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Spoilation and other Subrogation Issues

In our continuing effort to keep you fully advised as to subrogation issues, following is an update about recent cases and their effect on subrogation.

Spoilation


A recent case, Swick v. The New York Times, 357 N.J. Super 371, 815 A.2d. 508 (App.Div.) February 7, 2003, addressed the issue of spoilation. In Swick, a plaintiff severely injured his arm when attempting to inspect and repair a conveyor system in the course of employment at The New York Times. The plaintiff was aware that six months after his injury, The Times began to dismantle the conveyor. His attorney wrote The Times requesting that the plaintiff be afforded the opportunity to inspect the equipment. No reply was received. Plaintiff’s attorney wrote again three months later and again did not receive a response. Two months later, plaintiff’s attorney spoke with The Times’ legal department and sent another letter, this time by certified mail, requesting the conveyor be preserved for inspection. Two months later, plaintiff’s counsel filed an application for pre-lawsuit discovery, and received a response from The New York Times advising that the subject conveyor had been sold. The Times was then sued for spoilation. Prior to trial, all other defendants had been dismissed except for The Times. The trial court eventually dismissed plaintiff’s Complaint against The Times, concluding that the plaintiff could not establish a prima facie case of spoilation.

The Appellate Division affirmed and noted New Jersey does not recognize a separate tort action for intentional spoilation of evidence. New Jersey relies upon various civil remedies when spoilation has occurred. One remedy is an adverse inference charge, another is a discovery sanction, such as precluding the spoilator from using the designated matters in evidence. Another remedy is a separate tort action against the spoilator for intentional or negligent spoilation under traditional negligence principles or an action for fraudulent concealment. The elements of fraudulent concealment are as follows:

  1. The defendant had a legal obligation to disclose evidence.

  2. The evidence was material to the litigation.

  3. The plaintiff could not reasonably have obtained access to the evidence from another source.

  4. The defendant intentionally withheld, altered or destroyed the evidence with the purpose to disrupt the litigation.

  5. The plaintiff was damaged as a result.

Applying these principles, the Complaint was dismissed against The Times because the manufacturer of the conveyor was bankrupt and therefore, no damage could be proven.

How Does This Affect Your Cases? 


Your field adjusters and experts must be extremely careful when approaching a fire or water loss. Everything must be carefully documented, photographed and videotaped. There have been cases (although not yet in New Jersey) where an adverse inference has been permitted if a fire scene has been destroyed before the alleged tortfeasor has had a chance to inspect. In two Third Circuit cases (New Jersey is in the Third Circuit), Howell v. Maytag, 168 F.R.D. 502 (M.D.P.A. 1996) and Baliotias v. McNeil, 870 F.Supp. 1285 (M.D.P.A. 1994), the Federal District Court held an adverse “spoilation inference” jury instruction was sufficient and appropriate to compensate for the destruction of evidence. Both of these cases involved allegedly defective microwave ovens. At the fire scene, all relative evidence was retained such as the microwave, related electrical wiring, etc. In one of these cases, a videotape was also prepared. In both cases, the homes were demolished prior to these defendants having an opportunity to examine the scene.

If your on-the-scene adjuster believes that subrogation is a strong possibility, notice must be given as soon as possible to the tortfeasor advising them of the situation. If a case warrants, it may be necessary to delay repairs for a few weeks to permit this to happen. If notice is given by certified mail and the tortfeasor chooses not to appear, the scene should be videotaped prior to renovations. It is strongly advised to require your adjusters to videotape the loss scene. Videotape is inexpensive and not time consuming. Failure to do so could be fatal. These short and simple steps are imperative so as not to preclude an otherwise very recoverable claim.

Waiver of Subrogation 


In School Alliance Insurance Fund v. Fama Construction Company, 353 N.J. Super. 1, 801 A.2d. 334 (App.Div. 2002), a “waiver of subrogation” clause in a contract between a school board and a construction company was upheld as a bar to the school board’s subrogating insurance carrier. While the Appellate Division agreed in substantial measure with the trial court’s opinion on the subject, the dicta in the opinion included negative comments about applying subrogation when business parties to a contract have incorporated a waiver of subrogation to assist in the allocation of risk entirely to one party.

We mention this case because the time may be ripe, under appropriate circumstance, and in a large enough case, to attempt to strike down one of these clauses. Unlike other states, New Jersey courts have not yet fully explored various arguments that have been successful in other jurisdictions avoiding these provisions:

  1. Unenforceability of exculpatory clauses for violations of inactive safety standards;

  2. Inapplicability when gross negligence has occurred; and

  3. Unenforceability outside the commercial setting for inconspicuous contracts of adhesion.

The strong negative words in the School Alliance case will not aid in the success of these arguments down the road. An example of this harsh wording is:

“Although the right of an insurance company to enforce subrogation rights in appropriate cases has long been well settled, it is also clear that subrogation is not applicable when its enforcement would be inconsistent with the terms of a contract, or with a contract, either expressly or by implication, forbids its application.”

Id. 353 N.J. Super. at 140.