Spoliation of Evidence: A New Defense in Products Liability Cases

By Monte E. Weiss

Manufacturers in Wisconsin have a new defense in products liability cases as a result of a recent Wisconsin Court of Appeals decision, Sentry Insurance v. Royal Insurance Co. ¹ The defense is spoliation of evidence. In products liability cases, one of the more difficult positions for a manufacturer or other distributor to defend is a claim that its product was defective or malfunctioned when the product itself is unavailable for inspection and testing. To complicate matters, these entities often are called to defend such claims after the plaintiff's expert has examined the product. In recent years, several courts have dismissed products liability lawsuits where there was a failure to preserve essential evidence. ² Wisconsin now has joined those other jurisdictions as a court of appeals affirmed a lower court's dismissal of a subrogation action because that insurer failed to preserve a refrigerator that was the suspected cause of a fire. Although usually raised in the context of insurance subrogation cases, the defense of spoliation of evidence may apply in any products liability case where the product allegedly responsible for the loss has been lost or destroyed. Parties on both sides of products liability cases need to be aware of this defense, know when it should be raised, the risks of raising the defense and how it can be defeated.

The Advent of the Spoliation Defense

Sentry arose from the ashes of a home owned by an insured of Sentry Insurance, A Mutual Co. (Sentry). During its investigation into the loss, Sentry hired a cause and origin expert. This expert examined a refrigerator suspected of causing the fire, took numerous photographs, removed a variety of component parts and concluded that the fire resulted from the failure of certain electrical components of that refrigerator. ³ At some point after this investigation, the refrigerator was discarded in a local landfill. Sentry contended that the disposal was without its authorization. Thereafter, Sentry commenced a lawsuit seeking reimbursement of its subrogated interest as a result of what it contended to be a malfunctioning refrigerator.

The refrigerator manufacturer's insurer, Royal Insurance Co. (Royal), moved the court for sanctions based upon the intentional removal of various refrigerator components (as part of Sentry's expert's destructive testing) and the improper disposal of the unit before Royal had an opportunity to inspect and test the unit. In support of its motion, Royal's expert testified that "the removal of the component parts prevented him from checking the wiring and performing specific tests on the electrical circuit, which are critical to a fire investigation."⁴ The electrical system and components were not in place, so testing could not be conducted. The trial court concluded that Royal was deprived of its ability to defend against the claim, and to sanction such conduct the trial court excluded any evidence of the refrigerator's condition. Since Sentry's subrogation action could not be maintained without evidence of the refrigerator's condition, the trial court subsequently entered summary judgment, dismissing Sentry's complaint. Sentry's failure to properly preserve essential evidence resulted in the dismissal of its action.

Although the problem of spoliation of evidence is old, prior to Sentry Wisconsin trial courts had very little law to guide them in addressing the failure to preserve essential evidence in products liability litigation. Now, Sentry provides authority to trial courts to exclude evidence that proves the existence of a defect that caused damage or loss, if that evidence has not been properly preserved. Under Sentry , a defendant seeking an eventual dismissal based upon the failure to properly preserve evidence relevant to the litigation has to show that the facts of the case pass a two-part test: 1) the conduct responsible for causing the destruction must be, at least, egregious, if not intentional; and 2) the destruction must prejudice the ability to adequately defend against the claims asserted.

The facts in Sentry passed the first step. Sentry was attempting to build a subrogation case against the refrigerator manufacturer. Moreover, Sentry's expert acknowledged the importance of physically observing the refrigerator in forming his opinions. By conducting the destructive testing, Sentry's expert denied Royal the same opportunity to inspect and test the unit. The ex parte destructive testing constituted conduct beyond mere negligence. The trial court concluded that the removal of the component parts was intentional. The Sentry trial court also found that the disposal of the refrigerator was, "at a minimum," negligent. ⁵ These findings, along with Sentry's own expert's admission of the importance of actual observation in forming opinions, coupled with Sentry's implicit knowledge of the importance of evidence in subrogation actions, supported the finding of conduct that warranted sanctions.

