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Indiana Supreme Court refuses to recognize third-party claim for spoliation

4/8/24

By: Donald Patrick Eckler and Joshua W. Zhao

In Safeco Insurance Company of Indiana ex rel Smith v. Blue Sky Innovation Group, Inc., et al., No. 23S-CT-272, the Indiana Supreme Court rejected the request to create a third-party spoliation claim at common law.

Romana Smith owned a home that was insured by Safeco. In 2019, a fire caused over $500,000 in damage to the home and Safeco covered the loss. Safeco hired Michaelis Corporation to restore the property. Safeco’s investigation determined that the fire originated from a kitchen counter dehydrator. Safeco instructed Michaelis to preserve the kitchen, intending to file an action to recoup Smith’s losses by arguing that the defective dehydrator caused the fire. Michaelis sealed off the kitchen, but eventually demolished the kitchen and discarded the defective dehydrator.  

Safeco sued Michaelis alleging negligence and spoliation as discarding the dehydrator and demolishing the kitchen impeded Safeco’s ability to file a claim based on the defective dehydrator. Michaelis moved to dismiss under Indiana Trial Rule 12(B), arguing that third-party spoliation claims are recognized only under narrow circumstances, none of which are applicable here. Michaelis further argued that the economic loss doctrine barred Safeco’s negligence claim. The trial court ruled that both the negligence claim and spoliation claim constituted third-party spoliation claims which have only been narrowly recognized under Indiana law. Michaelis’ motion was granted and Safeco’s claims were dismissed. Safeco appealed and the Indiana Court of Appeals reversed the trial court, finding that Safeco had sufficiently pled third-party spoliation and negligence claims. Michaelis successfully petitioned for transfer to the Indiana Supreme Court. 

The Indiana Supreme Court reversed the Indiana Court of Appeals, holding that the trial court properly dismissed Safeco’s complaint. The Indiana Supreme Court considered three factors from its decision in Webb v. Jarvis, 575 N.E.2d 992 (Ind. 1991) when addressing the spoliation claim: (1) the relationship between the parties, (2) the reasonable foreseeability of harm to the person injured, and (3) public policy concerns. The Indiana Supreme Court considered Thompson ex rel Thompson v. Owensby, 704 N.E.2d 134 (Ind. Ct. App. 1998) where the Indiana Court of Appeals imposed a duty to preserve evidence upon an insurance company, as insurers are familiar with litigation and would know the importance of preserving certain evidence. 

Safeco argued that a special relationship existed between Safeco and Michaelis because Michaelis knew there was a need to preserve the dehydrator because Safeco had orally communicated such a need and Michaelis had constructed a structure protecting the kitchen. The Indiana Supreme Court disagreed, finding that Safeco conceded there was no written or oral contract that created such a relationship and Safeco did not communicate that the dehydrator was to be preserved for potential litigation.  

The Indiana Supreme Court also held that Michaelis is not an insurance company, is not regularly involved in litigation, does not have the same duty to preserve evidence as an insurance company, and the harm was not foreseeable. Even if Michaelis knew of the dehydrator’s relevance to future litigation, that is insufficient to establish a duty to maintain evidence. The Indiana Supreme Court held that a contrary holding would expand third-party spoliation claims beyond its narrow circumstances. 

The Indiana Supreme Court held that public policy weighs against third-party spoliation as third-party spoliation claims could force parties to preserve evidence for an unknown period of time in anticipation of potential litigation, run the risk of duplicative litigation, and raise concerns of jury confusion and inconsistent results. The Indiana Supreme Court noted that Michaelis did not have a stake in the result of the litigation and that requiring a third party to maintain potential evidence for potential litigation for an unknown amount of time is unreasonable. The Indiana Supreme Court agreed with the trial court that Safeco’s negligence claim constituted a third party spoliation claim that was properly dismissed. 

The dissent argued that the duty to preserve evidence should be extended to fire-remediation firms like Michaelis because remediation companies are in the business of preserving scenes after accidents and fires. As a result, Michaelis should be familiar with evidence preservation practices. Moreover, Safeco hired Michaelis with the intention of preserving the kitchen.

For more information, contact Patrick Eckler at patrick.eckler@fmglaw.com or Josh Zhao at josh.zhao@fmglaw.com.