The U.S. Court of Appeals for the Eleventh Circuit, reversing a decision by the U.S. District Court for the Southern District of Florida, has ruled that a liability insurer had no duty to defend its insured against a claim for spoliation of evidence.

The case

James Rivera, a professional jockey employed by William P. White Racing Stables, was paralyzed from the neck down by an accident at the Calder Race Track in Miami Gardens, Florida, in November 2008. Rivera said he was riding a two-year-old filly named Flyfly Fly Delilah at full gallop during a workout when the horse suddenly collapsed, taking him to the ground.

After the accident, Rivera sued White Racing, the Calder Race Track, and several veterinarians. Rivera asserted that Flyfly Fly Delilah had not been fit to be exercised or raced due to an injury, which had been covered up through steroids and other medications. He alleged that the negligence of nearly all defendants had caused his injuries.

Rivera, however, did not state a negligence claim against White Racing. Instead, he alleged that White Racing was liable for damages caused by its failure to preserve Flyfly Fly Delilah's remains after the accident so that the horse could be tested for performance-enhancing drugs. In particular, he stated two counts against White Racing:

(1) A claim under Florida workers’ compensation law for failure to cooperate in investigating and prosecuting his claims against a third-party tortfeasor, [see Fla. Stat. § 440.39(7)]; and

(2) A claim for spoliation of evidence.

Selective Insurance Company of the Southeast insured White Racing under both a worker's compensation policy and an employer's liability policy. Selective provided Rivera benefits under the worker's compensation policy for his injuries. Selective maintained, however, that it had no duty to defend White Racing against Rivera's lawsuit because it did not fall within the terms of the liability policy's coverage for damages arising from “bodily injury by accident.”

To that end, Selective filed a declaratory judgment action seeking a declaration that it owed no duty to defend. Selective argued that Rivera's claims against White Racing were solely for economic losses – not bodily injury – flowing from its alleged breach of its duties to preserve evidence after the accident.

In response, White Racing conceded that the two specific counts stated against it were not covered by the liability policy. Nevertheless, White Racing maintained that Selective owed a duty to defend because the factual allegations in Rivera's complaint could support a negligence claim against White Racing for Rivera's injuries.

The district court agreed with White Racing and entered a partial declaratory judgment requiring Selective to defend White Racing against Rivera's lawsuit.

Selective appealed to the Eleventh Circuit.

The Eleventh Circuit's decision

The circuit court reversed.

In its decision, the circuit court first ruled that looking solely to the specific claims that Rivera asserted against White Racing — spoliation and failure to cooperate under Fla. Stat. § 440.39 — Selective had no duty to defend because a liability policy applying to “bodily injury by accident” did not provide coverage for claims against an insured for breaching a duty to preserve evidence.

The Eleventh Circuit then rejected White Racing's contention that Selective owed a duty to defend because “the totality of the factual allegations in the complaint, irrespective of the specific counts pled,” could support a finding of negligence against White Racing for Rivera's injuries.

The circuit court said that the “state of facts” alleged arguably could support a claim that White Racing's negligence had contributed to Rivera's bodily injuries. However, the circuit court added, perhaps due to complications arising from Rivera's receipt of worker's compensation benefits, the complaint “quite clearly” did “not seek recovery against White Racing for those injuries.” In these circumstances, the Eleventh Circuit decided, it could not conclude that the Florida Supreme Court would find a duty to defend based on “the mere theoretical possibility” that Rivera could seek recovery against White Racing for his injuries at some later time.

In the circuit court's opinion, Rivera's complaint made clear that the injury for which he sought to recover damages “was the inability to prove a cause of action, caused by White Racing's alleged breach of its duties to preserve evidence after the accident.” Those damages, the Eleventh Circuit concluded, were not covered by the Selective liability policy, which applied to “bodily injury by accident,” and Selective had no duty to defend White Racing against Rivera's claims.

The case is Selective Ins. Co. of the Southeast v. William P. White Racing Stables, Inc., No. 16-16248 (11th Cir. Dec. 13, 2017).

Steven A. Meyerowitz, Esq., (smeyerowitz [at] meyerowitzcommunications [dot] com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law professionals.