Coverage for Spoliation Claims

“Insufficient evidence,” Justice Benjamin N. Cardozo famously noted, “is, in the eye of the law, no evidence.” People v. Galbo, 112 N.E. 1041 (N.Y. 1916). Indeed, given that evidence is the very foundation upon which all cases are built, the preservation of evidence, or anything that may potentially become evidence, is of the highest concern in any current or prospective case. To that end, numerous remedies exist to cure or punish ' depending on your point of view ' the loss, alteration, or destruction of evidence, i.e., spoliation of evidence. For example, by far the most common and well-known of these remedies is the spoliation inference; a civil remedy that allows the fact-finder “to presume that the evidence the spoliator destroyed or otherwise concealed would have been unfavorable to him or her.” Rosenblitt v. Zimmerman, 766 A.2d 749 (N.J. 2001); see also Fed. R. Civ. P. 37(b)(2)(A)(i). In fact, the very term “spoliation” is derived from the legal maxim describing the spoliation inference, “omnia praesumuntur contra spoliatorem,” or “all presumptions are against one who wrongfully dispossesses another (a despoiler).” Black's Law Dictionary 1671 (7th Ed. 1999).

Other remedies have also developed over the years. For example, a court may impose sanctions on a party for failure to make disclosures in discovery ' including, in some rare cases, the entry of a default judgment in favor of the non-spoliating party. See, e.g., Keene v. Brigham and Women's Hosp., Inc., 786 N.E.2d 824 (Mass. 2003). In addition, counsel inculpated in spoliation may face ethical or malpractice allegations. See Model Rules of Professional Conduct 3.4 (2009). Moreover, a great many states have gone so far as to make spoliation of evidence a criminal offense, although such laws are rarely enforced. See, e.g., West's Ann. Cal. Penal Code ' 135 (1999) (California: misdemeanor); 720 ILCS 5/31-4 (1998) (Illinois: class 4 felony); McKinney's Penal Law ' 215.40 (1998) (New York: class E felony).

But the most controversial and far-reaching remedy for spoliation has been its recognition as an independent tort claim for either intentional or negligent destruction of evidence. Both remedies originated in California in the mid-1980s. See Smith v. Superior Court, 198 Cal.Rptr. 829 (Cal. Ct. App. 1984) (intentional spoliation); Velasco v. Commercial Bldg. Maintenance Co., 215 Cal.Rptr. 504 (Cal. Ct. App. 1985) (negligent spoliation). In the years since, numerous states (and the District of Columbia) have addressed the issue of whether to adopt an independent tort for the spoliation of evidence, with decisions ranging across the spectrum. Nearly a dozen states, including the District of Columbia, explicitly recognize an independent tort for spoliation in some form. Many states have chosen not to do so, reasoning that, among other things, such a tort would be superfluous given the evidential remedies for spoliation ' such as the spoliation inference ' already available to parties in litigation. Still other states, such as Illinois, do not recognize spoliation as an independent tort, but instead permit a cause of action for spoliation under traditional negligence principles. In fact, demonstrating the lack of cohesiveness on the issue, California overruled its earlier decisions and no longer recognizes either intentional or negligent spoliation of evidence as a separate cause of action. See Temple Community Hosp. v. Superior Court, 976 P.2d 223 (Cal. 1999).

The question for insurance coverage purposes, of course, is whether and to what extent an action for spoliation of evidence is covered under a CGL policy. Although at least one early case addressing this issue found that coverage exists, the vast majority of courts have held that it does not. Rather, while case law addressing this question is still relatively limited, several recent decisions have held that spoliation claims do not constitute “property damage” under a CGL policy ' that is, they are not “physical damage to tangible property.” Nor have these courts (on the rare occasion it is argued) found that spoliation claims qualify as bodily injury. Instead, these courts have held that spoliation claims amount to diminished causes of action or legal claims and are, instead, intangible property that is not afforded coverage.

