The examination under oath (EUO) is an important tool to help an insured prove his or her loss or to allow an insurer to cross-examine the proofs of loss to avoid potential fraud.
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.
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