Thompson ex rel. Thompson v. Owensby

• Citation: 704 N.E.2d 134
• Decision Date: 29 December 1998
• Docket Number: No. 73A05-9804-CV-232,73A05-9804-CV-232
• Parties: Nicole L. THOMPSON, a minor, by Next Friend Brian THOMPSON and Stella Thompson, and Brian Thompson and Stella Thompson, Individually and as Parents and Natural Guardians of Nicole L. Thompson, Appellants-Plaintiffs, v. Jeff OWENSBY, Rhonda Owensby, Henry Whitis, Alva Whitis, Orrville Leather, Inc., and Indiana Insurance Co., Appellees-Defendants.
• Court: Indiana Appellate Court

Page 134

704 N.E.2d 134

Nicole L. THOMPSON, a minor, by Next Friend Brian THOMPSON

and Stella Thompson, and Brian Thompson and Stella Thompson,

Individually and as Parents and Natural Guardians of Nicole

L. Thompson, Appellants-Plaintiffs, v. Jeff OWENSBY, Rhonda Owensby, Henry Whitis, Alva Whitis,

Orrville Leather, Inc., and Indiana Insurance Co.,

Appellees-Defendants.

No. 73A05-9804-CV-232.

Court of Appeals of Indiana.

Dec. 29, 1998.

Theodore F. Smith, Jr., Teresa L. Todd, Smith, Todd & Farrell, Anderson, for Appellants-Plaintiffs.

Phillip Linnemeir, Robert B. Thornburg, Smith & Wade, Indianapolis, for Appellees-Defendants.

OPINION

KIRSCH, Judge.

Nicole Thompson and her parents appeal the trial court's dismissal of their complaint against Indiana Insurance Company (the Insurance Company). The appeal presents a single issue: Whether the Thompsons have stated a negligence claim against the Insurance Company for failure to preserve evidence.

We reverse.

FACTS AND PROCEDURAL HISTORY

Six-year-old Nicole Thompson was disfigured when a German shepherd attacked her, ripped off part of her ear, bruised her neck, and bit her hand and thigh. The dog had been restrained by a cable in its owners' yard, but it broke free of the cable just before attacking Nicole.

Nicole and her parents sought compensation for her injuries from the dog owners and from the manufacturer of the dog-restraining cable. In addition, Nicole and her parents sought compensation from Henry and Alva Whitis, who were the dog owners' landlords. The Insurance Company, as the Whitises' insurance carrier, investigated the Thompsons' claim and took possession of the restraining cable. The Insurance Company then lost the cable. Neither the Insurance Company nor the Thompsons' representatives had examined or tested the cable before it was lost.

Faced with this loss of potential evidence, the Thompsons sued the Insurance Company for negligence. In the complaint, the Thompsons alleged that the Insurance Company had assumed a duty to safeguard the cable and that the Company had breached its duty by losing the cable. Record at 17. The Thompsons further alleged that the loss of the cable had adversely affected their claims against the Whitises, the dog owners, and the cable manufacturer. The demand portion of the Thompsons' complaint was contingent upon the outcome of their underlying claims, stating:

"WHEREFORE, in the event that the plaintiffs are unsuccessful in their claims against the defendants, [the dog owners], Henry Whitis, Alva Whitis and [the cable manufacturer], for the reason that the cable was lost, the plaintiffs pray for judgment against the defendant, Indiana Insurance Company, in an amount commensurate with their injuries and damages."

Record at 17-18.

The Insurance Company responded with a motion to dismiss, arguing that the Thompsons' complaint attempted to assert a claim for spoliation of evidence, which, according to the Insurance Company, our State does not recognize. The trial court agreed with the Insurance Company and granted the Motion to Dismiss. Upon the Thompsons' request, the trial court entered a final judgment of dismissal for the purpose of appeal.

DISCUSSION AND DECISION

I. Standard of Review

When reviewing a trial court's decision on a motion to dismiss, this court must accept all factual allegations in the plaintiffs' complaint as true. Further, this court must draw every reasonable inference in the plaintiffs' favor from the alleged facts. Stevens v. Department of Pub. Welfare, 566 N.E.2d 544, 546 (Ind.Ct.App.1991), trans. denied; Myers v. Moyars, 667 N.E.2d 1120, 1121 (Ind.Ct.App.1996), trans. denied. In this case, we must determine whether the alleged facts state an actionable claim according to Indiana law.

II. Duty to Maintain Evidence

This action presents a question of first impression: whether an insurance company that loses evidence may be liable to a third party claimant for damages attributable to the loss of the evidence. The parties here limit their arguments to one aspect of that question: whether the Insurance Company had an actionable duty to maintain the evidence.