The Norris Case

An early case addressing the issue of insurance coverage under a CGL policy for a spoliation claim is Norris v. Colony Ins., 760 So.2d 1010 (Fla. Dist. Ct. App. 2000). In that case, the plaintiff, Norris, was beaten and robbed by an unknown assailant at a gas station. She brought suit against the gas station, alleging negligent maintenance of the premises and negligent spoliation of evidence ' specifically, a security videotape that may have recorded the incident and identified the assailant. The gas station tendered its defense to its CGL insurer, Colony, who refused to do so because damages arising from assault and battery were excluded from the policy. Norris later settled with the gas station, which assigned its rights against Colony to Norris. Norris then sought damages from Colony for wrongful refusal to defend as well as coverage for her claims. The trial court ruled in favor of Colony on summary judgment and Norris appealed.

On appeal, plaintiff argued, among other things, that the trial court failed to recognize a distinction between the assault and spoliation of evidence claims with regard to the exclusion in the policy for claims “arising out of” assault and battery. The appellate court did, indeed, agree that there was a distinction, but nonetheless concluded that there was no coverage for the spoliation claim.

Specifically, the court looked to the “basic question” of “whether spoliation is covered as 'bodily injury' or 'property damage.'” The court first quickly disposed of the bodily injury claim, holding simply that “clearly” the destruction of evidence did not result in bodily injury in the case. As to the claim of property damage, the court noted that the issue turned on whether the erasing of the image caught on the videotape resulted in an “injury to tangible property,” as property damage was defined. Although the court noted that the videotape was tangible, it ultimately found that, at best, the spoliation in the case had an effect only on an intangible property ' that is, plaintiff's cause of action against her assailant.

The Home Emergency Services Case

Shortly after Norris was decided, however, another Florida appellate court reached a different conclusion. In Lincoln Ins. Co. v. Home Emergency Serv., Inc., 812 So.2d 433, review denied, 833 So.2d 773 (Fla. 2002), an employee of the defendant, Home Emergency Services (“HES”), was injured when a ladder on which he was standing collapsed. He later collected workers' compensation benefits and filed a products liability action against the manufacturer and distributor of the ladder. He also claimed damages against HES for spoliation of evidence. In particular, the employee claimed that HES entered into an agreement with his counsel to maintain the ladder during the pendency of the proceedings, but that HES negligently or intentionally destroyed or abandoned the evidence.

HES's CGL insurance carrier, Lincoln, then filed a declaratory judgment action to determine its coverage duties. The trial court denied Lincoln's motion for summary judgment and held that Lincoln's policy covered the employee's spoliation claim. On appeal, the appellate court reversed. Lincoln's policy insured HES for damages because of “bodily injury” (“bodily injury, sickness or disease sustained by a person, including death”) or “property damage” (“physical injury to tangible property”). The appellate court first found that there was no causal relationship between the bodily injuries sustained and the spoliation of the ladder. Second, relying on Norris, the court held that with regard to coverage for property damage, the only possible interest to the plaintiff was an intangible interest, and consequently there was no coverage.

The court's decision led to a harsh dissent that took issue with both the majority's reasoning and that in Norris. In particular, the dissent argued that the policy's extension of coverage to bodily injury claims caused by “an occurrence” should encompass not just the occurrence of the spoliation of the ladder, but the occurrence of the underlying collapse of the ladder as well. To hold otherwise, the dissent argued, would be to confuse the underlying liability (spoliation) with the duty of Lincoln to defend and indemnify HES for any claims against it that fell within the policy.

Rehearing the case en banc, the Appellate Division reversed. The court agreed with the previous dissent and, “reading the policy favorably to the insured,” held that the employee's claim for spoliation of evidence was properly viewed as being because of “bodily injury” and was within the scope of the insuring agreement of the policy. The court, however, ultimately concluded that there was no coverage based on an exclusion for bodily injury to an employee of the insured arising out of and in the course of his employment. In any event, the court recognized that its holding with regard to the spoliation claim was contrary to Norris, but expressly disagreed with that case.