Sentry contended that prior case law precluded imposing this sanction which is "tantamount to dismissal for negligent destruction of evidence." ⁶ The appellate court rejected this assertion, noting that the trial court found both intentional conduct (removal of component parts) and negligent conduct (disposal of the refrigerator). The Sentry court did not hold that negligent conduct alone was sufficient to warrant the exclusion sanction. Instead, the presence of the intentional conduct along with the negligent conduct was punishable by the exclusion sanction. In general, Wisconsin courts that have sanctioned parties by dismissing their lawsuits have required a finding of egregious conduct. ⁷ It is unclear from the Sentry court's opinion whether intentional conduct is needed to support a dismissal. However, it is unlikely that the standard has now been raised to require intentional conduct because the court noted that Sentry's negligent conduct of allowing the refrigerator's disposal warranted some sanction. At a minimum, the Sentry court's ruling appears to be consistent with prior Wisconsin law requiring more flagrant conduct than mere negligence to warrant such a severe sanction.

The second requirement needed to support the exclusion sanction is a finding of sufficient prejudice. The prejudice must destroy the defendant's ability to adequately defend against the claim. Sentry illustrates the extent of the prejudice required. Royal's expert testified that he was unable to check the unit's wiring and conduct specific tests on the electrical circuit that were essential to a fire investigation. The trial court found that removing the component parts precluded Royal's expert from conducting tests to determine whether the electrical components were properly wired and examine the condition of various seals on the wires. Due to the conduct of Sentry's expert, the trial court found that Royal was deprived "of the opportunity to conduct tests essential to its adequate defense of the claim made against it." The trial court found that the deprivation was more than cosmetic. This deprivation prejudiced Royal such that the trial court found that Royal could not adequately defend against the claim. As both a punishment for the objectionable conduct and as a means to alleviate the prejudice to Royal, the sanction of exclusion of any evidence concerning the refrigerator's condition was deemed appropriate. ⁸

Lessons from Sentry

Motions for Sanctions Addressed Under Discretionary Standard

Parties who present or defend against products liability claims should take heed of the several lessons of Sentry . First, it is important to note that the motions filed generally are not motions for summary judgment or for dismissal but rather are for sanctions. A summary judgment motion is not the vehicle for obtaining the dismissal of the plaintiff's claim based upon spoliation of evidence because the plaintiff usually will have sufficient evidence to present a prima facie case of products liability. Instead, a defendant seeking such relief first must move to exclude evidence of the product's condition pursuant to a motion for sanctions. Once excluded, no evidence will remain upon which a jury can find products liability. Summary dismissal of the claim then is appropriate.

Since the necessary motion will be for sanctions, it will be up to the trial court's discretion to determine what sanctions, if any, should be imposed. More importantly, any appellate court reviewing a trial court's dismissal will do so under an erroneous exercise of discretion standard. Under this standard, if the trial court properly applied the law to the facts and the trial court's decision was one that a reasonable judge would make, then the sanction ruling will be upheld on appeal. ⁹ This point is significant because Wisconsin appellate courts will affirm a trial court's discretionary ruling even though the reviewing court may not have made the same decision as did the trial court. Therefore, if ample facts can be mustered to demonstrate sanctionable conduct and sufficient prejudice, then the presence of some countervailing facts normally will not be enough to warrant reversing a trial court's decision. This standard benefits those who face such claims and are not afforded the opportunity for full investigation.

Duty to Preserve Essential Evidence

Sentry establishes a duty on parties seeking to recover for allegedly defective products to preserve evidence essential to the claim being litigated. For example, in Sentry the refrigerator and many of its components were not preserved. After Sentry's expert conducted his tests, the refrigerator was disposed of in a local landfill. Royal could not discover the refrigerator's serial number or model number. Royal also was prevented from examining the condition of certain seals around the wires of the unit. Although the crux of the Sentry decision focused upon the intentional conduct of the destructive testing, the court acknowledged that the negligent disposal of the refrigerator justified sanctions. Henceforth, parties seeking to recover for damage caused by allegedly defective or malfunctioning products have a duty to preserve such evidence, so that the target defendant can fully investigate and defend against the claims asserted.

Preserving the evidence can encompass more than merely retaining the specific item in question. The duty can extend to maintaining the item's structure intact for future evaluation and testing. Sentry provides guidance as to the extent of this duty. In Sentry the requirement to preserve the evidence extended to the components of the refrigerator itself. In addition to inspecting and photographing the refrigerator, Sentry's expert conducted ex parte destructive testing. This testing included removing the burned timer motor, wire assembly, wires attached to the compressor, the compressor thermostat, the upper limit thermostat, the burned capacitor, the compressor motor on/off switch and the frame supporting apparatus. ¹⁰ Some of these items were the very components that Sentry's expert opined caused the fire. Sentry's expert had now destroyed the refrigerator's integrity such that even if it never was disposed of, Royal's expert never would have been able to examine the unit in the condition it was at the time of the loss. Therefore, conclusions that could be drawn from or supported by observations of the unit at the time of the loss were lost forever.

