The Subrogation Strategist

In 27-35 Jackson Ave., LLC v. Samsung Fire & Marine Inc. Co., No. A-2925-19, 2021 N.J. Super LEXIS 120, the Superior Court of New Jersey, Appellate Division (Appellate Division) considered whether the lower court properly granted the defendant’s summary judgment motion. In its motion, the defendant argued that the plaintiff could not establish proximate cause between the defendant’s alleged conduct of destroying or losing evidence and the plaintiff’s inability to prove liability against other responsible third parties. The Appellate Division affirmed the lower court’s ruling, finding that the plaintiff failed to provide sufficient evidence of a viable liability claim against potentially responsible third parties in the underlying claim.

In 27-35 Jackson Ave., LLC, the plaintiff incurred water damage to its commercial property located in Long Island City, New York in January 2015. The water damage was the result of a sprinkler head on the second floor discharging. The plaintiff reported the claim to its property insurance carrier, Samsung Fire & Marine Inc. Co. (Samsung). Upon receiving the claim, Samsung retained a forensic engineer to inspect the loss site and evidence. Samsung also retained subrogation counsel to assist with the origin and cause investigation. The engineer conducted his site inspection and took possession of the sprinkler head. He eliminated the possibility that the sprinkler discharge was due to fire or freezing. Although he noted some discoloration on the sprinkler head, he attributed that to the age of the sprinkler head. He also noted that the internal components of the sprinkler head were pushed out from the water release and that the remnants of the head did not display any evidence of distortion. The engineer ultimately opined that the cause of the sprinkler discharge could not be determined. Samsung’s subrogation counsel advised that based on the engineer’s analysis, there was no responsible third party available for subrogation.

About three weeks after the loss, plaintiff’s counsel sent Samsung a written notice requesting that all items removed from the loss site be preserved in their original condition. The notice expressed the plaintiff’s intention to seek recovery of any portions of their loss not covered by insurance. In late May 2015, Samsung informed plaintiff’s counsel that the sprinkler head was retained by the adjuster and that no destructive testing was completed. It was not until March 2016 that Samsung notified the plaintiff that the evidence had not been preserved. As a result, the plaintiff instituted a lawsuit against Samsung, alleging that Samsung intentionally or negligently lost or destroyed the sprinkler head and that the plaintiff suffered damages as a result.

In discovery, the plaintiff produced an expert engineer who opined that the cause of the sprinkler discharge was probably related to a manufacturing defect, improper installation or improper maintenance. After discovery, Samsung filed a motion for summary judgment. The plaintiff filed a cross-motion seeking an inference based on Samsung’s alleged spoliation of evidence. The lower court granted Samsung’s summary judgment motion, holding that since the plaintiff’s expert could not identify any likely cause of the sprinkler activation, the plaintiff failed to demonstrate a “reasonable probability of succeeding in an underlying suit against the alleged responsible third-parties.” The lower court chose not to review the plaintiff’s cross-motion and denied the plaintiff’s motion for reconsideration. The plaintiff filed an appeal with the Appellate Division.

The Appellate Division affirmed the lower court’s decision, but partly for different reasons. The court first addressed whether the lower court should have considered the plaintiff’s cross-motion, which sought a negative inference for the alleged spoliation. The Appellate Division acknowledged that New Jersey courts have issued negative inferences as remedies for spoliation by the alleged responsible party. However, the court held that a negative inference would only be available as a remedy against the third party alleged to be responsible for the underlying cause of action. Since Samsung played no role in causing the underlying water loss, the court held that Samsung could not be subjected to a negative inference.

With respect to Samsung’s summary judgment motion, the Appellate Court acknowledged that New Jersey courts have recognized an independent cause of action for negligent destruction of evidence if the alleged spoliator is not a party to the underlying claim. The plaintiff’s prima facie elements of proof are similar to an ordinary negligence claim; requiring a showing that the defendant had a duty of care, breached that duty and that said breach proximately caused the plaintiff’s damages. The court considered the requisite proof needed for the plaintiff to establish the prima facie proximate cause element of a claim for negligent destruction of evidence. The court noted that some jurisdictions, such as Illinois, require the plaintiff to demonstrate that it would likely succeed in the underlying case, which the court referred to as requiring “a-suit-within-a-suit.” Other jurisdictions, such as Alabama, create a rebuttable presumption that but for the spoliation of evidence, the plaintiff would have recovered against the responsible third parties.

Here, the court refused to go as far as adopting a rebuttable presumption or a-suit-within-a-suit requirement. Thus, the court did not agree with the lower court’s holding that the plaintiff was required to make a prima facie showing that it would have likely succeeded in the underlying action. However, the court agreed that the plaintiff did not meet its prima facie burden of establishing that Samsung’s destruction of the evidence proximately caused the plaintiff’s damages. The court simply held that the plaintiff needed to do more than merely identify three possible causes of the underlying claim and three possible targets. The court found that since the plaintiff was unable to establish a more defined theory of liability in the underlying claim, the plaintiff was unable to establish damages. The Appellate Division affirmed the lower court’s decision granting Samsung’s motion for summary judgment.

The 27-35 Jackson Ave., LLC decision does not provide much clarity as to how much a plaintiff needs prove to meet the prima facie element of proximate cause. However, the decision establishes that a plaintiff’s inability to initiate a lawsuit against potentially responsible parties is not a sufficient injury to establish damages. The decision also indicates that a plaintiff needs to do more than merely point fingers at possible responsible parties. This case suggests that a plaintiff asserting a negligent destruction of evidence claim needs to have a more developed theory of liability against the potentially responsible party(ies) in the underlying claim in order to establish the proximate cause element. While the plaintiff is not required to prove that it would have likely succeeded in the underlying claim, it needs to do more than merely speculate as to the possible causes of the claim.

While Samsung prevailed on summary judgment, this case serves as a cautionary tale to all subrogation professionals regarding proper evidence handling and preservation. Had the plaintiff been able to better establish a potential theory of liability in the underlying claim, Samsung may have been held liable for failing to preserve the subject evidence. It is important for subrogation professionals to make every effort to determine if the insured or any other potentially interested party wishes to have the evidence preserved before any evidence is discarded. It is also important to maintain a chain of custody of the evidence and require written approval before it is discarded. Failing to do so could subject the carrier to a claim for negligent destruction of evidence in those jurisdictions that recognize such claims.