Other courts have refused to follow Lincoln. Indeed, in a related case brought by HES under its employer's liability policy (Humana Worker's Compensation Services v. Home Emergency Serv., Inc., 842 So.2d 778 (Fla. 2003)), the Florida Supreme Court, while not overruling Lincoln, specifically approved of Norris and its reasoning. Moreover, as discussed below, several recent decisions indicate that the emerging majority rule is clearly that there is no coverage under a CGL policy for spoliation of evidence claims.

The Keeley & Sons and Wright Cases

In United Fire & Cas. Co. v. Keeley & Sons, Inc., 887 N.E.2d 911 (Ill. App. Ct. 2008), the Appellate Court of Illinois held that an insured employer's alleged liability for spoliation of evidence was not covered by a CGL policy. In that case, three employees of the insured, Keeley, were injured when they fell from an I-beam. The employees filed suit, naming Keeley as well as other contractors at the work site as defendants. Among those counts brought against Keeley was an allegation of spoliation of evidence for its alleged destruction or disposal of the I-beam. The defendant contractors also asserted counterclaims against Keeley for spoliation. Keeley tendered the claims to its insurer, United, which denied coverage under its CGL and umbrella liability policies. In a subsequent declaratory judgment action, the trial court granted summary judgment on behalf of Keeley, and United appealed. On appeal, Keeley argued that since it was being sued for damages because of lost property, it was entitled to coverage for “property damage” within the meaning of the insuring agreement of the policies. The appellate court disagreed.

Keeley first attempted to characterize the property damage for which it was seeking coverage as damage to and loss of use of the I-beam itself. While conceding that this characterization seemed to conform with the definition of “property damage” in the policies ' because the loss of the use of the I-beam as evidence was the result of “physical injury to tangible property” ' the court nevertheless rejected this argument. Specifically, the policies excluded coverage for property in the “care, custody or control” of Keeley, which the I-beam was at all relevant times, thus clearly excluding it from coverage.

Alternatively, Keeley tried to characterize the relevant property damage as damage to the lawsuit of the employees and the codefendants in the underlying action. The court observed, however, that if it were to characterize property damage to include damage to a lawsuit, coverage would not apply because the lawsuit was not “tangible property” and thus would not fall under the insuring agreement. Accordingly, the court reversed the trial court's decision and remanded with directions to enter summary judgment in favor of United.

The reasoning and conclusions in Keeley mirrored those of another recent Illinois appellate decision, Essex Ins. Co. v. Wright, 862 N.E.2d 1194 (Ill. App. Ct. 2007). In Wright, the estate of a man who was killed when his Ford Bronco rolled over sued the auto recycling center it had paid to store the vehicle. The center, instead, had the vehicle crushed. The estate then filed a spoliation of evidence claim against the center, who asked its insurer, Essex, to defend it. Essex sued for a declaration that it had no duty to defend or indemnify the center under its CGL policy. The trial court entered summary judgment on behalf of Essex, and the center appealed. The appellate court affirmed, holding that Essex had no duty to defend or indemnify for the same reasons later set forth in Keeley. First, that “a cause of action does not qualify as tangible property,” and second, that the center had possession and control of the Ford Bronco, and thus the damages were excluded under the “care, custody or control” exclusion of the policy.

The Night & Day Management Case

In Essex Ins. Co. v. Night & Day Management, LLC, 536 F.Supp.2d 53 (D.D.C. 2008), the U.S. District Court for the District of Columbia, applying District of Columbia law, also held that an insured was not entitled to coverage under a CGL policy for a spoliation claim. The underlying action in Night & Day involved the alleged beating of a patron by a bouncer and several off-duty police officers at a nightclub owned by the defendant, Night & Day. The victim brought suit against Night & Day for numerous claims, among them reckless/negligent spoliation of evidence for the destruction of security videotapes that may have recorded the incident. Night & Day's insurance company, Essex, then brought suit seeking a declaratory judgment that it was not responsible to cover any of Night & Day's liability under its CGL policy.

