Records Storage Liability

The following is an article from the website of ARMA International (formerly the Association of Records Managers & Administrators). It was sent to CAM by Chris Steer who wrote the letter which follows the article. The article points out some liabilities that come from storing records and Chris’s letter offers a way of avoiding those liabilities.

Jury Awards Damages for Value of Lost Records

For the first time, a jury awarded more than $20 million in damages to a plaintiff based on the value of the records they lost, not the value of the boxes in which the records were stored.

When a fire engulfed Diversified Information Technologies’ West Patterson, Pennsylvania, document storage facility on May 5, 1997, 800,000 boxes of corporate records were destroyed. One customer, Mobil Oil Corp., said it lost 67,000 boxes of documents because part of the facility’s sprinkler system was on and part of it was off. Mobil Oil contended that the system did not emit enough water fast enough to put out a fire and was improperly configured. The company sued Diversified and Grinnell Corp. (manufacturer of the sprinkler system), alleging that both were negligent in failing to have the system fully functioning, and sued Grinnell separately for products liability, alleging that it was following the wrong National Fire Protection Association (NFPA) standard and, accordingly, defectively designed the system.

In Mobil Oil Corp. v. Grinnell Corp. and Diversified Information Technologies Inc., Mobil Oil argued that its damages totaled approximately $24 million. It also sought damages for lost tax deductions and lost underground storage tank (UST) remediation reimbursements because supporting documentation was destroyed in the fire. Mobil Oil also sought damages for a marine technical library and ship drawings that were destroyed in the conflagration.

Grinnell and Diversified denied the charges, but the jury found both companies negligent. It found that Grinnell’s sprinkler system was a defective product and awarded Mobil $20,750,653 in damages. On the negligence claim, Grinnell was found 40 percent liable and Diversified was found 60 percent liable. The jury award included $8,981,441 for the value of the 67,000 boxes of Mobil Oil’s documents destroyed in the fire, $7,406,558 for lost tax deductions, and $1,347,654 for lost UST remediation reimbursements because supporting documentation was destroyed in the fire. In addition, the jury awarded Mobil Oil $3,015,000 for the destroyed marine technical library and ship drawings.

Mobil Oil Corp. v. Grinnell Corp. and Diversified Information Technologies Inc. was a companion lawsuit – First Union, another plaintiff, was awarded approximately $20.5 million in December 2001, and two other plaintiffs settled the case out of court. Attorneys for Charlotte, N.C.-based First Union, which lost 152,000 boxes of records in the fire, had claimed the bank sustained damages worth $22.5 to $37.4 million. The jury awarded the bank $20,554,953, an amount that included $9.5 million to cover the bank’s estimated future costs in reconstructing personal and charitable trust documents that were lost.

According to Rae Cogar, an attorney and chair of ARMA International’s Government Relations Committee (GRECO), there has never been an award for the value of records based on the information they contain or the cost of recreating that information. In the past, awards have amounted to the $1 or $2 per-box figure for which the boxes were insured.

“If records are lost, be it in a fire or other reason, the fact that courts and juries are awarding damages for the value of that information rather than [for] the paper it is printed on is a big change from the past, and more companies should be aware of this – and more records storage centers should be aware, also,” Cogar says.

Suggested Draft of a Letter to be Sent to All Records-storage Customers

Re: Your Records in Storage in Our Premises

Dear Sirs:

Our insurance advisors have recommended to us very strongly that we define the level of our potential liability with respect to documents and other records that we have in storage in our warehouses for you and for other customers.

They point out to us, and they are not wrong, that we cannot have the remotest idea of the past, present or future potential value of any single document much less of the totality of them.

They point out that we receive, for example, documents by the carton and that we have no list that gives an account of each and every document that is in that carton. Were it to be alleged that we had lost any document, it is not impossible we would not be able to prove that we had not lost it and that our customer might not be able to prove that we ever had it in the first place. In short, a lawyer’s paradise but perhaps not for you or for us.

The solution that has been suggested to us is as follows:

  1. Only our customer can have any knowledge of the present or potential value of any record or records stored with us.
  2. It follows that proper insurance on such records can therefore only be arranged by our customer and that you should therefore purchase what is known as Valuable Papers and Records All Risks Insurance or equivalent coverage to provide yourself with protection against the financial consequences of any loss or destruction of your records while in storage with us.
  3. Whether or not you purchase such insurance – and if you regard your records as worthless, you probably won’t – we require you to release us from any liability, direct or indirect, resulting from loss of or damage to your records when arising from any cause that is insurable under the aforesaid Valuable Papers and Records All Risks or equivalent coverage.

Such a release of liability does not affect your insurance coverage or its cost in normal practice in the insurance industry and we are perfectly prepared to have your release contingent upon that statement being true.

We should greatly appreciate your returning a copy of this letter stamped and signed by an Officer of your Company to confirm that the foregoing conditions are acceptable to you and that you have indeed released us from liability as requested.

Yours truly,

Company Name:    __________________________________
Signature:   __________________________________
Title:   __________________________________
Date:   __________________________________