Arguably, where the nature of the product alleged to have caused the loss involves a series of components working in unison, it may be necessary to maintain the entire product even though some of the components are not relevant to the cause of the loss. For example, to undertake a complete investigation into the cause of the loss, it also may be necessary to verify that the product was properly assembled or properly integrated into another product. Maintaining the entire product also may be needed to determine if any modifications were made to the product or if the product was misused. Recovery under a strict liability claim is not permitted where a product undergoes substantial and material changes after it leaves the manufacturer's possession, ¹¹ or where the product was abused or misused. ¹² Therefore, depending upon the product and the nature of its alleged failure, preserving its integrity may be essential to maintaining a products liability claim.

Inability to Defend Against Claim Is Essential

Sufficient prejudice of the ability to defend must be established. As noted in Sentry , the plaintiff's conduct must prejudice the defendant's ability to defend against the claims asserted in order for this defense to be successful. Several important lessons flow from the Sentry appellate court's recitation of the basis of the trial court's finding of prejudice. First, expert testimony is likely necessary to establish the requisite prejudice. Royal demonstrated, by way of expert testimony, that certain examinations and tests were critical to fire investigations and therefore necessary to defend the case. Royal's expert testified that the destructive testing and disposal of the unit precluded those examinations and tests. As a consequence, the trial court concluded that Royal was denied the opportunity to investigate the cause of the fire.

The need for expert testimony to prove the inability to defend makes sense in light of the general requirement that expert testimony is necessary to prove the existence of a defect when the proof of such evidence requires testimony from those having specialized knowledge, training and experience.¹³ It often is necessary for an expert to demonstrate how and why physical inspection and testing is needed to determine the true cause of the loss. Without an opportunity to inspect and test, a defendant may be unable to evaluate the theory of liability against it, much less discover other potential explanations for the loss.

To establish this prejudice, it is important for the defendant to demonstrate that its expert is unable to evaluate the mechanical, electrical, structural or other substantive basis of the claims asserted. The defendant also should attempt to establish that based upon the absence of the evidence, its expert is unable to formulate a soundly based opinion on the cause of the loss.¹⁴ By demonstrating that its expert is unable to evaluate the plaintiff's theory of liability and unable to conduct its own investigation to ascertain the cause of the loss, the defendant should be able to demonstrate the requisite prejudice. Once demonstrated, the trial court may be left with little choice but to bar any evidence regarding the unit's condition. Prudence suggests that the defendant provide this basis for the trial court's factual determinations. After all, the plaintiff's own expert likely will opine that there is sufficient evidence (by way of photographs, videotape and/or existing components) to fully investigate the cause of the loss.

Second, depending upon the nature of the claims asserted, secondary evidence may not be a sufficient alternative to primary investigation and testing. For example, Sentry contended that the numerous photographs, the retention of some of the component parts and the detailed report of its expert were sufficient for Royal to defend the case. The trial court made a finding of fact to the contrary. The trial court found that the secondary evidence of photographs and even some of the component parts were insufficient to alleviate the prejudice to Royal. This factual finding supported the trial court's discretionary ruling.

The significance of a trial court's factual findings is readily apparent at the appellate level. A trial court will have wide latitude in evaluating the information placed before it on motions for sanctions. The factual findings made by a trial court that are essential to support its decision, such as those made by the Sentry trial court, are analyzed by a reviewing court under the clearly erroneous standard. Under this standard, unless the factual determination is contrary to the great weight and clear preponderance of the evidence, the facts will be accepted as true. ¹⁵ Consequently, a party on the losing side of the motion will face an uphill battle in seeking a reversal of the trial court's decision.

