It’s been nearly 19 years since Mark Ian Binsky, Counsel to Abrams, Gorelick, Friedman & Jacobson, LLP, wrote the preceding article as a contributor to the Outside Counsel column of the New York Law Journal.

So what, if anything, about the EUO has changed over the course of those 19 years?  For starters, all property insurance policies continue to contain language requiring the insured to cooperate in the investigation of a claim.  In that vein, virtually all include policy language requiring the insured to allow a representative of the insurer to question the insured under oath a reasonable number of times about matters related to the insurance or the claim.  The policy language typically requires that the examination must be signed by the insured.

While the EUO is a creature of the insurance contract, several states have enacted statutes or Insurance Department regulations codifying the EUO process.  One such regulation is California Insurance Code 2071.1 which provides the following:

• An insurer that determines that it will conduct an examination under oath of an insured shall notify the insured of that determination and shall include a copy of this section in the notification.
• An insurer may conduct an examination under oath only to obtain information that is relevant and reasonably necessary to process or investigate the claim.
• An examination under oath may only be conducted upon reasonable notice, at a reasonably convenient place and for a reasonable length of time.
• The insured may be represented by counsel and may record the examination proceedings in their entirety.
• The insurer shall notify the insured that, upon request and free of charge, it will provide the insured with a copy of the transcript of the proceedings and an audio or video recording of the proceedings, if one exists. Where an insured requests a copy of the transcript, the recording, or both, of the examination under oath, the insurer shall provide it within 10 business days of receipt by the insurer or its counsel of the transcript, the recording, or both.  An insured may make sworn corrections to the transcript so it accurately reflects the testimony under oath.
• In an examination under oath, an insured may assert any objection that can be made in a deposition under state or federal law. However, if as a result of asserting an objection, an insured fails to provide an answer to a material question, and that failure prevents the insurer from being able to determine the extent of loss and validity of the claim, the rights of the insured under the contract may be affected.
• An insured who submits a fraudulent claim may be subject to all criminal and civil penalties applicable under law.

 

Notwithstanding this codification of the rights and obligations of both the insured and insurer, the California court in the case of Abdelhamid v. Fire Ins. Exchange (App. 3 Dist. 2010) 106 Cal. Rptr.3d 26, 182 Cal. App. 4^th 990 held:

• That an insured materially breaches an insurance policy by failing to submit to an examination under oath, as often as may reasonably be required, or failing to answer material questions during an examination under oath;
• An insured’s reliance on the alleged advice of counsel in refusing to answer a fire insurer’s questions regarding home destroyed by fire and failing to supply requested documentation did not excuse her failure to comply with insurance policy conditions requiring her to supply the requested documents and answer material questions at her examination under oath. Thus insurer, which had information that indicated that homeowner may have committed arson, could deny coverage on the basis that the failure to comply constituted material breaches of the insured’s contractual duties.

 

While a very few states have taken steps to limit the breadth and scope of the EUO examination or information carriers may seek in conjunction with the examination, the vast majority continue to adhere to the general principals discussed in Mark’s article and enunciated by courts over the years. To that end, we reviewed the law of New York and other states and have discovered the following:

Consequence of Failure to Cooperate

• New York- The insured’s obligation to cooperate “is much broader than the right of discovery” under New York’s CPLR. See Eagley v. State Farm Ins. Co., 2015 WL 5714402 (W.D. N.Y. 2015) (quoting Dyno-Bite Inc. v. The Travelers Companies, 439 N.Y.S.2d 558 [4th Dept 1981).
• A violation of the Examination Under Oath clause in a policy may preclude recovery as a matter of law. See Wingates, LLC v. Commonwealth Ins. Co. of America, 21 F.Supp.3d 206 (E.D. N.Y. 2014) (“Under New York law, it is well established that the failure of an insured to submit to an examination under oath is an absolute defense to a claim under the insurance policy and compliance with a subsequent demand for an examination as part of pretrial discovery pursuant to CPLR article 31 will not cure the defect.”) (quoting Abudayeh v. Fair Plan Insurance Co., 481 N.Y.S.2d 711 (2d Dept 1984).
• That an insured who submitted to depositions in the context of a lawsuit did not absolve them of their independent duty to submit to Examinations Under Oath as required by the policy. See Wingates, LLC v. Commonwealth Ins. Co. of America, 21 F.Supp.3d 206 (E.D. N.Y. 2014) (citing Cabe v. Aetna Cas. & Sur. Co., 153 A.D.2d 653 (2d Dept 1989) (“The mere fact that the defendant participated in pretrial discovery pursuant to CPLR article 31 did not act as a waiver by the defendant of the right to assert the plaintiff’s breach of the cooperation provisions of the insurance policy as a defense to the action.”)
• In Interboro Ins. Co. v. Clennon, 113 A.D.3d 596 (2d Dept 2014), a no-fault insurer brought an action seeking a declaration that it had no obligation to pay certain no-fault claims of insured chiropractors arising out of the insureds’ treatment of insureds’ assignor. The trial court granted the insurer’s motion for summary judgment and the Second Department appellate court affirmed, finding that the insurer was entitled to deny the claims since the failure to comply with the provision of an insurance policy requiring the insured to submit to an examination under oath is a material breach, precluding recovery of the policy proceeds. In Interboro, the insurer established that it twice demanded an examination under oath from the insureds’ assignor, who had allegedly been injured in a motor vehicle accident, that the assignor twice failed to appear, and that the insurer issued a timely denial of the claims arising from the insureds’ treatment of the assignor. Under these circumstances, the Second Department found the insurer established entitlement to judgment as a matter of law.
• Illinois – Where the insureds make virtually no effort to produce relevant information and the insurer relies on the cooperation clause to deny coverage, the insurer is entitled to summary judgment. But where the insureds make some effort to comply with the insurer’s requests for information, but their cooperation was either late or incomplete, the sufficiency of those efforts is a question of fact and therefore inappropriate for summary judgment. See Hartshorn v. State Farm Ins. Co., 361 Ill.App.3d 731 (Ct. App. 2005).
• California – An insured’s compliance with a policy requirement to submit to an examination under oath is a prerequisite to the right to receive benefits under the policy. See Brizuela v. Calfarm Ins. Co., 10 Cal.Rptr.3d 661 (Ct. App. 2004).

 

Standard for Finding a Failure to Cooperate

• When an insured deliberately fails to cooperate with its insurer in the investigation of a covered incident as required by the policy, the insurer may disclaim coverage. However, to protect innocent injured parties, a very heavy burden is placed on the disclaiming insurer. The insurer must demonstrate: (1) that it acted diligently in seeking to bring about the insured’s cooperation; (2) that its efforts were reasonably calculated to obtain the insured’s cooperation; and (3) that the attitude of the insured was one of “willful and avowed obstruction.” The insured need not have openly “avowed” the intent to obstruct the insurer; however, the showing must support the inference that the insured’s failure to cooperate was deliberate. Mere inaction by the insured is not enough. See New York Cent. Mut. Fire Ins. Co. v. Salomon, 11 A.D.3d 315 (1st Dept 2004).
• An insured’s failure to cooperate is deemed willful where the insured’s conduct “is indicative of a pattern of non-co-operation [sic] for which no reasonable excuse for noncompliance has been proffered.” See Eagley v. State Farm Ins. Co., 2015 WL 5714402 (W.D. N.Y. 2015).
• Insured’s refusal to answer questions during an EUO on Fifth Amendment grounds or on advice from counsel may not absolve her of her non-cooperation. See Eagley v. State Farm Ins. Co., 2015 WL 5714402 (W.D. N.Y. 2015).
• California – An insured materially breaches an insurance policy by failing to submit to an examination under oath, as often as may reasonably be required, or failing to answer material questions. See Abdelhamid v. Fire Ins. Exchange, 106 Cal.Rptr.3d 26 (Ct. App. 2010). Once insured fails to comply with insurer’s initial demand for an examination under oath, it becomes incumbent upon the insured to fulfill the requirement of being examined by offering to submit to such an examination at a later time. See Brizuela v. Calfarm Ins. Co., 10 Cal.Rptr.3d 661 (Ct. App. 2004). Availability of a deposition in litigation does not excuse the insured’s failure to comply with examination under oath clause. See Brizuela v. Calfarm Ins. Co., 10 Cal.Rptr.3d 661 (Ct. App. 2004). Refusal to answer material questions at an examination under oath shows a failure to give the insurer that degree of cooperation required by the provisions of the policy and is a violation of the agreement of the insured to submit to such examination under oath. See Abdelhamid v. Fire Ins. Exchange, 106 Cal.Rptr.3d 26 (Ct. App. 2010). Reliance on advice of counsel in refusing to answer insurer’s questions and failing to provide requested documentation may not excuse her failure to comply with a cooperation clause. See Abdelhamid v. Fire Ins. Exchange, 106 Cal.Rptr.3d 26 (Ct. App. 2010).

