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Nov 15, 2013 | Lauren Tow

Insurers May Be Subject to Spoilation Sanctions Base on Pre-LItigation Actions

By: Lauren Tow

     Under a recent ruling by the Southern District of Texas, insurers have an obligation to maintain samples of evidence obtained during a pre-lawsuit investigation or face sanctions for spoliation of evidence.


     Spoliation is the “destruction or material alteration of evidence or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation.”  BLACK'S LAW DICTIONARY 1531 (9th ed.2009). In Trevino v. Ortega, 969 S.W.2d 950, 954–955 (Tex.1998), the Texas Supreme Court formulated a test to determine whether spoliation has occurred.   The court must consider “(1) whether there was a duty to preserve evidence; (2) whether the alleged spoliator breached the duty; and (3) whether the spoliation prejudiced the nonspoliator's ability to present its case or defense .” Id.


     In Allstate Texas Lloyd's v. McKinney, 4:12-CV-02005, 2013 WL 3873256 (S.D. Tex. July 24, 2013), the McKinney’s home was destroyed by a fire while they were out of town.  The Houston Fire Marshall investigated the fire and determined it was an accident due to electrical issues.  Allstate conducted its own investigations where it took three samples from the fire.  Those samples were tested and one of the three came back positive for medium petroleum distillate.  Based on the results of its independent investigation, Allstate denied the claim under the allegation of arson. 

     During the deposition of Allstate’s fire investigator he produced an email from adjusters at Allstate instructing him to destroy the samples.   Allstate denied having the email.  The McKinneys filed a motion requesting sanctions, arguing that Allstate had acted in bad faith and that they had been prejudiced. 

     Applying the test established in Trevino v. Ortega, the court in Allstate Texas Lloyd's v. McKinney found that Allstate had a duty to preserve the evidence collected prior to the start of litigation.  The court found that Allstate acted in bad faith and this type of destruction of evidence prejudiced the McKinneys, because they could no longer test the sample that allegedly came back positive for petroleum distillate.  The court sanctioned Allstate by striking all evidence and expert testimony regarding the tested samples.

     The holding in Allstate Texas Lloyd's v. McKinney should emphasize the importance to insurers of the obligation to not only maintain evidence during a lawsuit, but to avoid any intentional or accidental destruction of evidence if a lawsuit is foreseeable.