Eastern District of Pennsylvania Clarifies Standard for Imposing Spoliation Sanctions

Kean Maynard | The Subrogation Strategist

Courts are faced with the difficult task of drawing a line to determine when the failure to preserve evidence becomes culpable enough to permit a judicial remedy. In State Farm Fire & Cas. Co. v. Cohen, No. 19-1947, 2020 U.S. Dist. LEXIS 163681, the United States District Court for the Eastern District of Pennsylvania (District Court) made clear that a party is not entitled to a spoliation sanction without proof that the alleged spoliation was beyond accident or mere negligence. The District Court emphasized that when evidence goes missing or is destroyed, the party seeking a spoliation sanction must show that the alleged spoliation was intentional and that the alleged spoliator acted in “bad faith” before adverse inferences will be provided.

In Cohen, Joshua Cohen (Cohen) rented a residential property to Lugretta Bryant (Bryant). Bryant’s property suffered damages as a result of a kitchen fire. Bryant’s insurer, proceeding as subrogee, hired a fire investigator to determine the cause and origin of the fire. Based on eyewitness testimony and examination of the burn patterns, the fire investigator concluded that the fire started at the General Electric (GE) microwave located in the kitchen. The investigator advised all parties to preserve the microwave so that a joint examination could take place with the property owner and GE present. In the following weeks, the tenant returned to the property to collect belongings and perform some cleaning in anticipation of repairs beginning. Importantly, the tenant claimed the microwave was preserved during these cleaning efforts and remained at the site as instructed. However, in the fall of 2017, one of Cohen’s workers discovered that the microwave was missing and its whereabouts remain unknown.

Bryant’s insurer brought suit against the property owner, Cohen, claiming that his failure to maintain the microwave was the cause of the fire. Cohen filed a motion for summary judgment. To survive the motion for summary judgment, the insurer asked the court to grant an adverse inference in its favor, directing the jury to infer that the microwave showed signs of poor maintenance. The insurer argued that the defendant had control and custody of the evidence and was therefore responsible for its disappearance.

Following the standard established by the United States Circuit Court of Appeals for the Third Circuit (Third Circuit), the District Court noted that, when presented with alleged spoliation, courts must engage in a two-part analysis. First, a court must determine if spoliation occurred. Second, if it did, then the court must decide on an appropriate sanction, if any. As noted by the District Court, the “spoliation analysis” is distinct from the “sanctions analysis” and courts must conduct the spoliation analysis before determining any sanctions.

Pursuant to the Third Circuit’s test regarding the “spoliation analysis,” spoliation is deemed to have occurred if: “(1) the evidence is within the alleged spoliator’s control; (2) there has been actual suppression or withholding of the evidence; (3) the evidence was relevant; and 4) it was reasonably foreseeable that the evidence would be discoverable.” With respect to the second prong of the test, the District Court emphasized that the Third Circuit “requires a showing of intentionality and bad faith.” A defendant’s mere negligence in failing to preserve evidence is not enough.

As noted by the District Court, in its response to Cohen’s motion, the insurer made no argument that Cohen disposed of the microwave intentionally and/or in bad faith. In the absence of any evidence that Cohen intentionally and/or in bad faith facilitated the disposal of the microwave, the court found that the insurer could not establish that spoliation occurred. Accordingly, the court held that it need not engage in a “sanction analysis” and the insurer was not entitled to an adverse inference.

The District Court’s decision in Cohen made clear that, in Pennsylvania, parties seeking an adverse inference in cases of spoliation cannot rely on negligence alone. Thus, when the opposing party seeks a spoliation sanction, subrogation professionals should take an active role in the investigation of the alleged spoliation to confirm the presence or absence of intentional conduct and/or bad faith.