Is the Insured Entitled to One Last Opportunity to Comply?

• Under New York law, a finding that the insured’s failure to cooperate willfully generally extinguishes any right of the insured to be afforded one last opportunity to comply with policy conditions. See Eagley v. State Farm Ins. Co., 2015 WL 5714402 (W.D. N.Y. 2015) (citing 2nd Circuit and NY Court of Appeals case law).
• However, see Erie Ins. Co. v. JMM Properties, LLC, 66 A.D.3d 1282 (3d Dept 2009), in which the Third Department concluded that the insured’s noncompliance was not so willful as to warrant the “extreme penalty” of excusing the insurer from liability without giving the insured one last chance to perform in accordance with the policy’s provisions (citing Pogo Holding Corp. v. New York Prop. Ins. Underwriting Ass’n., 73 A.D.2d 605 [2d Dept 1979]). Here, the insured initially made all of its three principals available for EUOS, one of whom also had submitted to a recorded interview with the insurer’s investigator shortly after the fire. All documentation demanded by the insurer was provided, as were sworn proofs of loss. Subsequently, one of the three principals of the insured was arraigned with respect to the loss and his criminal attorney refused to make him available for an EUO. The insurer refused the insured’s repeated offers of unrestricted access to the other two principals. The motion court found, and the Appellate Division affirmed, that the refusal of one of the insured’s principals to appear and give testimony as a result of the criminal proceedings did not provide a valid excuse for noncompliance but found, under the facts of the case, that the non-compliance was not so willful as to warrant the “extreme penalty” of excusing the insurer from liability without giving the insured one last chance to perform in accordance with the policy’s provisions. The Third Department reasoned that any prejudice the insurer may have sustained as a result of the delay in the investigation was due, in part, to its own refusal to examine the other two principal prior to the examination of the third principal.
• See also, New York Cent. Mut. Fire. Ins. Co. v. Rafailov, 41 A.D.3d 603 (2d Dept 2007) (“An insured’s duty to cooperate is satisfied by substantial compliance, and where a delay in compliance is neither lengthy nor willful, and is accompanied by a satisfactory explanation, preclusion of a claim is inappropriate.”)

 

Scope of Questioning and Document Production

• New York- “The purpose of a cooperation clause in a fire insurance policy is to enable the insurer to obtain all knowledge and facts concerning the cause of the fire and loss involved . . . .” See Erie Ins. Co. v. JMM Properties, LLC, 66 A.D.3d 1282 (3d Dept 2009).

• Courts routinely find that information concerning an insured’s credibility or motive is material where the insurer reasonably suspects arson or fraud in connection with a claim. See Eagley v. State Farm Ins. Co., 2015 WL 5714402 (W.D. N.Y. 2015) (Citing cases where courts found documents and questions concerning insured’s financial status, such as tax returns and bank statements, to be material and relevant).

• Insureds breached cooperation clause of their homeowners’ policy, precluding recovery for fire loss, where they refused to provide tax returns that their insurer had requested due to suspicious nature of fire in light of fact that the insureds’ had filed bankruptcy and were on verge of losing their home at foreclosure sale on date of fire. See Weissberg v. Royal Ins. Co., 240 A.D.2d 733 (2d Dept 1997).

• Whether insured failed to comply with the cooperation clause under the subject policy was a triable issue of fact, where insured refused to provide the insurer with telephone records and tax returns, which she felt were irrelevant for her claim in connection with vandalism that allegedly occurred at her house. After insurer denied her claim, the insured offered to provide these documents, but the insurer refused them. See Zizzo v. Liberty Mut. Ins. Co., 728 N.Y.S.2d 343 (2d Dept 2001).

• California – Where the insurer has reason to suspect arson, it is relevant and material to inquire into the financial condition of the insured because an insurer is entitled to develop circumstantial evidence of the insured’s involvement in the suspected arson. See Abdelhamid v. Fire Ins. Exchange, 106 Cal.Rptr.3d 26 (Ct. App. 2010).

In conclusion, the EUO remains an effective investigative tool for information gathering and evaluation of insurance claims.