owensby) yard. However, the dog broke free, got out of the yard, and attacked Nicole.
Nicole and her parents sought compensation from the Owensby, from the company they believed to have manufactured the dog cable (Orrville Leather, Inc.), and from Henry and Alva Whitis, the owners of the property where the Owensbys lived at the time of the attack.
The Whitis Defendants carried homeowners insurance with Indiana Insurance Company. During the course of its investigation of the plaintiffs' claim, Indiana Insurance took possession of the restraining cable. Before any of the parties had examined or tested the restraining cable, Indiana Insurance lost the cable. Therefore, the Plaintiffs sued the insurance company for negligence. In their Amended Complaint, the Plaintiffs alleged that Indiana Insurance had assumed a duty to safeguard the cable and that the insurance company had breached that duty by losing the cable. In addition, the Plaintiffs alleged that the loss of the cable adversely affected their claims against the dog owners and the manufacture of the cable.
The Court of Appeals characterized the question of first impression raised in this case as being "whether an insurance company that loses evidence may be liable to a third party claimant for damages attributable to the los of the evidence.(1) The Court of Appeals stated that in order to allege an actionable duty, the Thompsons were required to identify a cognizable relationship with Indiana Insurance Company; they had to allege foreseeable harm from the loss of the evidence; and, they had to allege sufficient supporting facts to demonstrate that the recognition of a duty to maintain evidence would promote Indiana's policy goals.
In analyzing these three elements, the Court of Appeals noted that a liability insurance carrier has a duty in the ordinary course of business to investigate and evaluate claims made by its insureds; and, that in carrying out this duty, carriers take possession of documents and things that must be authenticated and tested in order to evaluate claims. Those same documents and things will be key items of evidence if the claim is denied and litigation ensues. According to the Court of Appeals:
[t]his conduct by necessity gives rise to a relationship with the third party claimant. ... A liability insurance carrier like the Insurance Company can rationally be held to understand that once a claim is filed, there is a possibility of litigation concerning the underlying injuries. The Insurance Company's knowledge and investigation of the Thompsons' claims and its possession of what would be a key item of evidence in the event litigation ensued created a relationship between the Company and the Thompsons that weighs in favor of recognizing a cognizable duty to maintain the evidence.(2)
With regard to foreseeability, the Court of Appeals noted that because liability insurance carriers are "no strangers to litigation", "it strains credulity to posit in a motion to dismiss that a liability insurance carrier could be unaware of the potential importance of physical evidence".(3) Therefore, the Court concluded that "[i]f litigation was foreseeable in this case, the evidentiary value of the restraining cable was foreseeable as well".(4) In addition, the Court noted that "... foreseeability of the harm in losing evidence can be inferred from the allegation that the Company's investigator took possession of the cable: if an insurance carrier's investigator's deems certain evidence important enough to be collected, it is foreseeable that loss of the evidence would interfere with a claimant's ability to prove the underlying claim".(5) According to the Court, the duty to maintain evidence does not arise out of the relationship between an insurance carrier and a third party claimant. Rather, the duty arises from an insurance company's business practice regarding the collection and preservation of evidence. The Court based its decision in this case on the concept of accountability:
In Indiana, persons may be held accountable for their actions within the bounds of a factfinder's determination of reasonableness.(6)
The Court of Appeals concluded its opinion by noting that the remedy for failure to maintain evidence differs among jurisdictions. In cases outside of the insurance context, Indiana courts have dealt with the issue by imposing an evidentiary inference against the party that lost the evidence. Courts in other jurisdictions have addressed the issue by imposing discovery sanctions. However, in the present case, the Thompsons chose to pursue a tort action rather than availing themselves of an evidentiary inference or seeking discovery sanctions. According to the Court of Appeals, "that choice is the Thompsons' prerogative. By exercising the prerogative, the Thompsons have accepted the burden of proving that the Insurance Company breached its duty to maintain the restraining cable, that the Thompsons were harmed by the breach and that the harm resulted in damages that can be proven with reasonable specificity".(7) In addition, the Court notes that although the Thompsons base their claims on their prospective inability to prove their claims against other defendants, their damages could also be based upon the cost of retaining experts or conducting discovery needed to provide proof of the alleged defect in the restraining cable.
We represent the Plaintiffs in Thompson. After we were notified that Indiana Insurance had lost the dog cable, we filed an Amended Complaint, adding Indiana Insurance as a defendant. The portion of the Amended Complaint relative to the Plaintiffs' claim against Indiana Insurance for spoliation of evidence is as follows.
http://www.smithlaw.bz/lawyer-attorney-1182245.html
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