It is not uncommon in a condominium complex for a unit to be damaged due to a failure in a neighboring unit. With units tightly packed together, water can quickly flow from one unit to another, causing damage along the way. Determining the cause of damage is often the first step in evaluating an insurance claim. If evidence relating to the cause of the damage, such as maintenance records or a breached window or door, is owned and controlled by a third-party, when is there a duty imposed on the third-party to preserve the potential evidence?
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This summer, a carrier asked a Houston federal court to declare that a fire was intentional, voiding the policy and removing carrier’s liability to the insured. The insured countered with a claim for breach of contract and sought sanctions for spoliation of evidence. The Court held that the carrier had a duty to preserve samples obtained by its investigator during its investigation and used its inherent power to sanction the carrier for pre-action destruction of evidence.1


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