In Brizuela v. Calfarm Ins. Co., 116 Cal.
App. 4th 578, 10 Cal. Rptr. 3d 661 (Cal. App. 2004), and in
California Fair Plan Assoc. v. Superior Ct. of Los Angeles
Cty., 9 Cal. Rptr. 3d 746, 115 Cal. App. 4th 158 (Cal. App. 2004), the
California Court of Appeal concluded that, "as a matter of law," the insured:
violated the requirement of the insurance policy that he submit to an examination
under oath; that the insurer could on that basis deny his claim without
a showing of prejudice; that the availability of a deposition in litigation
does not excuse his breach of the examination under oath requirement; that
he had no valid bad faith claim; and that the court properly dismissed his
action.
One of the most important findings of the court with regard to the failure
and refusal of the insured to appear at examination under oath is its finding
that there is no requirement that the insurer prove it was prejudiced as a result
of the failure of the insured to appear. Further, the court said that there:
is no California authority … that requires an insurer to show prejudice
before denying policy benefits to an insured who has violated a policy provision
requiring submission to an examination under oath.
Finding that the cases provide that compliance with the policy requirement
for an examination under oath is a condition precedent to any claim, and the
refusal to submit to such an examination causes a forfeiture of any rights under
the policy, the California Court of Appeal cites its readers to the California
Supreme Court's decision in Hickman v. London Assur.
Corp., 184 Cal. 524, 534 (1920). Regardless of the finding that prejudice
need not be shown, the California Court of Appeal concludes that the failure
or refusal to appear is, by definition, prejudicial.
The Purpose of the EUO
The purpose of the examination under oath is to enable the insurer to obtain
the information necessary to process the claim. An insured's failure to comply
with the policy requirement for examination under oath deprives the insurer
of a means for obtaining information necessary to process the claim. The inability
to obtain such information is, by definition, prejudicial, absent extraordinary
circumstances.
The purpose of examinations under oath was first described in
Claflin v. Commonwealth Ins. Co., 110 U.S. 81,
94-95 (1884):
The object of the provisions in the policies of insurance, requiring the
assured to submit himself to an examination under oath … was to enable the
company to possess itself of all knowledge, and all information as to other
sources and means of knowledge, in regard to the facts, material to their
rights, to enable them to decide upon their obligations, and to protect
them against false claims. And every interrogatory that was relevant and
pertinent in such an examination was material, in the sense that a true
answer to it was of the substance of the obligation of the assured.
Concluding that the insured's breach made it impossible for him to collect
indemnity under the policy, there was no possibility for the insured to maintain
a bad faith case, and the entire suit was properly dismissed.
The same conclusion was reached in Knowledge A-Z,
Inc. v. Sentry Ins., 857 N.E.2d 411 (Ind. App. 2006), which ruled that
filing a declaratory relief action was not, nor could it be, conduct that allows
a bad faith suit.
The Procedure for an EUO
The examination under oath is taken under the authority provided by a condition
of the insurance policy, usually statutorily imposed as part of the standard
fire policy, that compels the insured to appear and give sworn testimony on
the demand of the insurer. A certified shorthand reporter and notary are always
present to give the oath to the witness and take down all of the words spoken
during the interview.
The adjuster, or if it a complex case, the attorney retained to represent
the insurer, question the witness in a manner similar to a deposition in a legal
proceeding. Because of the formality of the proceeding, the oath, and the presence
of the certified shorthand reporter, the task of obtaining information and establishing
rapport with the witness is more difficult. The examination under oath is an
effective tool for learning as much information as possible and is an effective
weapon against insurance fraud. Often, however, the purpose of the examination
under oath is not to stop fraud but rather to allow an insured the opportunity
to prove his or her loss because evidence was destroyed by a casualty or is
otherwise unavailable.