Night & Day's claims for coverage for the victim's allegations of assault and battery and discrimination were quickly disposed of by the court, since the Essex policy contained specific exclusions for such claims. The court noted that the spoliation claim, however, “initially present[ed] a somewhat more difficult question.” Night & Day argued that the alleged destruction of the videotape evidence and the victim's loss of use of that tangible property constituted “property damage” as defined in the policy. Specifically, Night & Day claimed that in the spoliation of evidence claim, the victim's allegation was that he was “physically unable to use the lost or destroyed videotape evidence.”

The court, however, was not persuaded by Night & Day's arguments that spoliation equated to property damage. Rather, the court noted that case law addressing the subject ' as pointed out by Essex, who cited, among other cases, Wright ' held exactly the opposite. Accordingly, the court held, among other things, that a diminished legal claim does not constitute “tangible property” and, therefore, does not qualify as “property damage” under a CGL policy.

Conclusion

As detailed above, while many states recognize civil claims for spoliation of evidence, the vast majority of recent case law indicates that courts view such claims as falling outside the grant of coverage under CGL insurance policies. In particular, courts most commonly find that while evidence that has been altered, destroyed, or lost may have been tangible property, a cause of action for spoliation is not, in fact, a cause of action for property damage. Rather, spoliation equates to a cause of action for a lost or diminished legal claim and, as such, is intangible property that is not covered. To that end, while spoliation claims may in recent years have become the newest arrow in a plaintiff's quiver, an attempt to secure insurance coverage for such claims is likely to miss the mark.

Daren S. McNally is a partner and Matthew I. Gennaro is an associate in the Roseland, NJ firm of Connell Foley LLP. McNally maintains a practice that is intensely focused on insurance coverage litigation and counseling, with an emphasis in complex insurance and reinsurance litigation, trials, and arbitrations in both domestic and foreign arenas. Gennaro focuses his practice in the areas of insurance coverage law and litigation.

“Insufficient evidence,” Justice Benjamin N. Cardozo famously noted, “is, in the eye of the law, no evidence.” People v. Galbo , 112 N.E. 1041 (N.Y. 1916). Indeed, given that evidence is the very foundation upon which all cases are built, the preservation of evidence, or anything that may potentially become evidence, is of the highest concern in any current or prospective case. To that end, numerous remedies exist to cure or punish ' depending on your point of view ' the loss, alteration, or destruction of evidence, i.e., spoliation of evidence. For example, by far the most common and well-known of these remedies is the spoliation inference; a civil remedy that allows the fact-finder “to presume that the evidence the spoliator destroyed or otherwise concealed would have been unfavorable to him or her.” Rosenblitt v. Zimmerman , 766 A.2d 749 (N.J. 2001); see also Fed. R. Civ. P. 37(b)(2)(A)(i). In fact, the very term “spoliation” is derived from the legal maxim describing the spoliation inference, “omnia praesumuntur contra spoliatorem,” or “all presumptions are against one who wrongfully dispossesses another (a despoiler).” Black's Law Dictionary 1671 (7th Ed. 1999).

Other remedies have also developed over the years. For example, a court may impose sanctions on a party for failure to make disclosures in discovery ' including, in some rare cases, the entry of a default judgment in favor of the non-spoliating party. See, e.g. , Keene v. Brigham and Women's Hosp., Inc. , 786 N.E.2d 824 (Mass. 2003). In addition, counsel inculpated in spoliation may face ethical or malpractice allegations. See Model Rules of Professional Conduct 3.4 (2009). Moreover, a great many states have gone so far as to make spoliation of evidence a criminal offense, although such laws are rarely enforced. See, e.g., West's Ann. Cal. Penal Code ' 135 (1999) (California: misdemeanor); 720 ILCS 5/31-4 (1998) (Illinois: class 4 felony); McKinney's Penal Law ' 215.40 (1998) (New York: class E felony).

