Sanctions — Spoliation

No good deed goes unpunished. A State Farm policyholder had a serious home fire caused by a defective kitchen appliance. State Farm responded within a day and sent in a fire investigator who determined that a toaster oven instigated the fire. State Farm preserved the toaster oven and other potential igniters and authorized a demolition repair company to come in promptly and repair the damage, undoubtedly to the great relief of the homeowners. At the time it did this, however, State Farm hadn't determined who manufactured the defective toaster oven. State Fairm therefore didn't delay the home repair until it had determined the manufacturer (it was Black & Decker), notified it, and afforded B&D an opportunity to inspect the scene. After paying the claim, State Farm commenced a subrogation action.

The District Judge in Hughes v. Black & Decker, 2007 U.S. Dist. LEXIS 2372 (D. Minn. Jan. 10, 2007), viewed the home repair as spoliation of the scene of the fire. The Court accepted that State Farm acted in good faith and reasoned that Eighth Circuit precedent precluded either a dismissal or adverse-inference instruction absent bad faith. This, the Court felt, presented it with a conundrum, considering itself hamstrung in applying an appropriate sanction. State Farm presented a solution by stipulating to an adverse-inference instruction, even in the absence of a finding of bad faith, and consenting to the preclusion of any testimony from its investigator who inspected the scene.

Some cases don't merit severe sanctions, and an appropriate sanction can be hard to find. In the abstract, it is difficult to see why preclusion of the testimony alone was not sufficient -- all experts would then be left with the photographic evidence and the remains to deal with. The fact of the home repair, and destruction of the scene, would always be admissible. But an adverse inference instruction seems harsh on these facts, although State Farm's acquiescence suggests that there may be more involved than appears in the opinion (was an adequate video record of the scene made? Could any video be accurate?). Insurance companies don't need legal disincentives to pay claims.

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