December 14, 2019

Risk Managers: Don’t Let Evidence Spoliation Issues Become COVERAGE Issues!

All companies that might face litigation should have sound policies to preserve evidence and avoid spoliation claims. Often, this concern arises in the context of defending product liability claims but it applies as well to other types of claims, many of which qualify for insurance coverage. Assertions that a product manufacturer has lost or destroyed a key piece of evidence can cripple an otherwise sound product liability defense.

Claim Denied

There is another reason, though, to adopt sound evidence preservation policies. For an insured, spoliation has ramifications that go beyond liability. It may impact COVERAGE on a claim.

How?

First, an insurer may say that its ability to defend has been prejudiced. by an insured’s negligent or intentional spoliation of evidence. The carrier might cite the policy’s Cooperation clause.

Or, the adjuster might say that the act of spoliation is a separate occurrence, which it doesn’t insure. The insurer may issue a reservation of rights letter or seek to deny coverage, leaving the manufacturer with potentially uninsured liabilities to threaten its balance sheet.

I’m not necessarily saying these arguments have “legs” or will prevail, but … Why risk it? Why chance it?

Insurers may not be able to rely on policyholders to be schooled or steeped in the nuances of evidence preservation. As a result, claims personnel should clearly instruct insureds on the importance of it and document such communication in the file. In cases of physical evidence, the insurer or TPA should consider thwarting Murphy’s Law by taking the evidence out of the insured’s hands and relocating it to an ultra-secure location.

Take-away: sound evidence preservation procedures not only boost product liability defense, they also avoid needless and distracting coverage wrangles!

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