Indiana Recognizes a New Cause of Action: Spoliation of Evidence

IN OUR JUDGMENT
By Ted Smith and Terri Todd

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.

SHELBY COUNTY CIRCUIT COURT
STATE OF INDIANA

Nicole Thompson, a Minor,
and Brian Thompson, Individually and as Parent
and Natural Guardian of Nicole Thompson, a Minor, Plaintiffs
vs.
Jeffrey Owensby, Henry Whitis,
Orrville Leather, Inc. and Indiana Insurance Company, Defendants.

PLAINTIFF’S AMENDED COMPLAINT
FOR DAMAGES

COUNT III – FAILURE TO SAFEGUARD EVIDENCE

Come now the plaintiffs, by counsel, and for Count III of their Complaint For Damages against the Defendant, Indiana Insurance Company, assert that:

1. The Plaintiffs hereby incorporateby reference paragraphs 1-16 of Count I of their Complaint For Damages and paragraphs 1-9 of Count II of their Complaint For Damages as is set forth herein.

2. At all times mentioned herein, the Defendant, Indiana Insurance Company, is and was engaged in the business of selling insurance including homeowners insurance.

3. All times mentioned herein, theDefendant, Indiana Insurance Company, had in full force and effect a homeowners policy insuring the defendant, Henry Whitis.

4. After the Plaintiffs made a claimagainst the defendants, Henry Whitis and Jeff Owensby, the Defendant, Indiana Insurance Company, investigated the claim of the plaintiffs on behalf of the defendant, Henry Alva Whitis.

5. During the Defendant, Indiana Insurance Company’s, investigation, it obtained the cable which allegedly secured the dog and broke just before attacking the plaintiff, Nicole Thompson.

6. The Defendant, Indiana Insurance Company, assumed a duty to safeguard the cable.

7. The Defendant, Indiana Insurance Company, knew that the cable was important evidence in this case for the Plaintiffs’ claims against the Defendants.

8. The Defendant, Indiana Insurance Company, now contends that it has lost the cable.

9. The loss of the cable is due to the negligence of the Defendant, Indiana Insurance Company.

10. As a result of the loss of the cable, the Plaintiff was not able to have the cable inspected by an expert in order to verify the assertion of the Defendant, Jeff Owensby, that the cable was defectively designed or manufactured.

11. The Defendant, Indiana InsuranceCompany’s, loss of the cable has irrevocably prejudiced and adversely affected the plaintiffs’ claims against the defendants, Jeff Owensby, Henry Whitis, and Orrville Leather Company, Inc.

WHEREFORE, in the event that the Plaintiffs are unsuccessful in their claims against the Defendants, Jeff Owensby, Henry Whitis and Orrville Leather Company, Inc., for the reason that the cable was lost, the Plaintiffs pray for judgment against the Defendant, Indiana Insurance Company, in an amount commensurate with their injuries and damages, for costs of this action, trial by jury, and for all other relief right and proper in the premises.

SMITH TODD & FARRELL, P.C.

________________________
Ted Smith

Interrogatories such as the following may be tendered to an adverse party who has lost evidence.

SHELBY COUNTY CIRCUIT COURT
STATE OF INDIANA

Nicole Thompson, a Minor, and Brian Thompson,
Individually and as Parent and
Natural Guardian of Nicole Thompson, a Minor, Plaintiffs
vs.
Jeffrey Owensby, Henry Whitis, Orrville
Leather, Inc. and Indiana Insurance Company, Defendants.

PLAINTIFFS’ INTERROGATORIES TO DEFENDANT, INDIANA INSURANCE

Come now the Plaintiffs, by counsel, and pursuant to Trial Rule 33 of the Indiana Rules of Trial procedure, tender the following Interrogatories to the Defendant, Indiana Insurance, to be answered under oath, fully and without evasion, within the next thirty (30) days.

DEFINITIONS

“Cable” shall mean the cable that was once in the possession of Indiana Insurance relative to Nicole Thompson’s claim for injuries that she sustained when she was attacked by the dog “Bear” on May 4, 1991.