The Thompsons contend that there is a duty to maintain evidence and that the duty is actionable in tort. They present two arguments in support of their contention. First, they submit that when the Insurance Company took possession of the evidence, it gratuitously assumed a duty to maintain that evidence. Second, they argue that the Insurance Company had an independent duty to maintain the evidence. In response, the Insurance Company argues that the Thompsons have not stated an actionable claim because the complaint alleged no special circumstances creating a duty to maintain evidence.

The parties' dispute about the existence of a duty can be resolved by reference to the guidelines our supreme court has identified for analyzing duty issues. According to the court the analysis turns on three main factors: 1) the relationship between the parties, 2) the reasonable foreseeability of the type of harm to the type of plaintiff at issue, and 3) the public policy promoted by recognizing an enforceable duty. Webb v. Jarvis, 575 N.E.2d 992, 995 (Ind.1991); see also Cram v. Howell, 680 N.E.2d 1096, 1097 n. 1 (Ind.1997); Perdue Farms, Inc. v. Pryor, 683 N.E.2d 239, 241 (Ind.1997); see also Goldsberry v. Grubbs, 672 N.E.2d 475, 479 (Ind.Ct.App.1996) (foreseeability analysis for duty is more general than foreseeability analysis for proximate cause).

In the procedural posture of this case, the three factors provide touchstones for testing the adequacy of the duty allegations in the complaint. To allege an actionable duty based on the three factors, the Thompsons must identify a cognizable relationship with the Insurance Company, they must allege foreseeable harm from the loss of evidence and they must allege sufficient supporting facts to demonstrate that recognition of a duty to maintain evidence would promote Indiana's policy goals.

A. Relationship Between the Parties

In support of its position that there is no cognizable relationship between the parties, the Insurance Company cites Murphy v. Target Products, 580 N.E.2d 687 (Ind.Ct.App.1991), trans. denied. In Murphy, the issue was whether an employee injured by an allegedly defective product could maintain a spoliation of evidence action against his employer for failure to maintain evidence necessary for a product liability action. 580 N.E.2d at 688. The court concluded that the employer had no duty to maintain evidence for the employee's possible product liability action. In stating its holding, however, the Murphy court reserved the option of recognizing such a duty if the relationship between the parties so warranted:

"We ... hold that at least in the absence of an independent tort, contract, agreement, or special relationship imposing a duty to the particular claimant, the claim of negligent or intentional interference with a person's prospective or actual civil litigation by the spoliation of evidence is not and ought not be recognized in Indiana."

580 N.E.2d at 690.

In contrast to the parties in Murphy, the relationship between the parties in this case supports recognition of a duty to maintain evidence. As this court has recognized in other contexts, an alleged tortfeasor's knowledge of the plaintiff's situation or circumstances may support recognition of a duty. See T.S.B. by Dant v. Clinard, 553 N.E.2d 1253, 1256 (Ind.Ct.App.1990) (relationship did not warrant recognition of duty); Lawson v. Howmet Aluminum Corp., 449 N.E.2d 1172, 1177 (Ind.Ct.App.1983) (relationship warranted recognition of duty). In the context of the loss of evidence by an insurance carrier, the relationship between the carrier and a third party claimant could warrant recognition of a duty if the carrier knew or should have known of the likelihood of litigation and of the claimant's need for the evidence in the litigation.

A liability carrier has a duty in the ordinary course of business to investigate and evaluate claims made by its insureds. Burr v. United Farm Bureau Mut. Ins. Co., 560 N.E.2d 1250, 1255 (Ind.Ct.App.1990), trans. denied. In carrying out this duty, carriers take possession of documents and things that must be authenticated and tested to evaluate claims. These same documents and things will be key items of evidence in the event that the claims are denied and litigation ensues. This conduct by necessity gives rise to a relationship with the third party claimant.

Here, the Thompsons allege that the Insurance Company is in the business of providing liability insurance. Record at 16 (Complaint, p 2). The Thompsons further allege that after the Insurance Company was aware of their claim, the Company's investigator took possession of the dog-restraining cable, which the dog owners had asserted was defective. Record at 16-17 (Complaint, pp 4-5, 10). A liability carrier like the Insurance Company can rationally be held to understand that once a claim is filed, there is a possibility of litigation concerning the underlying injuries. The Insurance Company's knowledge and investigation of the Thompsons' claims and its possession of what would be a key item of evidence in the event litigation ensued created a relationship between the Company and the Thompsons that weighs in favor of recognizing a cognizable duty to maintain evidence.

B. Foreseeability of Harm

The allegations that support recognition of a special relationship between the Insurance Company and the Thompsons are also germane to the foreseeability aspect of the duty issue. Liability insurance carriers are no strangers to litigation, and it strains credulity to posit in a motion to dismiss that a liability carrier could be unaware of the potential importance of physical evidence. If litigation was foreseeable in this case, the evidentiary value of the restraining cable was foreseeable as well. See Boyd v. Travelers Ins. Co., 166 Ill.2d...