Duty to Allow Insurer to Inspect Equipment Giving Rise to Claim ≠ Contractual Duty to Preserve Equipment as a Condition of Making Claim — Repair Shop’s Disposal of Broken Part Before Anyone’s Awareness of Claim ≠ Spoliation

From Green Meadow Bean Co. v. Nationwide Agribusiness Ins. Co., 2010 U.S. Dist. LEXIS 34838 (D. Minn. April 8, 2010):

*** Nationwide argues Green Meadow failed to comply with the policy conditions by failing to keep the broken contactor. The policy provides, in relevant part, that "[a]s often as we [Nationwide] reasonably require," the insured will "[p]ermit us to inspect the property. Also, permit us to take samples of damaged property for inspection, testing and analysis." *** The question before the Court is whether, by failing to preserve the broken contactor for inspection, Green Meadow failed to "permit" Nationwide to "inspect the property" or "take samples of damaged property" for inspection and analysis. The Court concludes, on the facts of this case, that Green Meadow has complied with its policy obligations.

[Footnote 11] During the trial, in response to a question by the Court, Mr. Mattson, Hartford Steam's investigator, stated he believed Green Meadow's claim was lost when he learned the contactor was no longer available. Counsel for Nationwide essentially said the same in his closing argument. This argument proves too much. If this were the rule, the insurance policy would need another provision: it would have to require that whether or not any claim might ever be made, the policyholder must never dispose of any defective piece of equipment, lest it categorically deprive him or her of any chance of recovery at a later date.

Bearing in mind the interpretation principles stated above, the Court finds the policy's "permit" and "property" terms are ambiguous. "Permit" is not defined; "Property" is broadly defined and could mean either the fan [the defective equipment], the beans [the lost agricultural commodity], or both. *** The evidence is clear: the E-5 silo's fan failed prior to the discovery of the spoilage. Mrs. Chisholm took the fan in for repair before anyone was aware of any loss, let alone an insurance claim. By the time Nationwide asked Green Meadow to obtain or preserve the fan's broken parts, it was too late.

Nationwide's reading of the word "permit" would categorically defeat Green Meadow's reasonable expectations, and must be rejected. The Court finds, as a matter of fact and law, that Green Meadow has complied with its duties in the event of loss. If Nationwide intended "permit" to require the insured to preserve evidence in advance of any claim, this requirement is not stated in the policy. Similarly, if failure to preserve broken equipment parts meant any consequent coverage would be automatically denied, Nationwide could have drafted the policy to say as much. It did not do so.

Nationwide claims it must determine exactly why the contactor [the equipment] failed. The Court does not deny the importance of this information, but the contactor is gone. Nationwide contends its absence amounts to spoliation, which — alone — should void the policy. The Court does not agree. The fan was brought to the repairman in ordinary course. The evidence is uncontested: the first time an odor was detected near the beans was on May 18, after the fan was removed and taken for repair. While this case may have been easier — and might even have been avoided — had the contactor been preserved, there is not the slightest indication that anyone thought it necessary to do so at the time. Instead, it was taken to the repairman who testified he handled it as is his custom: he threw the broken part away unless otherwise instructed. The Court rejects Nationwide's suggestion of spoliation.

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