Zalma's Insurance Fraud Letter Volume 26, Issue 8

Published on April 15, 2022

A ClaimSchool™ Publication © 2022, Barry Zalma & ClaimSchool, Inc., Go to my blog & Videos at: Zalma on Insurance, and at https://zalma.com/blog, Go to the Insurance Claims Library, Listen to the Podcast: Zalma on Insurance, Videos from Zalma on Insurance, Subscribe to Barry Zalma on Substack.com.

Subscribe to e-mail Version of ZIFL, it’s Free! Read last two issues of ZIFL here. Go to the Barry Zalma, Inc. web site here Videos from “Barry Zalma on YouTube” Go to Barry Zalma videos at Rumble.com at https://rumble.com/zalma
Quote of the Issue

“History teaches us that men and nations only behave wisely once they have exhausted all other alternatives.” - Abba Eban
The Examination Under Oath (EUO)
EUO Is Not Part of a Judicial Process

Although the EUO is a formal proceeding it is not part of a judicial process nor is it subject to the rules set out by codes of civil procedure. There is no right to object to questions and never a judge present to rule on the objections. The testimony at the EUO is required to be presented in accordance with the obligation imposed on an insured to deal fairly and in good faith with the insurer.

The EUO is not controlled by the rules required of parties or lawyers involved in litigation in state or federal courts. The EUO is not limited by any statute relating to civil discovery. Some states have enacted regulations that try to limit insurers who take an EUO and place certain requirements upon the insurer to chill the desire to take an EUO.

It is well established that the refusal to answer material questions during an EUO is a breach of an insured’s duty to cooperate. A policyholder cannot satisfy his or her duty to cooperate, however, by attending an EUO while refusing to answer material questions. The insured’s obligation to cooperate is not met by “partial testimony.” [Country-Wide Ins. Co. v. Gotham Med., P.C., 20 N.Y.S.3d 861 (N.Y. Sup. Ct. 2015), aff’d, 63 N.Y.S.3d 349 (1st Dep’t 2017)] The failure to answer all relevant questions at the EUO, as required by the provisions of the applicable insurance policies, constitutes a material breach of contract, and precludes recovery by defendant. [Scott v. AIG Prop. Cas. Co. (S.D. N.Y. 2019)]

When an appellate court’s independent review establishes that summary adjudication of a claim for breach of contract was properly granted the insurer showed the insured did not comply with the conditions precedent for coverage and had materially breached the obligations under the insurance contract. [Abdelhamid v. Fire Ins. Exchange, 182 Cal.App.4th 990, 106 Cal. Rptr. 3d 26 (Cal. App. 2010)]
An EUO is not a Deposition

Depositions and examinations under oath serve vastly different purposes:

the obligation to sit for an examination under oath is contractual rather than arising out of the rules of civil procedure.

an insured’s counsel plays a different role during examinations under oath than during depositions.

examinations under oath are taken before litigation to augment the insurer’s investigation of the claim while a deposition is not part of the claim investigation process.

an insured has a duty to volunteer information related to the claim during an examination under oath in accordance with the policy while he would have no such obligation in a deposition. [Beasley v. GeoVera Specialty Ins. Co., Slip Copy, 2015 WL 2372328, 2015 WL 2372328 (E.D.La., 2015)]

An insurer’s right to ask questions at EUO is mostly unlimited as long as the questioning has some relationship to the insurance or the claim.

Similarly, based on the undisputed facts, a court must conclude that there could be no question that the insured made false statements when he applied for coverage and during the claims process. If the insured made false statements relating to the insurance either before or after the loss the insured has breached a material condition precedent.

Under the express terms of the Policy, the insurer can void the entire policy. Even when an insured contended that he had no intent to defraud at any stage of the insurance procurement or claims processes a refusal or failure to answer a material question has breached a material condition precedent to indemnity.

The USDC for the Eastern District of Michigan found that Michigan Compiled Laws Section 500.2832 eliminated a requirement that the insured intended to deceive is not relevant when the insurer seeks to void a policy based on a false statement. [Thomas v. Armed Forces Ins. Exchange, Slip Copy, 2015 WL 2063064 (E.D.Mich., 2015)]

In Kisting v. Westchester Fire Insurance Co. 290 F. Supp. 141 (W.D. Wis, 1968) affirmed 416 F.2d 967 the District Court for the Western District of Wisconsin granted summary judgement because of the refusal of the insured to answer material questions. The court stated the reasons for its decision, as follows:

It is well settled in other jurisdictions that noncompliance with a provision in an insurance policy requiring the insured to submit to an EUO precludes recovery by the insured.

