Johnson v. Liberty Mut. Fire Ins. Co.

653 F.Supp.2d 1133

Russell J. JOHNSON, and Jennifer Johnson, Plaintiffs, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.

Civil Action No. 08-cv-01137-MSK-MJW.

United States District Court, D. Colorado.

September 2, 2009.

COPYRIGHT MATERIAL OMITTED

Ross B.H. Buchanan, Buchanan Law Firm, LLC, Denver, CO, for Plaintiffs.

Hilary Dawn Wells, Brian John Spano, Rothgerber Johnson & Lyons, LLP, Denver, CO, for Defendant.

OPINION AND ORDER GRANTING, IN PART, MOTION FOR SUMMARY JUDGMENT AND MOTION TO DISMISS

MARCIA S. KRIEGER, District Judge.

THIS MATTER comes before the Court pursuant to Defendant Liberty Mutual Fire Insurance Co.'s ("Liberty") Motion for Summary Judgment (# 28), the Plaintiffs' response (# 73), and Liberty's reply (# 82); and Liberty's Motion to Dismiss (# 63), the Plaintiffs' response (# 72), and Liberty's reply (# 78).

FACTS¹

On July 27, 2000, Plaintiff Russell Johnson was driving on a highway in Wyoming when he was struck from the rear by a vehicle owned by Zimmerman Truck Lines ("Zimmerman") and driven by Michael Dellock. Mr. Dellock informed the police officer responding to the incident that Mr. Johnson's taillights were not illuminated at the time of the accident, a fact Mr. Johnson denied. The Wyoming State Patrol issued a traffic citation to Mr. Johnson, and a representative of that agency removed one of the taillight assemblies from Mr. Johnson's truck for further examination. Apparently in response to a threat of litigation by Zimmerman, Mr. Johnson remove the other taillight assembly and provided it to Liberty, his auto insurer.

Liberty sent both taillights to an expert at an entity called Fay Engineering for examination. In November 2000, the expert issued his report, concluding that the condition of the taillights suggested they were indeed illuminated at the time of the accident. In addition to the report, Fay Engineering returned the taillights to Liberty. As a result of the expert's conclusion, the State Patrol dismissed the citation against Mr. Johnson. In 2002, having successfully repelled the risk of litigation by Zimmerman, Liberty closed its claim file on the case.

In July 2004, the Plaintiffs commenced a civil action against Zimmerman and Mr. Dellock in Wyoming, claiming that Mr. Dellock was responsible for injuries sustained by Mr. Johnson in the accident. During the discovery phase of that case, the Plaintiff's lawyer sought to obtain the taillight assemblies, but was advised by Liberty that the taillights could not be found and, in all likelihood, had been destroyed at the time the claim file was closed. A representative of Liberty testified to that effect in a deposition in the Wyoming case on July 14, 2005. Faced with a spoliation ruling by the Wyoming court that limited the Plaintiffs' ability to refute Mr. Dellock's contention that the taillights were not illuminated at the time of the accident, the Plaintiffs settled the Wyoming suit for $ 350,000.

On July 19, 2007, the Plaintiffs commenced this action against Liberty. The original Complaint (# 2), alleged two causes of action under Colorado law: (i) "negligence of bailee," in that Liberty violated its duty to exercise reasonable care in safeguarding the taillight assemblies; and (ii) "spoliation of evidence," in that Liberty was aware of the evidentiary significance of the taillights, yet destroyed them.

Liberty filed the instant Motion for Summary Judgment (# 28), arguing that: (i) Colorado law does not recognize a claim for "spoliation of evidence"; (ii) the claim for "negligence of bailee" is simply a re-designation of the same, unrecognized claim for spoliation; (iii) under Colorado law, damages for a claim of negligence by a bailee is limited to the value of the lost property; and (iv) the claims are barred by the statute of limitations.

Thereafter, the Plaintiffs filed an Amended Complaint (# 60), repeating the negligence of bailee and spoliation claims, and asserting a new third claim for relief—that Liberty's conduct in failing to preserve the taillight assemblies constituted a bad faith breach of the insurance contract between the Plaintiffs and Liberty. Liberty responded to the Amended Complaint with the instant Motion to Dismiss (# 63), in which it argued: (i) that the Plaintiffs lack standing to bring this action as they have not alleged any injury in fact, but rather, mere speculation that the outcome of a trial in the Wyoming case would have yielded a different result; (ii) the claims for negligence and spoliation fail to state claims recognized in Colorado law, for essentially the same reasons presented in the summary judgment motion; and (iii) the bad faith breach of contract claim fails to state a cognizable claim under Colorado law, as it asserts neither a "first-party claim" for failure to pay benefits or a "third-party claim" in which Liberty mishandled a claim against the Plaintiffs by a third party.

