In the case of American Family Mut. Ins. Co. v. Golke, the Supreme Court of Wisconsin reversed a dismissal granted in favor of defendants based on the plaintiffs’ disposal of evidence. Determining that the plaintiff had “discharged its duty to preserve evidence,” no sanction was appropriate.
On February 13, 2000, a fire damaged the home of the plaintiff American Family’s insureds. The plaintiff’s investigators examined the scene the next day and determined that the fire began near a metal chimney that extended through the roof. The investigators further learned that the defendants, three brothers, David, Joseph and Charles Golke, had performed roofing work on the home which had reduced the clearance between the chimney and the roof’s joists. Plaintiff theorized that this lower clearance allowed the chimney to heat and ultimately ignite the roof.
On March 13, 2000, one month after the fire, the insurer mailed notice letters to the Golkes via first-class mail. One letter was sent to David Golke, who by this time was doing construction work as a sole proprietor, and another was sent to Joseph and Charles Golke, at the business address of their limited liability company. The letters provided information about the loss including the date; the location; that property loss had occurred; and that the amount of damage was pending. It further placed the brothers “on notice for the fire damage” and advised that the investigation determined that “you were negligent for work performed…” The plaintiff requested that the letter be forwarded to the brothers’ liability insurance carriers, if they had any; and, if not, that the plaintiff would look to the brothers for payment of the damages. Further, it indicated that a destruction of the property would not occur before April 1, 2000 to allow time for the brothers, or their insurers, to conduct an investigation.
David Golke’s insurer responded by acknowledging the claim, but denying coverage. The other Golke brothers could not recall receiving the letter and one testified at trial that they had difficulty securing accurate mail service at their business address. On March 23, 2000, the plaintiff replied to David Golke and his insurer “recommending they investigate the fire scene … because [plaintiff] was planning demolition to begin on April 1, 2000.”
Another letter was sent by plaintiff to all three brothers, this time via certified mail, indicating that it was a “second request” for insurance information and that the recipients should contact their carrier as soon as possible. At trial, all three brothers acknowledged receipt of the certified mail. However, no one contacted plaintiff to arrange for a scene inspection and demolition began around April 11, 2000. The plaintiff did not preserve any evidence from the scene, including the roof or chimney.
When suit was brought in 2003 against the Golke brothers, their limited liability company, and the company’s insurance carrier, the defendants moved to dismiss the action. After a bench trial on the issues of spoliation and the sufficiency of the notice, the circuit court entered a dismissal as a sanction for plaintiff’s failure to preserve the evidence.
On appeal, American Family presented an issue of first impression for the Wisconsin Supreme Court–whether and under what circumstances a party may legitimately destroy evidence.
The Wisconsin Supreme Court recognized a “loose consensus” in other jurisdictions that a party may discharge its duty to preserve evidence by providing the other side notice of a potential claim and a full and fair opportunity to inspect the evidence; Id. at 413-14. Thus, the Supreme Court held that “a party or potential litigant with a legitimate reason to destroy evidence discharges its duty to preserve relevant evidence within its control by providing the other party or potential litigant: (1) reasonable notice of a possible claim; (2) the basis for that claim; (3) the existence of evidence relevant to the claim; (4) and reasonable opportunity to inspect that evidence.” Id. at 414-15.
The Court held that a trial court should be guided by the “totality of the circumstances” in determining whether the content of the notice is sufficient. Id. at 415-16. Such factors include “the length of time evidence can be preserved, the ownership of the evidence, the prejudice posed to possible adversaries by the destruction of the evidence, the form of the notice, the sophistication of the parties, and the ability of the party in possession of the evidence to bear the burden and expense of preserving it.” Id. Further, apart from the content of the notice, the Court held that notice can be effectuated by first-class mail, and that evidence of mailing creates a presumption of receipt. Id. at 419.
In the case of American Family’s notice, the Court held that the Golkes had been placed on reasonable notice of the possible claim and its basis, that the notice explicitly referred to the existence of relevant evidence, and that it provided the Golkes ample time to arrange for its inspection before its destruction. Id. at 425-27. Further, the Court noted that American Family had a legitimate reason to destroy the home inasmuch as the family that owned it could not be expected to wait indefinitely for an inspection. Id. at 427. Thus, the Court held that the circuit court erroneously exercised its discretion in sanctioning American Family for spoliation, reversed the dismissal, and remanded the cause for a trial on the merits. Id. at 428.
Significantly, however, the Supreme Court’s decision was not unanimous. The Chief Justice wrote a separate concurrence stating that she would have held that American Family did violate its duty to preserve evidence, but that a lesser sanction was appropriate under the circumstances. Id. at 429.
In this regard, Chief Justice Abrahamson noted that American Family could have removed and preserved selected evidence from the fire scene, namely, the chimney assembly, fireplace and “critical parts of the roof.” Id. at 430. Further, she rejected the majority’s conclusion that American Family had a “legitimate reason” for destroying the evidence and offered that the majority failed to consider the “narrow timetable” for inspection or the lack of sophistication of the non-spoliating party, a “local roofing outfit.” Id. at 433-35. Finally, the concurrence rejected that notification by first-class mail is sufficient in all cases; Id. at 437-38; and, in light of “the technologically-advanced 21st century,” it is certainly wiser to use a method that provides written confirmation that the recipient received the notice. Id. at 438.
American Family demonstrates the competing interests of parties on both sides of a potential spoliation claim. On the one hand, the party in control of the evidence may be in a predicament of waiting for potentially liable parties, which may be numerous, to inspect a fire scene, while it or its insureds need to rebuild as soon as possible to mitigate losses. On the other hand, the potentially liable parties have an interest in investigating the loss and conducting a first-hand inspection of the scene, yet may have to notify their insurance carriers, attorneys, and experts.
While the Wisconsin Supreme Court’s decision makes clear that a growing number of jurisdictions recognize that a duty to preserve evidence is not indefinite and may be discharged, it is less clear what a party must do to discharge that duty. There is no bright line rule that will be applicable in every case. In the end, disposal of the evidence may result in sanctions for spoliation even if a party is placed on notice of the intent to dispose of the evidence. Any attempt to discharge the duty to preserve evidence should not be casually undertaken, nor should it remain unchallenged without careful scrutiny.
— Karey P. Pond