The Ancient “But For” Test Controls Coverage Dispute

Barry Zalma | Zalma on Insurance

Additional Insured Endorsement Insures Lessor for Slip and Fall in Parking Lot Serving Property Leased

When the use of the property as a gas station / convenience store depended on customers’ ability to ingress and egress through the attached parking lot – even though the lessees’ lease did not extend to the parking lot where the plaintiff fell but for the use of the parking lot the gas station/convenience store could not operate. In Republic Franklin Insurance Company, a/s/o Paul H. Lamb, t/a Lamb’s Auto Service Coatesville Shell v. Brethren Mutual Insurance Company, No. 20-1431, United States Court Of Appeals For The Third Circuit (October 6, 2020) was asked to determine whether coverage applied for the additional insured even though the lessees policy did not include the parking lot.


When a customer slipped-and-fell in a gas station parking lot in Honey Brook, Pennsylvania an insurance coverage dispute was submitted to the Third Circuit. The owner insured the properties through Republic Franklin Insurance Company. Lamb leased the gas station – but not the parking lot – to Dharmesh and Popat Bhalala, who co-owned Shree Ram Enterprises, LLC, which operated the gas station and associated convenience store. Shree Ram insured the gas station / convenience store through a policy with Brethren Mutual Insurance Company. That policy included an endorsement naming Lamb as an additional insured, subject to a critical limitation: Lamb was covered only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to Shree Ram.

After both insurers (protecting their insureds and agreeing to resolve the coverage dispute later) agreed to pay for the slip-and-fall injuries, Republic Franklin sued Brethren Mutual for reimbursement of its $175,000 payment to the injured customer on Lamb’s behalf. Republic Franklin claimed that Brethren Mutual owed that sum due to Lamb’s status as an additional insured on Shree Ram’s policy and Republic Franklin’s motion was granted.


The sole issue concerned the scope of coverage provided by the additional insured endorsement. In relevant part, that document provides coverage for liability arising out of the use of the leased premises, which Shree Ram operated as a gas station / convenience store. Under Pennsylvania law the phrase “arising out of” means causally connected with, not proximately caused by, and but for causation, i.e., a cause and result relationship, is enough to satisfy this provision. With that understanding, the question becomes whether the use of the leased premises was a “but for” cause of the customer’s slip-and-fall.

The customer slipped and fell in the parking lot after exiting the store. And while not every incidental factor that arguably contributes to an accident is a “but for” cause in the legal sense the customer’s patronage of the store and her egress to the parking lot share more than an incidental causal nexus.

Because the customer would not have slipped in the parking lot but for her patronage of the gas station and store, her injuries arose out of the use of the leased premises. Therefore, the Third Circuit concluded that the incident falls within the coverage provided by the additional insured endorsement, and the District Court’s judgment in favor of Republic Franklin was affirmed.


A lease of a gas station and convenience store without a parking lot is useless to the lessee. The fact that the parking lot existed and that the lessor did not demand the operator of the gas station to pay rent for it, understanding that it was used for the customers of the convenience store, and since the injury would not have occurred but for the existence of and use of the convenience store. Republic Franklin should be honored for protecting the insured and then, after the insureds were protected, seeking reimbursement and resolution of the coverage dispute.

Connecticut Supreme Court Finds Duty to Defend When Case Law is Uncertain

Eric B. Hermanson and Austin D. Moody | White and Williams

The Connecticut Supreme Court recently addressed whether an insurer has a duty to defend when faced with legal uncertainty as to whether coverage is owed: for example, when there is no Connecticut case law on point, and courts outside of the state have reached conflicting decisions.

The Court suggested that an insurer, in these circumstances, should defend the insured, and should seek a declaratory judgment from a court as to whether coverage is owed.

The issue in Nash St., LLC v. Main St. Am. Assurance Co.,[1] arose out of a home collapse in Milford, Connecticut. The owner of the home (Nash) hired a contractor (New Beginnings) to renovate the home. New Beginnings, in turn, retained a subcontractor to lift the house and to do concrete work on the foundation. While the subcontractor was lifting the house, the house shifted off the supporting cribbing and collapsed.