The “packaging” shall mean the packaging for the dog cable that was once in the possession of Indiana Insurance relative to Nicole Thompson’s claim for injuries that she sustained when she was attacked by the dog “Bear” on May 4, 1991.

“The incident” shall mean the incident in which the dog “Bear” attacked Nicole Thompson, as alleged in the Plaintiffs’ Amended Complaint.

INTERROGATORY NO. 1: At any time between February 1, 1993 and March 1, 1994, did Indiana Insurance have any written or unwritten company policies, rules, regulations, manuals, memos, handbooks or procedures (either on a local, individual office, statewide, regional or national level) pertaining to the preservation of evidence on claims? If so, state:

a. The name or title of all such written policies, rules, regulations, manuals, memos, handbooks or procedures;

b. The identity of the individual or entity who authored or generated those policies, rules, regulations, manuals, memos, handbooks or procedures;

c. Whether those policies, rules, regulations, manuals, memos, handbooks or procedures applied on a local, individual office, statewide, regional or national level;

d. A statement of the content of all such policies, rules, regulations, manuals, memos, handbooks or procedures;

e. A statement of the purpose for those policies, rules, regulations, manuals, memos, handbooks or procedures.

INTERROGATORY NO. 2: Identify by title, name and date all records, notes, memos or other documents that Indiana Insurance possesses relative to the cable and the packaging. In addition, state the content of each such record, note, memo or other document.

INTERROGATORY NO. 3: State exactly when and from whom Indiana Insurance obtained possession of the cable and the packaging.

INTERROGATORY NO. 4: State what Indiana Insurance was told about the cable and the packaging when it took possession and control of them and identify the individual(s) who made those statements as well as the individual(s) to whom the statements were made.

INTERROGATORY NO. 5: State why Indiana Insurance took possession of the cable and the packaging.

INTERROGATORY NO. 6: Identify all individuals who saw, handled, examined or moved the cable while it was in the possession of Indiana Insurance and with regard to each individual, state:

a. Each date on which each individual saw, handled, examined or moved the cable;

b. What each individual did with the cable on each date that he/she saw, handled, examined or moved it and why;

c. Where the cable was (its exact location) on each date that each individual saw, handled, examined or moved it.

INTERROGATORY NO. 7: Identify the individual or individuals who were responsible for the cable while it was in the possession of Indiana Insurance; describe what each individual’s responsibilities were; and, state the inclusive dates during which each individual was responsible for the cable.

INTERROGATORY NO. 8: State when, where and by whom the cable was last seen. Also state what the individual who last saw the cable was doing with it when it was last seen.

INTERROGATORY NO. 9: State when and under what circumstances Indiana Insurance realized that the cable was no longer in its possession, custody and control. Also identify the Indiana Insurance representative who first realized that the cable was no longer in the possession, custody and control of Indiana Insurance.

INTERROGATORY NO. 10: Describe all of the facts and circumstances surrounding the loss of the cable.

INTERROGATORY NO. 11: Once Indiana Insurance realized that the cable had been misplaced or lost was anything done to try to locate the cable? If not, explain why not. If so, give a detailed description of everything that was done to try to locate the cable; the identity of all individuals involved in the attempt to locate the cable; what each individual did to try to locate the cable and when they did it; a description of the areas that were searched; and, the results of what each individual did in an attempt to locate the cable.

INTERROGATORY NO. 12: Between February 1, 1992 and March 1, 1993, did Indiana Insurance have any written or unwritten company policies, rules, regulations, manuals, memos, handbooks or procedures (either on a local, individual office, statewide, regional or national level) relative to document and/or evidence destruction or retention? If so, state:

a. The name or title of all such written policies, rules, regulations, manuals, memos, handbooks or procedures;

b. The identity of the individual or entity who authored or generated those policies, rules, regulations, manuals, memos, handbooks or procedures;

c. Whether those policies, rules, regulations, manuals, memos, handbooks or procedures applied on a local, individual office, statewide, regional or national level;

d. A statement of the content of all such policies, rules, regulations, manuals, memos, handbooks or procedures;

e. A statement of the purpose for those policies, rules, regulations, manuals, memos, handbooks or procedures.

