Supreme Court Limits Spoliation Law; No Duty to Insurer to Preserve Evidence

Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) OLC, No. 79460-4-I (Wash. Ct. App. Mar. 27. 2023)

In a closely watched insurance coverage action out of Washington State related to the big tunnel project in Seattle, the Washington Supreme Court provides a primer on the evolution and application of the related to spoliation of evidence. This case involved an insurance claim arising out of the construction of a tunnel in Seattle meant to replace the Alaska Way Viaduct. During the course of the relationship between the parties Seattle Tunnel Partners (STP) disposed of important evidence that was relevant to the determination of its insurance claim it filed after the tunneling mechanism failed. As a result of this loss of evidence, the trial court imposed spoliation sanctions and allowed an adverse jury instruction.

Background Facts

Washington State Department of Transportation (WSDOT) and Seattle Tunnel Partners (STP) entered into a contract in 2011, to dig an underground tunnel to replace the Alaskan Way Viaduct in Seattle. STP used a tunnel boring machine (TBM) that was both designed and manufactured by Hitachi. STP secured a builder's all-risk insurance policy from Great Lakes Reinsurance (UK) PLC and several other insurance underwriters (referred to herein collectively as "Insurers"). The insurance policy covered damage to the tunneling works and the TBM. WSDOT and STP are both named insureds of the policy.

STP began mining in July 2013. The TBM had ongoing issues and broke down on several occasions. In December 2013, the TBM came into contact with the steel casing of an abandoned test well. This caused catastrophic damage to the TBM. Due to this development, STP issued a proposed change order to WSDOT. STP requested a time extension and increased compensation due to the complication.

The TBM did not successfully resume full mining operations until late 2015. STP recovered a few of the steel pieces that it believed came from the section that the TBM hit. When the TBM came into contact with this section it pushed a portion of the pipe up through the ground. STP cut off the portion of the pipe protruding above ground as well as removing two boulders and two pieces of steel from the TBM's conveyor belt. STP also pulled a 55-foot piece of pipe out of the ground and additional pieces were removed and extracted over the a few months. STP documented and photographed each of these pieces and instructed employees to place some of the pieces on a wooden pallet in STP's construction yard, but they were inadvertently removed with other debris.

WSDOT, STP, and Hitachi tendered insurance claims for damage to the TBM, losses caused by delay in mining and the cost of the construction of an access shaft built to rescue the TBM. The insurers denied coverage and determined that the policy did not cover physical damage to the TBM because the problems were caused by design defects and not caused by its collision with the pipe, as STP claimed.

STP filed suit against the Insurers and WSDOT and Hitachi were joined. The court was asked to provide a declaratory judgment that the policy did in fact cover the losses they sustained during the project and that the Insurer was in bad faith. The coverage dispute revolved around whether design defects or operator error caused the TBM's damage.

At the center of this multi-faceted lawsuit is the Insurers' motion for spoilation sanctions based on STP's failure to preserve the pieces of pipe and boulders. They requested that the court "instruct the jury to presume that the evidence STP spoliated would be unfavorable to STP and to preclude STP from arguing that the pipe contributed to the TBM's failure." WSDOT filed a similar motion. STP moved for an evidentiary hearing regarding alleged spoliation, but the trial court denied their request. Hitachi opposed the proposed sanctions of excluding evidence of the collision with the pipe or imposing any type of adverse jury instruction. It argued that such an instructions would unfairly prejudice it as an innocent party. The trial court held that WSDOT and the Insurers were entitled to the adverse jury instruction but did not exclude all evidence relating to the TBM hitting the pipe.

The Spoliation Doctrine in Washington

Spoliation is the intentional destruction of evidence. Black's Law Dictionary states that "the intentional destruction of evidence has historically been treated as an evidentiary matter with the remedy being an inference that the party's conduct in destroying the evidence tended to corroborate the opposing party's case."

In its comprehensive outline of the evolution of the spoliation doctrine in Washington, the court began with the 1908 decision in State v. Constantine, 48 Wash. 218, 93 P.317 (1908), which found that "[i]t is a rule of evidence, as old as the law itself, applicable to both civil and criminal causes, that a party's fraud in the preparation and presentation of his case, such as the suppression or attempt to suppress evidence by bribery of the witness or the spoliation of documents, can be shown against him as a circumstance tending to prove that this cause lacks honesty and truth." It went on to say that, "[b]ribing witnesses and spoliation of documents is evidence of one's consciousness of guilt." Id. at 222.

Next, the court turned to British Columbia Breweries Ltd. v. King County, 17 Wn.2d 437, 135 P.2d 870 (1943), which held: "It is a well-established rule that where relevant evidence which would properly be part of a case is within the control of the party whose interest it would naturally be to produce it, and he fails to do so, without satisfactory explanation, the jury may draw an inference that such evidence would be unfavorable to him. This rule is uniformly applied by courts and is an integral part of jurisprudence." (quoting 20 Am. Jur. Nonproduction, Suppression, Destruction, or Fabrication of Evidence, §183 (1939).