Nash sued New Beginnings, which tendered to its insurer (Main Street), which denied coverage. Main Street based its coverage denial on two exclusions in its policy. The first exclusion barred coverage for property damage to “[t]hat particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the ‘property damage’ arises out of those operations . . . .”. The second exclusion barred coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”[2]

Following Main Street’s refusal to defend, Nash obtained a default judgment against New Beginnings. When the judgment went unsatisfied, Nash brought a lawsuit against Main Street directly. The trial court – agreeing with Main Street’s position – found the exclusions barred any duty to defend. But, on appeal, the Connecticut Supreme Court reversed, and found a duty to defend had been owed.

In so ruling, the Court made clear that it was not opining on whether the exclusions actually precluded coverage. Indeed, the Court stated that it was not required “to determine conclusively what those exclusions mean.” Instead, the Court noted that New Beginnings’ tender gave rise to uncertainty as to coverage under Connecticut law; and it said this legal uncertainty was sufficient to trigger Main Street’s duty to defend.

Discussing the issue further, the Court noted that uncertainties as to coverage can be either factual or legal. A factual uncertainty exists when it is unclear from the face of a complaint whether the allegations fall within coverage. A legal uncertainty commonly occurs when policy language is ambiguous in application to the specific factual scenario at issue. But, extending this principle, the Court found legal uncertainty also exists in a second scenario: when there is a split of authority in other jurisdictions as to the meaning of a particular policy provision, and there is no relevant appellate authority within Connecticut.

This case presented a legal uncertainty of this type:

  • In some states, such as Massachusetts, courts broadly construe the phrase “that particular part,” finding – in the case of a general contractor – that it refers to an entire structure the insured is working on, and bars coverage for damage to any part of that structure.
  • In other states, courts construe the exclusion more narrowly. In these states, a court might find, for example, that the phrase “that particular part” only referred only to the foundation the subcontractor was hired to repair, and did not refer to (or bar coverage for damage to) the other parts of the home that was being lifted.

Faced with this split of authority – and absent any Connecticut appellate authority on point – the court found a legal uncertainty as to the applicability of these exclusions, and concluded that Main Street was required to defend New Beginnings.

In the future, the Court suggested, insurers faced with a legal uncertainty of this type should consider offering defense under reservation of rights, and pursuing a declaratory judgment action to try to resolve the proper construction of the disputed policy language.

[1] No. 20389, 2020 Conn. LEXIS 197 (Sep. 1, 2020).

[2] Under the standard CGL Policy, these are exclusions j (5) and (6). However, under this policy, they were exclusions k (5) and (6).

Snapchat This! That Little Green Card is Pretty Important Says One Court

Matthew DeVries | Best Practices Construction Law

We live in a world of e-mails, IMs, texts, Snapchats, TikToks, Instagrams and the occasional fax.  Although information is transmitted instantaneously in today’s environment, proof of receipt of that information (often called “Notice”) remains subject to some very strict rules imposed by contract, case law or statute.

Notice of Claims.  In a transportation case involving a personal injury, Department of Transportation v. Jones, the Court of Appeals of Georgia explained the importance of strict compliance with certain notice provisions.  The plaintiff was injured in a single-car accident on State Route 42 and he sued the Georgia Department of Transportation (“GDOT”). The plaintiff claimed that GDOT’s improper maintenance of the roadway led to an accumulation of water, which caused his truck to hydroplane into a tree, severely injuring him.  GDOT filed a motion to dismiss, arguing that the plaintiff failed to strictly comply with the notice provisions of the Georgia Tort Claims Act (“GTCA”).  The trial court denied that motion and the Court of Appeals reversed.

The Green Card.  The GTCA requires that notice of the claim be sent to “the Risk Management Division of the Department of Administrative Services.”  At the hearing, the plaintiff presented the following evidence: (a) the notice letter; (b) the green return receipt card sent to the Commissioner of GDOT; (c) a response letter from the Risk Management Division acknowledging receipt of the notice letter; and (d) a U.S. Postal Service tracking document showing that “something was sent by certified mail to the Department of Administrative Services.