SMITH TODD & FARRELL, P.C.

_______________________
Ted Smith
Attorney for Plaintiffs

The following may be used as a guide for fashioning Requests For Admissions to tender to a party who has lost evidence.

SHELBY COUNTY CIRCUIT COURT
STATE OF INDIANA

Nicole Thompson, a Minor, and Brian Thompson,
Individually and as Parent and
Natural Guardian of Nicole Thompson, a Minor, Plaintiffs
vs.
Jeffrey Owensby, Henry Whitis,
Orrville Leather, Inc. and Indiana Insurance Company, Defendants.

REQUESTS FOR ADMISSIONS AND INTERROGATORY TO INDIANA INSURANCE

Come now the Plaintiffs, by counsel, and pursuant to Trial Rule 36 of the Indiana Rules of Trial Procedure, tender the following Requests for Admissions and Interrogatory to the Defendant, Indiana Insurance, to be answered under oath, fully and without evasion within thirty (30) days.

DEFINITIONS

“Cable” shall mean the cable that was once in the possession of Indiana Insurance relative to Nicole Thompson’s claim for injuries that she sustained when she was attacked by the dog “Bear” on May 4, 1991.

The “packaging” shall mean the packaging for the dog cable that was once in the possession of Indiana Insurance relative to Nicole Thompson’s claim for injuries that she sustained when she was attacked by the dog “Bear” on May 4, 1991.

“The incident” shall mean the incident in which the dog “Bear” attacked Nicole Thompson, as alleged in the Plaintiffs’ Amended Complaint.

REQUEST NO. 1: Indiana Insurance at one time, was in possession and control of the cable that was being used to try to restrain the dog “Bear” at the time of the incident.

REQUEST NO. 2: The photographs attached hereto as Exhibits “A”, “B”, “C”, “D”, “E”, “F”, “G”, “H”, “I” and “J” are true and accurate representations of the cable that Indiana Insurance once had in its possession and control.

REQUEST NO. 3: The photocopy attached hereto as Exhibit “K ” is a true and accurate representation of the packaging for the dog cable that was on “Bear” at the time of the incident.

REQUEST NO. 4: The photocopy attached hereto as Exhibit “K ” is a true and accurate representation of the packaging for the dog cable that Indiana Insurance once had in its possession.

REQUEST NO. 5: Indiana Insurance opened its file relative to Nicole Thompson’s claim arising out of the incident on February 10, 1992.

REQUEST NO. 6: Indiana Insurance came into possession and control of the cable some time between February 10, 1992 and August 20, 1992.

REQUEST NO. 7: Indiana Insurance came into possession and control of the packaging some time between February 10, 1992 and August 20, 1992.

REQUEST NO. 8: Indiana Insurance had exclusive possession and control of the cable from the time it obtained possession of it until March of 1993.

REQUEST NO. 9: After Indiana Insurance came into possession of the cable, Indiana Insurance never relinquished or gave up possession or control of the cable to any other individual or entity.

REQUEST NO. 10: From the time Indiana Insurance came into possession of the cable until the time it was lost or disappeared, no individual or entity other than Indiana Insurance had possession or control of the cable.

REQUEST NO. 11: Indiana Insurance lost the cable while the cable was in its exclusive possession and control.

REQUEST NO. 12: The cable disappeared while it was in the exclusive possession and control of Indiana Insurance.

REQUEST NO. 13: Indiana Insurance did not intend to dispose of or destroy the cable.

REQUEST NO. 14: Indiana Insurance intended to keep the cable for use in this lawsuit.

REQUEST NO. 15: During the time that Indiana Insurance had possession and control of the cable, it knew that it was an important piece of evidence in this litigation.