ANALYSIS

A. Summary judgment motion

Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary. See White v. York Intern. Corp., 45 F.3d 357, 360 (10th Cir.1995). Summary adjudication is authorized when there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Substantive law governs what facts are material and what issues must be determined. It also specifies the elements that must be proved for a given claim or defense, sets the standard of proof and identifies the party with the burden of proof. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir.1989). A factual dispute is "genuine" and summary judgment is precluded if the evidence presented in support of and opposition to the motion is so contradictory that, if presented at trial, a judgment could enter for either party. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. When considering a summary judgment motion, a court views all evidence in the light most favorable to the non-moving party, thereby favoring the right to a trial. See Garrett v. Hewlett-Packard Co., 305 F.3d 1210, 1213 (10th Cir.2002).

If the moving party does not have the burden of proof at trial, it must point to an absence of sufficient evidence to establish the claim or defense that the non-movant is obligated to prove. If the respondent comes forward with sufficient competent evidence to establish a prima facie claim or defense, a trial is required. If the respondent fails to produce sufficient competent evidence to establish its claim or defense, the claim or defense must be dismissed as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Here, the parties' primary dispute is not particularly one of fact, but rather, one of law—that is, whether Colorado law contemplates claims for "spoliation of evidence" and "negligence of bailee" in these circumstances.

1. Spoliation claim

Turning first to the claim for "spoliation of evidence," the Plaintiffs admit that "no Colorado state case ... squarely confronts the issue of whether a third-party's loss or destruction of evidence is actionable." However, they argue that "it is clear that," under general Colorado law regarding the creation of legal duties and principles of recognized tort law that "Colorado courts would recognize a duty on the part of Liberty Mutual ... to avoid losing or destroying the taillight assemblies," either "under the specific rubric of `spoliation of evidence' or simply as an application of well-settled principles of Colorado tort law."

Where, as here, diversity of citizenship between the parties requires a federal District Court to hear an action sounding in state law, the Court is required to follow the decisions of the state's highest court or, where no controlling decision exists the Court must predict how the state's highest court would rule on the issue. Grynberg v. Total, S.A., 538 F.3d 1336, 1354 (10th Cir.2008). In making such a prediction, the Court may look to state appellate court decisions, decisions from other jurisdictions, statutes, and treatises. U.S. v. DeGasso, 369 F.3d 1139, 1145 (10th Cir.2004). As the Plaintiffs acknowledge, there are no reported decisions from any court in Colorado addressing the viability of a distinct claim for spoliation of evidence.

The Plaintiffs point the Court to a 2002 ALR article entitled "Negligent Spoliation of Evidence, Interfering With Prospective Civil Action, as Actionable." 101 A.L.R.5th 61. That article notes that "a number of states have recognized the actionability of negligent spoliation," but also observes that "[t]he majority of jurisdictions considering the actionability of negligent spoliation, however, have not recognized the tort." Id. § 2(a). The author goes on to observe that "Courts have split on whether insurance companies have a duty to preserve evidence, most finding no such duty." Id. Without attempting a labored analysis of each case cited, it is sufficient for this Court to observed that the majority rule in other jurisdictions appears to be towards non-recognition of an actionable claim for spoliation of evidence. See generally Metlife Auto & Home v. Joe Basil Chevrolet, Inc., 303 A.D.2d 30, 753 N.Y.S.2d 272, 274-282 (N.Y.App.2002).

The Metlife decision cited above is particularly persuasive. There, an insurer, having acquired possible product liability and other claims from its insured whose house was damaged in a fire, sought to sue the manufacturer and owner of a motor vehicle that had caused the fire. The key item of evidence, the burned vehicle, was taken into custody by the vehicle's owner's insurer and, despite requests by the plaintiff that the vehicle be preserved and inspected, disposed of the vehicle. The plaintiff sought to assert a claim against the insurer for spoliation, but the court dismissed the...