With time, Washington courts developed a test for determining if sanctions should be imposed for spoliation of evidence. In Henderson v. Tyrell, 80 Wn. App. 592, 910 P.2d 522 (1996), employed the following factors to determine whether to apply the rebuttable presumption that any lost evidence should be viewed as unfavorable to the party that had control of it:

• The potential importance or relevance of the missing evidence; and
• The culpability or fault of the adverse party.

It also pointed out that the determination of whether the missing evidence was important must be determined on a case-by-case basis and courts must consider whether interested parties were afforded an adequate opportunity to examine the evidence. In addition, courts should examine the level of culpability meaning "whether the party acted in bad faith or conscious disregard of the importance of the evidence, or whether there was some innocent explanation for the destruction." Id at 609.

In Homeworks Constr., Inc. v. Wells, 133 Wn. App. 892, 138 P.3d 654(2006), the court expanded the scope of culpability to include a duty to preserve relevant evidence. It stated, "Even if a party may be responsible for spoliation without a finding of bad faith, the party must also have a duty to preserve the evidence. A party's actions are improper and constitute spoliation where the party has a duty to preserve the evidence in the first place."

The Duty to Preserve Evidence

Washington case law since Henderson v. Tyrell, 80 Wn. App. 592, 910 P.2d 522 (1996) has clearly shown that a party accused of spoliating evidence must have a duty to preserve that evidence in the first place. In Cook v. Tarbert Logging, Inc.190 Wn. App. 448 (2015), the court held that the injured driver could not be held liable for spoliation because he owned no duty to the logging truck company to preserve the electronic data stored in his truck. In J.K by Wolf, the court held that the school district could be held liable for spoliation because it had a duty to preserve the evidence at issue, knew it had this duty, and took no steps to preserve it when it knew the evidence would be overwritten by its video system." 20 Wn. App.2d at 313.

The duty to preserve evidence is more than a factor for courts to consider. This would undermine the settled rule that there is no general duty to preserve evidence before a lawsuit has been filed. Also, the duty to preserve may also indicate a party's level of culpability in participating in the spoliation of evidence. "Each level of culpability recognized in our spoliation case law—from intentional or willful misconduct, to bad faith, conscious disregard, and negligence—contemplates the violation of some duty to preserve that evidence." J.K. by Wolf, 20 Wn. App.2d at 309. Regardless of what level of culpability exists in a particular case, the bottom line is that the spoliating party owed a duty to preserve that evidence. "This duty may arise under statute, or a regulation for the protection of a particular class of individuals." Id. The party requesting a spoliation sanction must show that the accused party had a duty to preserve the evidence in question. The court cited a two prong test from Martin v. Keely & Sons, Inc. 979 N.E.2d 22 (Ill. 2012). This test was used to determine if a party accused of spoliation had a duty to preserve evidence:

• An agreement, contract, statute, special circumstance, or voluntary undertaking had given rise to a duty to preserve evidence on the part of the opposing party.
• Party seeking sanctions must show that the duty extends to the specific evidence at issue by demonstrating that a reasonable person in the opposing party's position should have foreseen that the evidence was material to a potential civil action."
• If the moving party does not prove both prongs of this test, the opposing party has no duty to preserve the evidence. Id. at 28.

In the case at hand, STP clearly owed a duty to WSDOT to preserve any evidence that pertained to change order requests per the contract signed by both parties. The applicable clause in the contract stated, "STP agrees that it shall give WSDOT access to all of STP's books, records and other materials relating to the work in question, and shall cause its subcontractors to do the same, so that WSDOT can investigate the basis for such proposed change order."

The court here concluded that the word "materials" also included the boulders and the steel pieces recovered from the site. It found that "these items directly related to the claim and STP agreed to give WSDOT access to these items for investigative purposes." STP argues that this analysis is a step too far and that it only had a duty to provide access not to preserve. The court found this unpersuasive as materials that are lost or gone are not accessible. Since the relevant change order remained unresolved at the time of the initiation of this litigation, preservation was required. Even if the evidence was disposed of inadvertently, STP should have taken more careful and specific measures to safeguard it knowing that it would be relevant to resolving the dispute. The fact that STP delayed in telling WSDOT that the evidence was lost, also indicates that they had an understanding that they were contractually required to preserve it and saw its potential materiality to any future claim.

Did STP Have the Same Duty to its Insurers as WSDOT?

The policy agreement between STP and the Insurers did not contain a clause specifically requiring them to preserve potential evidence. The Insurers assert that they relied on STP's contractual duty to WSDOT, but the court disagreed. It found that the contract between STP and WSDOT was broad in scope so as to include a responsibility to the Insurers to preserve evidence. In fact the agreement between STP and WSDOT specifically states that it is not intended to create any third party beneficiaries or give any third party any rights pursuant to their contract. The Insurers cannot benefit from a contractual duty owed by STP to WSDOT.

Next, the Insurers contend that STP had an implicit duty to "cooperate with the Insurers' investigation of the insurance claim." While the court agreed that this is true in some cases, it found that the insurance policy in this case did not include a provision requiring STP to cooperate or preserve evidence. Although Insurers owe a fiduciary duty to their insureds, that does not run both ways. Insureds do not owe a fiduciary duty to their insurers. In addition, Washington courts have consistently held that insureds do not have a general duty to preserve evidence "merely because litigation is foreseeable." Tavai v. Walmart Stores, Inc., 176 Wn. App. 122, 136 (Wash. Ct. App. 2013).