But the most controversial and far-reaching remedy for spoliation has been its recognition as an independent tort claim for either intentional or negligent destruction of evidence. Both remedies originated in California in the mid-1980s. See Smith v. Superior Court , 198 Cal.Rptr. 829 (Cal. Ct. App. 1984) (intentional spoliation); Velasco v. Commercial Bldg. Maintenance Co. , 215 Cal.Rptr. 504 (Cal. Ct. App. 1985) (negligent spoliation). In the years since, numerous states (and the District of Columbia) have addressed the issue of whether to adopt an independent tort for the spoliation of evidence, with decisions ranging across the spectrum. Nearly a dozen states, including the District of Columbia, explicitly recognize an independent tort for spoliation in some form. Many states have chosen not to do so, reasoning that, among other things, such a tort would be superfluous given the evidential remedies for spoliation ' such as the spoliation inference ' already available to parties in litigation. Still other states, such as Illinois, do not recognize spoliation as an independent tort, but instead permit a cause of action for spoliation under traditional negligence principles. In fact, demonstrating the lack of cohesiveness on the issue, California overruled its earlier decisions and no longer recognizes either intentional or negligent spoliation of evidence as a separate cause of action. See Temple Community Hosp. v. Superior Court , 976 P.2d 223 (Cal. 1999).

The question for insurance coverage purposes, of course, is whether and to what extent an action for spoliation of evidence is covered under a CGL policy. Although at least one early case addressing this issue found that coverage exists, the vast majority of courts have held that it does not. Rather, while case law addressing this question is still relatively limited, several recent decisions have held that spoliation claims do not constitute “property damage” under a CGL policy ' that is, they are not “physical damage to tangible property.” Nor have these courts (on the rare occasion it is argued) found that spoliation claims qualify as bodily injury. Instead, these courts have held that spoliation claims amount to diminished causes of action or legal claims and are, instead, intangible property that is not afforded coverage.

The Norris Case

An early case addressing the issue of insurance coverage under a CGL policy for a spoliation claim is Norris v. Colony Ins. , 760 So.2d 1010 (Fla. Dist. Ct. App. 2000). In that case, the plaintiff, Norris, was beaten and robbed by an unknown assailant at a gas station. She brought suit against the gas station, alleging negligent maintenance of the premises and negligent spoliation of evidence ' specifically, a security videotape that may have recorded the incident and identified the assailant. The gas station tendered its defense to its CGL insurer, Colony, who refused to do so because damages arising from assault and battery were excluded from the policy. Norris later settled with the gas station, which assigned its rights against Colony to Norris. Norris then sought damages from Colony for wrongful refusal to defend as well as coverage for her claims. The trial court ruled in favor of Colony on summary judgment and Norris appealed.

On appeal, plaintiff argued, among other things, that the trial court failed to recognize a distinction between the assault and spoliation of evidence claims with regard to the exclusion in the policy for claims “arising out of” assault and battery. The appellate court did, indeed, agree that there was a distinction, but nonetheless concluded that there was no coverage for the spoliation claim.

Specifically, the court looked to the “basic question” of “whether spoliation is covered as 'bodily injury' or 'property damage.'” The court first quickly disposed of the bodily injury claim, holding simply that “clearly” the destruction of evidence did not result in bodily injury in the case. As to the claim of property damage, the court noted that the issue turned on whether the erasing of the image caught on the videotape resulted in an “injury to tangible property,” as property damage was defined. Although the court noted that the videotape was tangible, it ultimately found that, at best, the spoliation in the case had an effect only on an intangible property ' that is, plaintiff's cause of action against her assailant.

The Home Emergency Services Case

Shortly after Norris was decided, however, another Florida appellate court reached a different conclusion. In Lincoln Ins. Co. v. Home Emergency Serv., Inc. , 812 So.2d 433, review denied , 833 So.2d 773 (Fla. 2002), an employee of the defendant, Home Emergency Services (“HES”), was injured when a ladder on which he was standing collapsed. He later collected workers' compensation benefits and filed a products liability action against the manufacturer and distributor of the ladder. He also claimed damages against HES for spoliation of evidence. In particular, the employee claimed that HES entered into an agreement with his counsel to maintain the ladder during the pendency of the proceedings, but that HES negligently or intentionally destroyed or abandoned the evidence.

