Failure To Submit to EUO Constitutes Breach of Contract
July 2006
In Morris v. Economy
Fire and Cas. Co. (Indiana Supreme Court June 6, 2006), the Indiana Supreme
Court found that the insureds' failure to submit to an examination under oath
(EUO) constituted a breach of contract, and that the insureds were prohibited
from imposing prerequisites to compliance with contractually agreed duties.
by Kevin
Merriman
Goldberg
Segalla LLP
Insureds submitted a claim for property damage from their mini-storage facility
allegedly sustained as a result of a break-in. This coverage dispute arose when
the insurance company demanded the insureds produce records and documents and
submit to an examination under oath, but refused to first provide the insureds'
attorney with transcripts of their prior recorded statements taken by the company.
The insureds filed suit against the insurance company, claiming breach of the
insurance contract and bad faith.
In support of their claim, the insureds argued they were entitled to refuse
compliance with the policy provision until the insurer first provided them with
copies of any prior statements they gave to the insurer. Relying on other judicial
decisions construing the "cooperation clause," the insureds argued they need
not comply with policy terms that are unreasonable, and that they are therefore
entitled to a judicial determination of reasonableness.
The Indiana Supreme Court disagreed, holding that the insureds breached their
contract with the insurance company when they refused to provide an examination
under oath until the insurer ceded to the insureds' requests for the transcripts.
The court reasoned that the insureds' obligations to provide documentation and
submit to examination under oath did not involve the "cooperation clause" at
all; it was based on express conditions contained in the first-party coverage
form that required the insured to:
- Show the damaged property;
- Provide us with records and documents we request and permit us to make
copies; and
- Submit to examination under oath, while not in the presence of any other
insured, and sign the same.
The policy also provided that "[n]o action can be brought unless the policy
provisions have been complied with…." In contrast, the court observed, "[a]
cooperation clause is a policy provision requiring that the insured assist the
insurer in investigating and defending a claim." The court concluded that:
- While disputes regarding alleged breaches of an insured's duty under
a separate "cooperation clause" may necessitate consideration of resulting
prejudice to the insurance company, such prejudice is not a necessary consideration
in determining the enforceability of other insurance policy provisions.
The court rejected the insureds' contentions that they did not refuse to
comply with the demands, but that they simply would not do so until they were
given their previous statements. The court concluded the contract did not provide
that an insured could impose any prerequisites on the insurer before complying
with agreed duties, nor was compliance optional or subject to a trial court
determination of reasonableness. The court also rejected the insureds' argument
that they should be excused from compliance from the conditions because the
insurance company's demand was "outrageous and unreasonable," since a single
request for a statement under oath from each of the insureds was reasonable
on its face.
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