REQUEST NO. 16: It was the intention of Indiana Insurance to preserve and maintain possession of the cable.

REQUEST NO. 17: It was the intention of Indiana Insurance to preserve and maintain possession of the cable because it knew that the cable was an important piece of evidence in this case.

REQUEST NO. 18: During the time that Indiana Insurance had possession and control of the cable, it knew that the cable was alleged to have broken and therefore allowed the dog “Bear” to escape from his yard and attack Nicole Thompson.

REQUEST NO. 19: Henry and Alva Whitis carried a homeowners’ liability insurance policy with Indiana Insurance which was in full force and effect on the day of the incident.

REQUEST NO. 20: Indiana Insurance accepted possession of the cable from Jeff Owensby.

REQUEST NO. 21: When Indiana Insurance came into possession and control of the cable it did so in its capacity as the homeowners’ liability insurance carrier for Henry and Alva Whitis.

REQUEST NO. 22: At the time that Indiana Insurance came into possession and control of the cable and at all times during which it had possession and control of the cable, it was an agent of its insureds, Henry and Alva Whitis.

REQUEST NO. 23: Indiana Insurance accepted and maintained possession of the cable as part of its investigation into Nicole Thompson’s claim arising out of the incident.

REQUEST NO. 24: Indiana Insurance conducted an investigation into Nicole Thompson’s claim arising out of the incident as the agent for its insureds, Henry and Alva Whitis.

REQUEST NO. 25: Indiana Insurance voluntarily accepted possession and control of the cable.

REQUEST NO. 26: Indiana Insurance could have refused to take possession and control of the cable.

REQUEST NO. 27: When Indiana insurance came into possession and control of the cable it did so knowing that Nicole Thompson was making a claim for injuries sustained in the incident.

REQUEST NO. 28: During the time that Indiana Insurance was in possession and control of the cable it knew that the cable was potentially useful evidence to Nicole Thompson in her claim for the injuries that she sustained in the incident.

REQUEST NO. 29: During the time that Indiana Insurance was in possession and control of the cable, it knew that there was a substantial likelihood that the cable had probative value in Nicole Thompson’s claim for the injuries that she sustained in the incident.

REQUEST NO. 30: Before the cable was lost, Nicole Thompson’s attorney had requested the opportunity to examine it.

REQUEST NO. 31: Nicole Thompson’s attorney did not examine the cable while it was in the possession and control of Indiana Insurance.

REQUEST NO. 32: While the cable was in its possession and control, Indiana Insurance had advised Nicole Thompson’s attorney that it would maintain the cable in its possession and control.

REQUEST NO. 33: While it was in possession and control of the cable, Indiana Insurance knew that Nicole Thompson and her attorneys would not want the cable to be lost, damaged or destroyed.

REQUEST NO. 34: While it was in possession and control of the cable, Indiana Insurance knew that Nicole Thompson and her attorneys were relying on it to maintain possession of the cable and not to allow it to be lost, damaged or destroyed.

REQUEST NO. 35: Indiana Insurance maintained possession and control of the cable because it was a piece of evidence relative to an active claims file.

REQUEST NO. 36: Indiana Insurance maintained possession and control of the cable because it was a piece of evidence in a claim in which its insureds, Henry and Alva Whitis were involved.

REQUEST NO. 37: During the time that Indiana Insurance was in possession and control of the cable, Henry and Alva Whitis were named Defendants in this lawsuit.

REQUEST NO. 38: When Indiana Insurance accepted possession and control of the cable, it assumed a duty to exercise reasonable care in maintaining and preserving the evidence.

REQUEST NO. 39: When Indiana Insurance accepted possession and control of the cable, it assumed a duty to Nicole Thompson to exercise reasonable care in maintaining and preserving the evidence.

REQUEST NO. 40: While Indiana Insurance was in possession of the cable, it was kept in a brown paper bag in a storage closet at the Indiana Insurance office located at 5245 Victory Drive, in Indianapolis, Indiana.