HES's CGL insurance carrier, Lincoln, then filed a declaratory judgment action to determine its coverage duties. The trial court denied Lincoln's motion for summary judgment and held that Lincoln's policy covered the employee's spoliation claim. On appeal, the appellate court reversed. Lincoln's policy insured HES for damages because of “bodily injury” (“bodily injury, sickness or disease sustained by a person, including death”) or “property damage” (“physical injury to tangible property”). The appellate court first found that there was no causal relationship between the bodily injuries sustained and the spoliation of the ladder. Second, relying on Norris, the court held that with regard to coverage for property damage, the only possible interest to the plaintiff was an intangible interest, and consequently there was no coverage.

The court's decision led to a harsh dissent that took issue with both the majority's reasoning and that in Norris. In particular, the dissent argued that the policy's extension of coverage to bodily injury claims caused by “an occurrence” should encompass not just the occurrence of the spoliation of the ladder, but the occurrence of the underlying collapse of the ladder as well. To hold otherwise, the dissent argued, would be to confuse the underlying liability (spoliation) with the duty of Lincoln to defend and indemnify HES for any claims against it that fell within the policy.

Rehearing the case en banc, the Appellate Division reversed. The court agreed with the previous dissent and, “reading the policy favorably to the insured,” held that the employee's claim for spoliation of evidence was properly viewed as being because of “bodily injury” and was within the scope of the insuring agreement of the policy. The court, however, ultimately concluded that there was no coverage based on an exclusion for bodily injury to an employee of the insured arising out of and in the course of his employment. In any event, the court recognized that its holding with regard to the spoliation claim was contrary to Norris, but expressly disagreed with that case.

Other courts have refused to follow Lincoln. Indeed, in a related case brought by HES under its employer's liability policy ( Humana Worker's Compensation Services v. Home Emergency Serv., Inc. , 842 So.2d 778 (Fla. 2003)), the Florida Supreme Court, while not overruling Lincoln , specifically approved of Norris and its reasoning. Moreover, as discussed below, several recent decisions indicate that the emerging majority rule is clearly that there is no coverage under a CGL policy for spoliation of evidence claims.

The Keeley & Sons and Wright Cases

In United Fire & Cas. Co. v. Keeley & Sons, Inc. , 887 N.E.2d 911 (Ill. App. Ct. 2008), the Appellate Court of Illinois held that an insured employer's alleged liability for spoliation of evidence was not covered by a CGL policy. In that case, three employees of the insured, Keeley, were injured when they fell from an I-beam. The employees filed suit, naming Keeley as well as other contractors at the work site as defendants. Among those counts brought against Keeley was an allegation of spoliation of evidence for its alleged destruction or disposal of the I-beam. The defendant contractors also asserted counterclaims against Keeley for spoliation. Keeley tendered the claims to its insurer, United, which denied coverage under its CGL and umbrella liability policies. In a subsequent declaratory judgment action, the trial court granted summary judgment on behalf of Keeley, and United appealed. On appeal, Keeley argued that since it was being sued for damages because of lost property, it was entitled to coverage for “property damage” within the meaning of the insuring agreement of the policies. The appellate court disagreed.

Keeley first attempted to characterize the property damage for which it was seeking coverage as damage to and loss of use of the I-beam itself. While conceding that this characterization seemed to conform with the definition of “property damage” in the policies ' because the loss of the use of the I-beam as evidence was the result of “physical injury to tangible property” ' the court nevertheless rejected this argument. Specifically, the policies excluded coverage for property in the “care, custody or control” of Keeley, which the I-beam was at all relevant times, thus clearly excluding it from coverage.