In Rymsha v. Trust Ins. Co., 746 N.E.2d 561
(Mass. App. Ct. 2001), the insured failed or refused to provide financial records,
including her income tax returns, credit card information regarding the purchase
of items reported stolen, photographs, and receipts. When she failed to do so,
the insurer denied her claim. The Massachusetts appellate court reasoned:
We think resolution of Rymsha's appeal is controlled in all respects by
Mello v. Hingham Mut. Fire Ins. Co., 421
Mass. 333, 337 (1995). In that case, the court agreed with those authorities
therein cited which hold that the "submission to an examination, if the
request is reasonable, is strictly construed as a condition precedent to
the insurer's liability." Id. We see
no basis for a distinction between an obligation to submit to a reasonably
requested examination under oath and the duty to produce documents pertinent
to the claimed loss. Rymsha does not contend otherwise. Indeed, she does
not even cite to, let alone discuss, Mello.
Rather, she argues only that, because she informed Trust from the outset
that many of the items she reported as stolen had been given to her, the
information sought by Trust (specifically, her personal and corporate income
tax returns for the years 1988 through 1994) was not pertinent to her claim.
In considering whether the documents requested by Trust were pertinent to
Rymsha's claim, the Superior Court judge concluded that Rymsha's examination
under oath and the undisputed circumstances of her claim gave rise to the
reasonable suspicion that she did not have the resources to purchase the
allegedly stolen items, that she had a ‘motive to stage the loss,' that
Trust had the right ‘to assure itself of the validity of [the] claim,' and
that the requested documents were relevant to that question. We see no error.
See Sidney Binder, Inc. v. Jewelers Mut. Ins. Co.,
28 Mass. App. Ct. 459, 462-463 (1990) (in theft claim, evidence of insured's
business affairs and personal finances relevant to show that insured had
motive to stage burglary). Numerous other jurisdictions have held that the
financial status of an insured can be relevant to an insurer's investigation
of a claim. See, e.g.,
Stover v. Aetna Cas. & Sur. Co., 658 F. Supp.
156, 160 (S.D. W. Va. 1987); Pisa v. Underwriters
at Lloyd's, London, 787 F. Supp. 283, 285 (D.R.I.), aff'd, 966 F.
2d 1440 (1st Cir. 1992); DiFrancisco v. Chubb Ins.
Co., 283 N.J. Super. 601, 612 (App. Div. 1995);
Dlugosz v. Exchange Mut. Ins. Co., 176 A.D.
2d 1011, 1013 (N.Y. 1991); Pilgrim v. State Farm
Fire & Cas. Ins. Co., 89 Wash. App. 712, 720-721 (1997). In the circumstances
here presented, the Superior Court judge was
not in error in concluding that the
challenged documents were pertinent to Rymsha's claim. (Emphasis added.)
The insured in Rymsha attempted to defeat the insurer's argument by claiming
the insurer was not prejudiced by her failure to produce documents. The
court rejected the argument and found that the failure to produce the reasonably
requested pertinent information put the insurer in the untenable position
of either paying the claim without question and without any means by which
to investigate its validity, notwithstanding the circumstances and amount
of the loss described in her unsworn statement and examination under oath
testimony, or being sued for breach of contract and unfair acts and practices.
The court concluded that, without finding that a showing of prejudice was
necessary, the prejudice to the insurer was "too obvious to warrant discussion."
It was enough to state that the insured's blanket refusal to provide the
reasonably requested documents even stymied the insurer's ability to show
actual prejudice.
Concluding that a breach of an examination under oath clause and an Indiana
Supreme Court decision, Morris v. Econ. Fire & Cas.
Co., 848 N.E.2d 663, 666 (Ind. 2006), held that breaches of examination
under oath clauses do not require a showing of prejudice; rather an insurance
company only needed to show a material breach to prevail. [Collins
v. State Farm Fire & Cas. Co., No. 06-C-801 (E.D. Wis. 2008)] The same
position was taken in Hanover Ins. Co. v. Cape Cod Custom
Home Theater, Inc., No. 07-P-188 (Mass. App. 2008), where refusal to
produce required documents and failure to testify destroyed the insured's right
to recover indemnity.
© 2008 Barry Zalma, Esq., CFE