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Recently, the New Jersey Appellate Division in Liberty Mutual Insurance Company, et al. v. Viking Industrial Security, et al. addressed the issue of spoliation.
The case involved a workers compensation insurance fraud. Coverage premiums are based upon payroll, and for several years Viking reported payroll numbers far below what they actually were to their carrier, which resulted in their =paying a substantially lower premium than they should have. Viking kept two different sets of payroll records, and was paying premiums based upon the smaller of the two. During the discovery phase of the subsequent trial, Liberty Mutual requested Viking’s accounting records, kept on the QuickBooks computer program, and the Court ordered Viking to turn them over. The CD that Viking turned over to Liberty Mutual would not open, and the second CD from Viking was missing records. It was not until almost a year after requesting the records that Liberty Mutual actually received them.
Based on the delay caused by Viking’s failure to turn over the records, Liberty Mutual sought a spoliation order from the court. Viking argued that no spoliation had occurred and that, regardless of the delay, Liberty was now in possession of the records. Viking maintained that no evidence existed to show that the records were altered or destroyed, or that Liberty Mutual suffered any prejudice as a result. The trial court agreed with Liberty and issued the spoliation order, which imposed significant discovery sanctions on Viking and ultimately led to judgment being rendered against Viking.
On appeal, the Appellate Division found that the trial court had improperly issued the spoliation order based on Viking’s delay in turning over the computer records. “A Spoliation claim arises when a party in a civil action has hidden, destroyed, or lost relevant evidence and thereby impaired another party’s ability to prosecute or defend the action,” the court explained. The panel ultimately held that, since the records were turned over to Liberty and they could not demonstrate that they were prejudiced by the delay, the spoliation order and corresponding sanctions were improper. The Appellate Division reversed and remanded the case.
The litigators at Lieberman & Blecher often face spoliation of evidence issues in environmental, toxic tort, insurance recovery and commercial litigation. Record keeping protocols, evidence preservation and proper forms of notice become imperative in these matters. When litigation is anticipated, even remotely, routine consultation with counsel concerning the appropriate course of action could mean the difference between litigation success or failure.
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