Alternatively, Keeley tried to characterize the relevant property damage as damage to the lawsuit of the employees and the codefendants in the underlying action. The court observed, however, that if it were to characterize property damage to include damage to a lawsuit, coverage would not apply because the lawsuit was not “tangible property” and thus would not fall under the insuring agreement. Accordingly, the court reversed the trial court's decision and remanded with directions to enter summary judgment in favor of United.

The reasoning and conclusions in Keeley mirrored those of another recent Illinois appellate decision, Essex Ins. Co. v. Wright , 862 N.E.2d 1194 (Ill. App. Ct. 2007). In Wright, the estate of a man who was killed when his Ford Bronco rolled over sued the auto recycling center it had paid to store the vehicle. The center, instead, had the vehicle crushed. The estate then filed a spoliation of evidence claim against the center, who asked its insurer, Essex, to defend it. Essex sued for a declaration that it had no duty to defend or indemnify the center under its CGL policy. The trial court entered summary judgment on behalf of Essex, and the center appealed. The appellate court affirmed, holding that Essex had no duty to defend or indemnify for the same reasons later set forth in Keeley. First, that “a cause of action does not qualify as tangible property,” and second, that the center had possession and control of the Ford Bronco, and thus the damages were excluded under the “care, custody or control” exclusion of the policy.

The Night & Day Management Case

In Essex Ins. Co. v. Night & Day Management, LLC , 536 F.Supp.2d 53 (D.D.C. 2008), the U.S. District Court for the District of Columbia, applying District of Columbia law, also held that an insured was not entitled to coverage under a CGL policy for a spoliation claim. The underlying action in Night & Day involved the alleged beating of a patron by a bouncer and several off-duty police officers at a nightclub owned by the defendant, Night & Day. The victim brought suit against Night & Day for numerous claims, among them reckless/negligent spoliation of evidence for the destruction of security videotapes that may have recorded the incident. Night & Day's insurance company, Essex, then brought suit seeking a declaratory judgment that it was not responsible to cover any of Night & Day's liability under its CGL policy.

Night & Day's claims for coverage for the victim's allegations of assault and battery and discrimination were quickly disposed of by the court, since the Essex policy contained specific exclusions for such claims. The court noted that the spoliation claim, however, “initially present[ed] a somewhat more difficult question.” Night & Day argued that the alleged destruction of the videotape evidence and the victim's loss of use of that tangible property constituted “property damage” as defined in the policy. Specifically, Night & Day claimed that in the spoliation of evidence claim, the victim's allegation was that he was “physically unable to use the lost or destroyed videotape evidence.”

The court, however, was not persuaded by Night & Day's arguments that spoliation equated to property damage. Rather, the court noted that case law addressing the subject ' as pointed out by Essex, who cited, among other cases, Wright ' held exactly the opposite. Accordingly, the court held, among other things, that a diminished legal claim does not constitute “tangible property” and, therefore, does not qualify as “property damage” under a CGL policy.

Conclusion

As detailed above, while many states recognize civil claims for spoliation of evidence, the vast majority of recent case law indicates that courts view such claims as falling outside the grant of coverage under CGL insurance policies. In particular, courts most commonly find that while evidence that has been altered, destroyed, or lost may have been tangible property, a cause of action for spoliation is not, in fact, a cause of action for property damage. Rather, spoliation equates to a cause of action for a lost or diminished legal claim and, as such, is intangible property that is not covered. To that end, while spoliation claims may in recent years have become the newest arrow in a plaintiff's quiver, an attempt to secure insurance coverage for such claims is likely to miss the mark.

Daren S. McNally is a partner and Matthew I. Gennaro is an associate in the Roseland, NJ firm of Connell Foley LLP. McNally maintains a practice that is intensely focused on insurance coverage litigation and counseling, with an emphasis in complex insurance and reinsurance litigation, trials, and arbitrations in both domestic and foreign arenas. Gennaro focuses his practice in the areas of insurance coverage law and litigation.