An insured’s refusal to submit to an EUO significantly affects the insurer’s investigation of the claim. When the insurer requested the EUO in order to resolve an issue concerning the insured’s residency and make a coverage determination the court refused to require the insurer to prove that it has been prejudiced by the petitioner’s refusal to submit to the EUO. [Krigsman v. Progressive Northern Ins. Co., 151 N.H. 643, 864 A.2d 330 (2005)] The refusal alone was sufficient to allow the insurer to reject the insured’s claim.

In Diamond Blue Enterprises, LLC v. Continental Insurance Company, Not Reported in Cal.Rptr.3d, 2015 WL 1739444 (Cal.App. 2 Dist., 2015) the insured refused to appear for EUO and, as a result judgment was entered in favor of the insurer and plaintiffs’ suit was dismissed.

In addition, even when the insured submits to EUO, if the insured fails to produce all required documents and fails to sign the transcript of the EUO, under Alabama law the fact that the insured did not comply with the duties after loss requirements of her homeowner’s policy, which were conditions precedent to coverage under the policy following a dwelling loss from fire, the breach defeated her claim. [Morton v. Automobile Ins. Co. of Hartford, Conn., 102 F.Supp.3d 1248, 2015 WL 1586092 (N.D.Ala., 2015)]

In New York state, as in all states, an appearance at an EUO “is a condition precedent to the insurer’s liability on the policy”. [Stephen Fogel Psychological, P.C. v. Progressive Casualty Insurance Company, 35 AD3d 720 at 722, 827 NYS 2nd 217]. Contrary to the determination of the City Court, no provision of No-Fault Regulation 68 requires an insurer to set forth any objective standards for requesting an EUO [see Flow Chiropractic, P.C. v. Travelers Home and Mar. Ins. Co., 44 Misc.3d 132[A], 2014 N.Y. Slip Op 51142[U] [App Term, 9th & 10th Jud Dists 2014]; Metro Psychological Services, P.C. v. 21st Century North America Ins. Co. Slip Copy, 47 Misc.3d 133(A), 2015 WL 1565837 (Table) (N.Y. Sup.App.Term), 2015 N.Y. Slip Op. 50470(2015)].

In Hudson Tire Mart, Inc. v. Aetna Casualty and Surety Co., 518 F.2d 671 (C.A.2d, 1975) the insured sought injunctive relief against the EUO provision of the standard fire policy because it would deprive him of his Fifth Amendment right against self-incrimination. The court rejected the request and held that:

The purpose of the cooperation clause is to enable the insurer to obtain all knowledge and facts concerning the cause of the fire and the loss involved while the information is fresh in order to protect itself from fraudulent and false claims. Only after the incriminating question is asked, is he in a position to assert his immunity and seek a protective order.

The Fifth Amendment to the U.S. Constitution prevents the U.S. or a state, to pass a law requiring a person to incriminate himself or herself. The Fifth Amendment has no effect on a private contract. Therefore, the failure to appear at EUO was held to be an absolute defense in Lentini Brothers Moving & Storage Co., Inc. v. New York Property Insurance Underwriting Assoc., 428 N.Y.S.2d 684 (1980) affirmed 51 N.Y.2d 740 (1981). The court stated:

Compliance with the policy provisions is a condition precedent to recovery. No compliance with the provisions as to written proof of loss or sworn examination occurred. Thus, recovery is barred.

Since an assignor’s appearance at any properly scheduled EUO is a condition precedent to the insurer’s liability on the policy (see Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720 at 722, 827 NYS 2nd 217) [2006]), the court ordered that the insurer’s motion for summary judgment dismissing the complaint must be granted. [Performance Plus Medical, P.C. v. Utica Mut. Ins. Co., Slip Copy, 47 Misc.3d 129(A), 2015 WL 1422389 (Table) (N.Y. Sup.App. Term), 2015 N.Y. Slip Op. 50399 (2015)]

In Powell v. United States Fid. & Guar. Co., 88 F.3d 271 (4th Cir.1996), the insureds’ home was destroyed by fire. Under their homeowners’ insurance policy, the insureds were required to submit to questions under oath and sign and swear to them.

