JUNE 2017 BAD FAITH CASES: COURT IMPOSES SPOLIATION SANCTONS ON INSURED DEFENDING INSURANCE FRAUD COUNTERCLAIM (Philadelphia Federal)

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The case involved a fire loss. The insured brought claims seeking coverage, and the insurer filed insurance fraud counterclaims under Pennsylvania’s Insurance Fraud Statute. Before suit, the insurer took the insured’s examination under oath, and during that examination had asked the insured to preserve his cell phone data.

During litigation, the insurer requested cell phone data in discovery. The insured objected, and later reported that he had lost his cell phone. The insurer brought a motion for sanctions, asserting spoliation.

The court observed no material difference between the law governing spoliation under state or federal practice. “Spoliation occurs where ‘the evidence was in the party’s control; the evidence is relevant to the claims or defenses in the case; there has been actual suppression or withholding of evidence; and, the duty to preserve the evidence was reasonably foreseeable to the party.’”

“Failure to produce evidence can have the same practical effect as destroying it and so, ‘under certain circumstances, nonproduction of evidence is rightfully characterized as spoliation.’”

Sanctions rest within the court’s discretion. In federal court, the court’s authority comes for the Federal Rules of Civil Procedure and the court’s inherent power. Sanctions may include “dismissal of a claim or granting judgment in favor of the prejudiced party, suppression of evidence, an adverse inference, fines, and attorneys’ fees and costs.”

“In considering what sanctions to impose, the trial court should consider ‘(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.’”

The court readily found that three of the four spoliation elements met, e.g., the cell phone location history, text messages and search history were “hugely relevant to both parties’ claims.”

However, the question of actual suppression or withholding goes to intent, and is much harder to establish. The court examined the evidence closely, and found the insured lacked credibility, and that other evidence supported a finding of spoliation.

The court found that the insured’s degree of fault in the spoliation was unmitigated, and the spoliation was prejudicial, but chose not to impose the harshest sanction. The court retained the right to impose more severe sanctions, however, if it was later established that the spoliation was more prejudicial to the insurer than the court presently believed.

The court ruled that it would instruct the jury “they may infer that if Defendants were permitted to inspect [the] cell phone, any evidence would have been unfavorable to Plaintiff.” The court ordered the insured to pay all fees and costs association with the spoliation motion and all efforts to obtain records from the cell phone carrier.

Date of Decision: June 9, 2017

Brown v. Certain Underwriters at Lloyds, London, 2017 U.S. Dist. LEXIS 89527, *5 (E.D. Pa. June 9, 2017) (Joyner, J.)

 

 

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