The Holding. Despite this evidence, the Court held that the plaintiff failed to strictly comply with the statute because there was no proof by the plaintiff that the letter was sent by certified mail to the Risk Management Division.  The green card submitted showed proof of delivery to the Commissioner of GDOT.  The attorney for GDOT admitted in court that the notice letter received by the Commissioner of GDOT was then sent internally by the Commissioner’s office to the Risk Management Division, which then sent the acknowledgement letter.  Nevertheless, the plaintiff did not comply with the statute requiring that he sent notice of the claim to the Risk Management Division.

So What? While this may seem like a hyper-technical application of the rule, that’s precisely what “strict construction” means according to one court in George.  Whether you are contractor, developer, specialty subcontractor, or professional service provider in the construction industry, the real lesson learned is to read the express terms of any applicable contract or statute when a dispute arises, and follow both “the letter and the spirit” of the law.

The No Corners Rule? New York Federal Court Holds No Duty to Defend Where There Is No Possible Legal or Factual Basis for Indemnification of Insured

Chael Clark | PropertyCasualtyFocus

Under New York law, an insurer’s duty to defend ends if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured. This rule was recently applied by the Southern District of New York in Philadelphia Indemnity Insurance Co. v. Streb, Inc., No. 19 CIV. 366 (KPF), 2020 WL 5549316 (S.D.N.Y. Sept. 16, 2020).

In Streb, the Philadelphia Indemnity Insurance Company (“PIIC”) issued a commercial general liability policy in February 2018 to Streb, Inc., a not-for-profit performing arts company in Brooklyn, New York, that provides instruction in acrobatics for adults and children. The policy covered certain damages arising from “bodily injury” and required PIIC to defend against any “suit” seeking those damages even if the allegations of the suit are groundless, false, or fraudulent. Coverage under the policy was limited by one relevant exclusion, which excluded coverage for “any claims arising out of the use of any aerial equipment including but not limited to the use of a trapeze or trampoline.”

On April 2, 2018, one of Streb’s students was tragically injured while participating in an acrobatics class at Streb’s facility. Specifically, the student suffered severe injuries to her neck and back while attempting a forward tumble from a small trampoline. The student filed suit against Streb in New York State Supreme Court, Bronx County, on December 12, 2018, alleging in her complaint that she was injured “while attempting to do a forward flip while participating in an acrobatic class” at Streb. The complaint did not specifically mention that the student sustained her injury while using a trampoline, though Streb later learned of this through conversations with others, the relevant injury report, and deposition testimony in the underlying personal injury action.

PIIC issued a disclaimer of coverage to Streb on January 7, 2019, based on its determination that the student’s injury occurred while she was using a trampoline. The following week, PIIC brought an action against Streb in the Southern District of New York seeking a declaratory judgment that it was not obligated to defend or indemnify Streb in the underlying personal injury action. The parties thereafter cross-moved for summary judgment.

The parties agreed that, but for the relevant policy exclusion, PIIC would have had a duty to defend Streb in the underlying personal injury action. That action was clearly a “suit” seeking damages for “bodily injury” within the meaning of the policy. The relevant question, then, was whether the duty to defend existed in light of the exclusion, and whether the court may consider evidence extrinsic to the complaint in making that determination. Streb argued that PIIC owed a duty to defend because the underlying complaint did not expressly state that Streb’s student was injured on a trampoline, and thus the applicability of the exclusion was not clear from the four corners of the complaint.

The court rejected Streb’s argument, recognizing that “insurance policies are, in essence, creatures of contract” – they are subject to principles of contract interpretation, and unambiguous policy provisions must be interpreted in light of their plain and ordinary meaning. Here, the plain language of the policy exclusion was unambiguous. It excluded “any claims arising out of the use of any aerial equipment including but not limited to the use of a trapeze or trampoline.” Because Streb’s student was undisputedly injured while using a trampoline, thus triggering the policy exclusion, PIIC could establish as a matter of law that there was no possible factual or legal basis on which PIIC would be obligated to indemnify Streb. The court held that the use by PIIC of extrinsic evidence to determine whether the insurer had a duty to defend was appropriate, and granted PIIC’s motion for summary judgment.