The Nevada Supreme Court has recently weighed in – favorably – on whether an insurance company may dispose of evidence while a lawsuit is pending involving the company's insured. In Timber Tech Engineered Building Products v. The Home Insurance Company, 55 P.3d 952 (Nev. 2002), the Nevada Supreme Court declined an invitation to recognize a tort claim against two insurance companies for spoliation of evidence.
The case against the insurers arose from an underlying personal injury action against a restaurant's owners and builders following a ceiling collapse that injured several patrons. While the personal injury case was pending, the owner and two of the contractors agreed to preserve debris from the collapse until the claims against them were resolved, and the insurance companies for those parties agreed to bear the associated storage costs. After three years, however, the insurers discontinued paying the costs of storage and the debris was disposed of.
Some time later, Timber Tech – a defendant in the personal injury case, but not a party to the preservation-of-evidence agreement – settled with the plaintiffs and then sued the insurance companies that had permitted the disposal of the stored debris. Timber Tech claimed that the loss of evidence rendered Timber Tech unable to prove that it was not responsible for the ceiling collapse, advancing the theory that the insurers should be liable for "spoliation" of the evidence.
The Nevada Supreme Court refused to recognize a cause of action for spoliation and held that such claims were barred as a matter of law. Following recent California authority, the Nevada court reasoned that the benefits of recognizing such tort claims were outweighed by the burden to litigants and the judicial system of "potentially endless litigation over a speculative loss, and by the cost to society of promoting onerous record and evidence retention policies."
Timber Tech strongly suggests that insurance companies doing business in Nevada will not be held responsible to third parties when their actions result in spoiled, degraded, or otherwise disposed-of evidence. We caution, however, that the decision may not insulate insurance companies from liability to their own insureds. Because the plaintiff in Timber Tech was not insured by the defending insurers, the court did not address whether a policyholder may pursue its carrier for spoliation under the guise of breach of contract or breach of the implied covenant of good faith and fair dealing. Because Timber Tech does not appear to present any theoretical obstacle to such claims, the practical application of the case may be limited to the third-party setting.