The only potential exception to this can be found in the Cook case. There the court ruled that a party may have a general duty to preserve evidence if it is requested by the opposing party before its destruction or loss. 133 Wn. App. at 901. The Insurers did not provide any evidence that they had requested STP to preserve the evidence in this case. In fact, the loss of the pipe pieces and boulders occurred more than a year before STP's claim was denied. Therefore, STP did not owe a duty to the Insurers to preserve the evidence.

What was STP's Level of Culpability?

Once a court determines that a party has breached their duty to preserve the evidence, it must then examine the level of culpability of the breach. The court will determine if the breach was intentional, in bad faith, committed with conscious disregard, negligently, or innocently. If a court finds that a party destroyed or lost evidence innocently or without knowledge, then no sanction will be imposed. Cook, 190 Wn. App. at 462, 464. If, however, a party intentionally destroyed evidence, or "willfully failed to preserve the evidence with an improper motive" than an adverse jury instruction may be appropriate. Henderson, 80 Wn. App. at 606.

The conundrum enters when the circumstances surrounding the destruction of the evidence does not fall on either extreme end of the spectrum. STP's actions in this case clearly fall in a gray area. Henderson reasoned that, "unless there was bad faith, there is no basis for the inference of consciousness of a weak case." 80 Wn. App. at 609 (quoting 2 MCORMICK ON EVIDENCE §265 at 191(John William Strong ed., 4th ed. 1992). Here the court reasoned that, "Failing to preserve evidence, either negligently or through conscious disregard of it importance, does not demonstrate a consciousness of a weak case or a desire to suppress the truth." Based on this precedent, the court here found that an adverse jury instruction was not warranted where there is not sufficient evidence that the spoliation of the evidence rose to the level of bad faith or intentional conduct.

How Does a Court Determine the Relevance and Importance of Missing or Destroyed Evidence?

According to Henderson the importance depends upon the facts and circumstances of each case. That said, the relevance or probative value of each piece of evidence requires courts to weight them against established evidentiary standards. It is obvious here that the pipe pieces and boulders are relevant, but there is disagreement as to their ultimate importance. The court examined the following factors to determine the importance of the missing evidence:

• Whether the missing evidence would provide direct evidence of a claim or defense
• Whether the lost evidence is cumulative of other available evidence
• Whether the culpable party admitted the evidence's importance
• Whether the nonspoliating party had the opportunity to inspect the evidence before it was lost.
• Whether the loss of the evidence impeded parties from developing expert opinions on liability, causation, or damages, and
• Whether the loss of the evidence gave the culpable party an investigative advantage to the prejudice of the nonspoliating party

In this case, the pipe pieces and boulders serve as direct evidence to support or diminish STP's claim that the TBM malfunctioned. It also could have explained whether or not a design defect was present in the TBM, or if the malfunction occurred because of the collision with the pipe. It is obvious that this evidence would have high importance to the Insurers attempting to determine if STP's pipe strike theory is the actual cause of the damage, but the court has already been determined that they do not have any right to spoliation sanctions against STP.

It is unclear how exactly the evidence would impact WSDOT's claim. Importantly, WSDOT does not contend that the missing evidence was necessary to establish operator error, which is the theory under which they requested insurance coverage. Also, WSDOT admitted that it was likely to succeed in its coverage claim "under the builder's risk policies regardless whether the cause of the TBM breakdown was operator error or a pipe strike." Therefore, in regard to WSDOT's claim the missing evidence is less important.

Experts hired on both sides of the issue, were also able to speak to the circumstances of this case, which renders the missing evidence cumulative at least to some extent. The experts were also able to draw their conclusions without access to the evidence although they did state that being able to view the evidence would have been helpful. Finally, a record from a separate case related to the same incident, revealed that WSDOT employees had the opportunity to view and inspect at least some of the evidence in question before it was disposed of. Collectively and individually all of these facts diminish the importance of the evidence.

The Final Word

In summary, the court made three main findings in this case:

• Spoliation case law requires, as a threshold showing, that the accused owe a duty to the party seeking sanctions to preserve the missing, lost, or destroyed evidence. The court found that STP owed a contractual duty to WSDOT to preserve evidence relating to change order requests. It did not, however, owe a duty to the Insurers to preserve the evidence.
• An adverse inference jury instruction is only warranted as a sanction for the intentional destruction of evidence or the willful failure to preserve evidence with an improper motive (i.e., bad faith). The facts of this case do not support a finding of this level of culpability. Thus, the lower court's imposition of an adverse jury instruction was improper.
• In addition, the lost evidence was not sufficiently important to WSDOT to justify such a harsh sanction in this case. The facts show that they had some access to the evidence before it was lost and their experts were able to form viable opinions without access to the evidence.

Based on these findings, the court reversed and remanded for further proceedings.

This case provides a detailed analysis of how courts should apply the spoliation doctrine, which is frequently litigated and can have important implications.