Illinois Insured Loses Evidence And Coverage Too
The dispute in Keeley arose out of a construction defect accident involving three of Keeley’s employees who fell from an I-beam and were injured. In addition to the claims for personal injury that the plaintiffs brought against Keeley, they claimed that he had subsequently destroyed or disposed of the I-beam, thwarting their ability to investigate and confirm its allegedly defective nature. Keeley’s insurer (United) denied coverage and brought a declaratory judgment action.
Earlier this month, the Illinois Appellate Court affirmed the absence of coverage for the spoliation claims. Keeley had argued that as the claims against him were because of lost property, they should fall within the policy’s definition of “property damage.” The Appellate Court disagreed.
The Appellate Court conceded that a spoliation claim may be considered to constitute two different claims for damage to property. The first would involve the damage to and loss of use of the I-beam itself. In this case, however, the court observed that the I-beam was at all times within the care, custody and control of the insured and was therefore subject to Exclusion J(4) in the CGL policy.
Alternatively, the court recognized that the lost use of the I-beam had damaged the value of the plaintiff’s lawsuit against Keeley. The court observed, however, that characterizing the claim in this manner took it out of the insuring agreement of the policy itself since coverage only applies to injury to tangible property whereas damage to a cause of action is not damage to “tangible property.” Accordingly, the court affirmed the lower court’s declaration that Keeley’s claims were not covered by his CGL carrier.
This Illinois ruling is in general accord with such limited case law as exists on this issue. Several years ago, the Florida Supreme Court ruled in Humana Worker’s Compensation Services v. Home Emergency Services, 842 So.2d 778 (Fla. 2003) that spoliation claims did not give rise to coverage under an employer’s liability policy whose coverage was limited to “bodily injury by accident.” The court ruled that even though the spoliation claim would not have risen but for the fact that a bodily injury occurred giving rise to a lawsuit against the employer, the employer’s destruction of evidence did not itself result in bodily injury. Thus, the court ruled that, “The accident did not result in bodily injury but rather in the latter not being available as evidence in the bodily injury claim.”
Keeley is in accord with Fremont Cas. Ins. Co. v. Ace-Chicago Great Dane Corp., (Ill. App. 2000) in which the Appellate Court held that a CGL carrier had no obligation to defend a product manufacturer for having lost a ladder that injured the plaintiff. The First District of the Appellate Court ruled that, “The inability to prove the cause of action against a third party does not fall within the plain and ordinary meaning of the term ‘bodily injury.’”