Providing such expert testimony, however, is a double-edged sword. While such evidence ought to be sufficient to warrant a dismissal, such a result is not assured. As noted earlier, a decision to bar evidence and dismiss a case is vested to the trial court's discretion. Countervailing facts or factors may demonstrate that a dismissal is inappropriate. For example, despite the spoliation of evidence, plaintiffs in other jurisdictions have been allowed to proceed on theories of liability where the allegedly defective item was retained but other physical items that were possible explanations for the loss were destroyed; ¹⁶where only certain component parts were preserved and others were not; ¹⁷ where the plaintiff's expert was allowed to testify about evidence that was lost while in the custody of the plaintiff's counsel, even though the defense had not examined the missing evidence; ¹⁸ and even where the plaintiff's expert performed ex parte destructive testing to discern the cause of the loss, before notice of the loss was provided to the defendant. ¹⁹ Thus, even if a reviewing court disagrees with the trial court's decision, provided that the trial court's decision was not an erroneous exercise of its discretion, the reviewing court will affirm the trial court. Furthermore, even if there are sufficient facts upon which a trial court can ultimately dismiss a case, there is an inherent reluctance of courts to grant such motions. ²⁰ Hence, while a defendant may believe that a sufficient factual predicate for the motion has been established, a court may disagree and impose sanctions other than barring all evidence concerning the product's condition.

If such a motion is denied, then the defendant either must locate a different cause and origin expert or, if warranted, have its expert reevaluate the case to determine if the true cause of the loss can be discerned with additional information, testing and evaluation. In any event, the initial expert and any subsequent expert will be subject to attacks on their credibility and integrity during cross-examination. At trial, the defendant will be accused of "expert shopping." Therefore, assertion of this defense must not be made cavalierly. Only after careful evaluation of the facts, investigation of alternative means of uncovering similar or additional evidence and honest evaluation of the likelihood of success of the merits of a motion, should a defendant file the motion. Notwithstanding the foregoing, this defense should be raised, at least upon information and belief, as an affirmative defense to any products liability lawsuit where the product is missing, lost or has been destroyed.

Claims of Prejudice Should Be Fully Investigated

In responding to this defense, the plaintiff's expert should be consulted to determine if it can be shown that there are other methods of investigating and testing the theory of liability or theory of nonliability other than directly testing the product itself. (After all, allegedly defective or malfunctioning products often are destroyed in the occurrence.) Perhaps it can be shown that different tests or other investigation methods beyond those suggested by the defendant's expert will yield the same information. For example, a defendant's claim of prejudice due to spoliation of evidence may not be sufficient to warrant a dismissal in the context of a design defect case. In such cases, the physical inspection and testing of the specific product may not be as important because the defect allegedly is common to all products of that design. Testing of another unit of the same design may be an adequate substitute. Also, by evaluating other evidence, such as the presence or absence of damage to other components or structure of the entire unit, it may be possible to show that the defendant still can adequately investigate and defend against the claims asserted.

Efforts should be taken in discovery of the defendant's experts to itemize all of the activities the expert would have done had the evidence not been destroyed or lost. Inquiry then should be directed to what the expert would have expected those activities to show. Thereafter, the focus should be on eliciting from the expert that there are other means to obtain the same or similar information, minimizing any prejudice to the defendant. Finally, it should be determined if the defendant's expert has an opinion, to a reasonable degree of probability, in the expert's field of expertise, as to the cause of the loss. If the expert does have such an opinion, then the defendant should be precluded from demonstrating that the defendant is prejudiced such that he or she is unable to adequately defend against the claims asserted. The ability to formulate an opinion, to the requisite level of expert probability, demonstrates the absence of prejudice sufficient to warrant an exclusion sanction. The sanction of exclusion is designed to remedy a situation where the defendant is so prejudiced by the plaintiff's conduct that an adequate defense cannot be mounted. Hence, if the defendant is able to adequately defend against the claim, then it would be unfair to impose the exclusion sanction with its attendant consequence of a dismissal.

However, the best method to defeat such a defense is to simply avoid providing the basis for the defense. Whenever possible, parties claiming that a product caused a loss ought to notify potential defendants of the loss immediately. In addition, ex parte destructive testing should be avoided if at all possible. Where such testing is necessary to discern the existence of a defect or malfunction, then every effort should be taken to notify all concerned and record the testing itself, not just the test results. Finally, the evidence should be properly stored until after the claim is settled or fully litigated. Guidance from experts and counsel should ensure adequate preservation of evidence. Paying the storage cost is better than losing out on the chance to recoup from the responsible party.

Conclusion

Wisconsin now recognizes the use of spoliation of evidence as a defense to a products liability claim. To successfully invoke the defense, those faced with products liability claims without the product should demonstrate that the product was under the control of the plaintiff when it was lost or destroyed; that the loss of the evidence was intentional or egregious; and the absence of the product prevents an adequate defense against the claim.

