Great Am. Ins. Co. of N.Y. v. Lowry Dev., LLC, 2007 WL 4268776 (S.D. Miss. Nov. 30, 2007)
This insurance coverage litigation stemmed from property damage caused by Hurricane Katrina in 2005. Plaintiff Great American contended that there was a mutual mistake of fact in connection with the formation of the insurance contract, arguing that the parties, acting through their agents, understood that wind damage coverage was excluded. In this decision, the court ruled on plaintiff’s motion for sanctions for the destruction of a laptop computer by defendant’s insurance agent (Groves), who was also a defendant in the case.
During the summer of 2006, Groves disposed of a personal computer which may have contained information relevant to the issues in dispute. Although the specific contents of the computer’s hard drive were unknown, the court found that there was evidence in the record that Groves used the computer to prepare correspondence and emails related to the purchase of the policy at issue. Plaintiff argued that these computer records may have shed considerable light on the question whether Groves believed, at the time he negotiated the purchase of the policy, that the policy would provide coverage for wind damage. That disputed issue of fact was at the heart of the defense of mutual mistake Great American sought to establish.
Groves gave two depositions, the first of which occurred in August 2006, just weeks after he disposed of his computer. At that time, Groves testified that the computer had been damaged by lightning in April 2006, sent for repairs, proved to be beyond repair, and left with the computer repair service. Groves testified that he: "Took it in, he couldn’t fix it. He kept it. I don’t know what he did with it. I bought a new one from Dell, and that’s what I have."
In June 2007, Groves responded to a request for the inspection of his electronic files by objecting to the request on the grounds that "… the only computer that contained such files and/or data was damaged by lightning in the summer of 2006. This computer was thereafter examined by Tech Advanced Computers and determined to be inoperable, and the files and data contained were not retrievable or capable of restoration. This motherboard of the computer was therefore replaced and the old motherboard discarded and is no longer in Groves’s possession."
Great American thereafter contacted Tech Advanced Computers and obtained an affidavit from the technician who worked on Groves’s computer. That affidavit directly contradicted Groves’s testimony in that the technician reported that he was able to repair Groves’s computer by replacing its motherboard and that he returned the computer to Groves in good working order. The affidavit further indicated that damage to the motherboard of this computer would not have caused a loss of any file or data stored in the computer. When Groves gave his second deposition, he was shown the technician’s affidavit, and he admitted that the computer had been returned to him, that he used the computer for several days, and that he threw the computer away when it malfunctioned a second time.
The court observed that Groves offered no explanation for his untruthful testimony or for his inaccurate and incomplete response to Great American’s request for inspection. It stated that, while it was true that Groves’ attorney prepared and was responsible for the objection raised in this response, the attorney could only have relied on Groves for the information set out as grounds for the objection.
The court concluded that Great American established, by clear and convincing evidence, that the destruction of the computer had deprived the parties and the court of relevant evidence that Groves was under a duty to preserve during the pendency of the litigation. It further found that the destruction of this computer was not a result of simple negligence or any cause beyond the control of Groves. The court concluded that Groves’ untruthful testimony was sufficient to infer the necessary element of bad faith in connection with his actions, and that Great American should be allowed to tell the jury about the disposition of the computer and Groves’ untruthful testimony about the matter. In addition, the court deemed it appropriate to reduce Great American’s burden of proof in establishing a mutual mistake of fact to a preponderance of the evidence.