REQUEST NO. 41: The closet in which Indiana Insurance kept the cable was not kept locked.

REQUEST NO. 42: During the time that Indiana Insurance was in possession and control of the cable, there were areas in its office where the cable could have been stored that could have been kept locked.

REQUEST NO. 43: During the time that it had possession and control of the cable, Indiana Insurance did not have any company or office policy, rules, regulations or procedures relative to maintaining or safekeeping items of tangible evidence.

REQUEST NO. 44: During the time that Indiana Insurance was in possession of the cable, other than putting the cable in a closet, it took no steps to see that it was not damaged, lost or destroyed.

REQUEST NO. 45: Indiana Insurance intentionally lost the cable.

REQUEST NO. 46: Indiana Insurance intentionally disposed of or destroyed the cable.

REQUEST NO. 47: Indiana Insurance failed to exercise reasonable care in maintaining and keeping the cable while the cable was in its possession and control.

REQUEST NO. 48: Indiana Insurance was careless and negligent in maintaining the cable while it was in its possession and control.

REQUEST NO. 49: Indiana Insurance lost the cable when it moved its office in March of 1993.

REQUEST NO. 50: The cable disappeared when Indiana Insurance moved its office in March of 1993.

REQUEST NO. 51: During the time that Indiana Insurance had possession and control of the cable, it did not have any tests, inspections, evaluations or examinations done on the cable.

REQUEST NO. 52: During the time that Indiana Insurance was in possession and control of the cable, it did not do anything to determine or confirm the identity of the manufacturer of the cable.

REQUEST NO. 53: During the time that Indiana Insurance was in possession and control of the cable, it did not do anything to determine or confirm the identity of the manufacturer of the cable other than note the name of the manufacturer indicated on the packaging.

REQUEST NO. 54: The photographs attached hereto as Exhibits “A”, “B”, “C”, “D”, “E”, “F”, “G”, “H”, “I” and “J” do not allow a complete examination, analysis or tests to be performed to determine whether the cable was defective.

REQUEST NO. 55: If the cable could be found, the manufacturer of the cable could be determined.

REQUEST NO. 56: If the cable could be found, it could be examined, analyzed and/or tested to determine if it broke or failed at the time of the incident.

REQUEST NO. 57: If the cable could be found, it could be examined, analyzed and/or tested to determine if it was defective at the time of the incident.

REQUEST NO. 58: Indiana Insurance maintained exclusive possession and control of the packaging from the time it gained possession of it until it turned the packaging over to its attorney, William Kelley, during February or March of 1994 so that it could be filed with the Court for safekeeping.

INTERROGATORY: Contemporaneously herewith, you have been served with 58 Requests For Admissions pursuant to Trial Rule 36. For each request that you deny, please:

a. State with specificity and in detail how the fact or facts which the Plaintiff has requested you admit are not true; and, state what you contend the true facts are.

b. Identify each and every witness who you contend can or will so-testify.

c. Describe each and every document which you contend tends to refute the fact or facts which you have been requested to admit.

d. If you give lack of information or knowledge as a reason for failing to admit or deny a request, then describe all efforts made by you and/or your attorney to obtain the necessary information to permit you to admit or deny the request, and which you contend constitutes “reasonable inquiry” within the meaning of Trial Rule 36.

SMITH TODD & FARRELL, P.C.

________________________
Teresa L. Todd
Attorney for Plaintiffs

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Footnotes

1. The Court of Appeals also noted that the parties limited their arguments in this case to one aspect of this question: “whether the Insurance Company had an actionable duty to maintain the evidence”. 704 N.E.2d 134, at 136.

2. 704 N.E.2d 134, at 137.

3. 704 N.E.2d 134, at 137.

4. 704 N.E.2d 134, at 137.

5. 704 N.E.2d 134, at 138.

6. 704 N.E.2d 134, at 139.

7. 704 N.E.2d 134, at 140.