Those who face such defenses should fully investigate the validity of the claims of prejudice and attempt to alleviate or minimize whatever prejudice is present. Fairness dictates adequate preservation of the evidence be undertaken before a valid products liability claim can go to a jury. Correspondingly, if there is no real prejudice to the defendant then the matter should be resolved by the jury.

Endnotes

¹ Sentry Ins. v. Royal Ins. Co., 196 Wis. 2d 907, 539 N.W.2d 911 (Wis. Ct. App. 1995).

² See, for example, Bachmeier v. Wallwork Truck Centers, 544 N.W.2d 122 (N.D. 1996); Capital Chevrolet Inc. v. Smedley, 614 So. 2d 439 (Ala. 1993); American Family v. Village Pontiac, 223 Ill. App. 3d 624, 585 N.E.2d 1115 (Ill. App. 1992). Also, for excellent summaries of the law regarding spoliation of evidence in other jurisdictions, including the tort of spoliation of evidence, see W. Russell Welsh & Andrew C. Marquardt, "Spoliation of Evidence: Don't Sweep Your Ethics - Or The Law - Under The Rug," 23 The Brief 8 (Winter 1994); Scott S. Katz & Anne Marie Muscaro, "Spoilage of Evidence - Crimes, Sanctions, Inferences and Torts," 29 Tort & Ins. L.J. 51 (Fall 1993); Sam LaManna, "Spoliation of Evidence in Products Litigation," For The Defense 8 (May 1993); Saverio LaManna, "Spoliation of Evidence in Products Litigation," For The Defense 9 (October 1991).

³ Sentry, at 911-12, 539 N.W.2d at 913.

⁴ Id. at 917, 539 N.W.2d at 915.

⁵ Id. at 913, 539 N.W.2d at 914.

⁶ Id. at 918, 539 N.W.2d at 915 (citing Jagmin v. Simonds Abrasive Co., 61 Wis. 2d 60, 211 N.W.2d 810 (Wis. 1973), Milwaukee Constructors II v. Milwaukee Metro. Sewerage Dist., 177 Wis. 2d 523, 502 N.W.2d 881 (Ct. App. 1993), rev. denied, 508 N.W.2d 421 (Wis. 1993)).

⁷ For example, see Johnson v. Allis Chalmers Corp., 162 Wis. 2d 261, 279-80, 470 N.W.2d 859, 864 (Wis. 1991), Milwaukee Constructors, 177 Wis. 2d at 532-33, 502 N.W.2d at 884 (Wis. Ct. App. 1993).

⁸ Sentry at 917-18, 539 N.W.2d at 915.

⁹ Milwaukee Constructors, 177 Wis. 2d 523, 529-30, 502 N.W.2d 881, 883.

¹⁰ Sentry at 911-12, 539 N.W.2d at 913.

¹¹ Glassey v. Continental Ins. Co., 176 Wis. 2d 587, 600, 500 N.W.2d 295, 301 (Wis. 1993), reconsid. den'd, 508 N.W.2d 25 (Wis. 1993).

¹² Dippel v. Sciano, 37 Wis. 2d 443, 460, 155 N.W.2d 55, 63-64 (Wis. 1967).

¹³ State v. Witaker, 167 Wis. 2d 247, 481 N.W.2d 649 (Wis. Ct. App. 1992), rev. denied, 490 N.W.2d 22 (Wis. 1992); Drexler v. All American Life and Casualty Co., 72 Wis. 2d 420, 241 N.W.2d 401 (Wis. 1976); and Cramer v. Theda Clark Mem'l Hosp., 45 Wis. 2d 147, 172 N.W.2d 427 (Wis. 1969).

¹⁴ See Cincinnati Ins. Co. v. Synergy Gas Inc., 585 So. 2d 822, 824 (Ala. 1991), reh'g granted, 1993 WL 186746, opinion withdrawn, for similar analysis.

¹⁵ Sentry at 917, 539 N.W.2d at 915.

¹⁶ Mayes v. Black & Decker Inc., 931 F. Supp. 80 (D.N.H. 1996).

¹⁷ Cincinnati Ins., 585 So. 2d 822 (Ala. 1991).

¹⁸ Hamann v. Ridge Tool Co., 213 Mich. App. 252, 539 N.W.2d 753 (Mich. App. 1995).

¹⁹ Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76 (3rd Cir. 1994).

²⁰ Trispel v. Haefer, 89 Wis. 2d 725, 732, 279 N.W.2d 242, 245 (Wis. 1979).

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