The High Cost of Spoliation of Evidence Sanctions

When you are involved in a claims dispute with your insurance company, you might successfully resolve unsettled issues prior to trial whether they involve coverage or the amount owed by your insurer.  Insurance companies frequently refuse to act reasonably, so policyholders have no alternative but to file a lawsuit for breach of contract or even bad faith. 

When you file a lawsuit, an important component of the civil litigation process involves discovery.  Discovery is the process by which both the insured and the insurer can formally seek information, documents, testimony and other evidence from the opposing side.  Sometimes there is critical evidence that can have a radical outcome on an insurance coverage lawsuit, such as an insurance company’s internal memo authorizing pro-forma initial denials without a prior investigation.  The intent of such a policy might be to induce policyholders to give up.

This type of evidence is sometimes referred to as a “smoking gun”, and the side against who such evidence is offered might be tempted to destroy or alter such evidence.  However, this destruction or modification of evidence, which is referred to as the “spoliation of evidence” can have very serious repercussions.  The court can impose monetary sanctions or sanctions that impact the strength of a party’s case.  Depending on the jurisdiction, the court can even “strike the pleadings” of the offending party, which can result in the case being decided in favor of the innocent party. 

The case of Knoderer v. State Farm Lloyds provides an example of a case where a court considered severe sanctions because of discovery violations that involved the spoliation of evidence.  The home of the policyholders in this case suffered serious damage from flooding caused by a plumbing leak.  The insurer originally agreed to pay for the property damage, but the insurer changed its position alleging that markings on the valve revealed that the homeowner intentionally caused the flooding.  When the insurer denied the claim, the property owner filed suit.

The insured claimed that he had six pictures which revealed the fitting examined by the insurer’s expert was not the valve responsible for the leak.  The policyholder claimed that he marked the fitting prior to giving it to the insurer while it was conducting its investigation.  The insured asked the court to strike the experts testimony and provided his pictures of the marked fitting.

After this claim by the insured, the insurer moved for sanctions against the policyholder claiming that the photos submitted by the insured were fabricated.  The judge required the policyholder to provide the hard drive upon which the photos had been stored to the insurance company.  The court specifically directed the insured to preserve the images on the hard drive and not to alter them in any fashion.  The insurer filed a motion requesting the court to impose sanctions against the insured after an investigation of the hard drive revealed the relevant images had been deleted using a program purchased and installed the day after the court ordered the insured not to delete or alter the pictures.

The insurer asked the trial court to “strike the pleadings” of the insurer, which would essentially have functioned as a death penalty for the insured’s claim.  While the trial court denied this request, the judge did order the policyholder to pay all of the insurance company’s attorney fees, which amounted to a million dollars.  The appellate court agreed that striking the pleadings was too harsh a sanction under the facts of the case.  The appellate court also found that monetary sanctions should be limited to the attorney fees relevant to the expert and litigation involving the fabricated photos.

While the appellate court did not uphold the harsh monetary sanctions, the court made clear that substantial sanctions could be imposed on the policyholder.  This case demonstrates the importance of complying with discovery requests and never distorting or destroying evidence.  My law firm represents policyholders in claims disputes in Miami and throughout Florida, so we can guide you through the process.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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