The insureds appeared but during the EUO, the insureds refused to answer several questions and to turn over financial and other documents, claiming that an EUO did not permit the insurer to delve into financial or other information relating to the insureds’ possible motives to intentionally set the fire. They claimed that the EUO condition was limited to an examination relating to the existence and extent of loss under the policy. The United States Court of Appeals for the Fourth Circuit disagreed, stating that an EUO “encompasses investigation into possible motives for suspected fraud An EUO is not restricted to amount of loss, but the insurer has the right to examine the insured and his witnesses as to any matter material to the insurer’s liability and the extent thereof.
The Need to Demand Appearance at EUO

To protect its right to the EUO the insurer should always “require” the insured’s attendance at the EUO. The insurer, its insurance claims professional or attorney should never “request” the presence of the insured. A “request” can be refused with impunity. A “demand” or “requirement” to appear cannot be refused without breaching a material condition.

If the insurer only “requests” the insured’s presence, the insured, can correctly contend he did not violate a policy condition if he fails to appear. If the insurer, through its insurance claims professional or attorney, “requires” his presence at a specific date and time at a clearly identified location it should be made clear to the insured that a failure to appear and testify will be a breach of a material condition that will allow the insurer to void coverage or deny a claim as a result of the breach.

Failure of an insured to appear for an EUO prior to filing suit to recover an unpaid claim is a material breach of contract, requiring forfeiture of coverage in Florida and every other state that allows a policy to include an EUO provision. However, if the insurer fails to specify a date, time and location of the demanded EUO, it need for the EUO was deterred by a Florida Court of Appeal that found that the delay in obtaining the insured’s EUO was caused by its failure to comply with an insurer’s request to schedule an EUO prior to filing suit did not prejudice the insurer.

On the other hand, in Southgate Gardens Condo. Ass’n v. Aspen Specialty Ins. Co., 622 F.Supp.2d 1332, 1337 (S.D.Fla.2008) the court allowed dismissal without prejudice to allow belated compliance with the EUO provision because it believed the delayed EUO was the most prudent course of action. [Wright v. Life Ins. Co. of Ga., 762 So.2d 992 (Fla. 4th DCA 2000), Whistler’s Park, Inc. v. Fla. Ins. Guar., 90 So.3d 841 (Fla. App. 2012)]
The EUO is a Condition Precedent to the Insurer’s Liability

An appearance at an EUO “is a condition precedent to the insurer’s liability on the policy” [Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720, 722 [2006]], and defendant timely denied the claims at issue on that ground. As a result, upon searching the record [see also Merritt Hill Vineyards v. Windy Hgts. Vineyard, 61 N.Y.2d 106 [1984]).] Based on the precedent the court in First Class Medical, P.C. v. State Farm Mut. Auto, 55 Misc.3d, 141 (A) 2017 WL 1822145, 2017 N.Y. Slip Op. 50593(U), found that the defendant State Farm was entitled to summary judgment dismissing the complaint with prejudice because of the failure to appear at EUO.

In Bowlers’ Alley, Inc. v. Cincinnati Ins. Co., 32 F.Supp.3d 817, 89 Fed.R.Serv.3d 50 (2014) the pleadings failed to establish that the defendant ever made a demand for an EUO to occur, specific or otherwise. The only references to an EUO that appear in the pleading papers were the defendant’s allusion in the July 17, 2013 letter referencing its intent to “ask our attorneys” about arranging an EUO, and the plaintiff’s subsequent response indicating that the plaintiff was ready to submit to an examination at any time, and demanding that the defendant schedule one promptly.

Whether or not the subsequent communications between the parties will show that one or the other acted unreasonably in failing to schedule or failing to submit to an EUO is a question that cannot be answered until the record has been fully developed on the issue. The complaint asserted that the plaintiff fully complied with all of its duties under the policy, and, so far as they go, the documents attached to the complaint supported that assertion. It is the obligation of the insurer to prove that a EUO was demanded and that the insured refused to appear at EUO. Failure to properly demand an EUO defeats the claim of breach of material condition precedent.

[This article was adapted from my new book “The Examination Under Oath to Resolve Insurance Claims” now available as a Kindle book, a paperback or hardcover from amazon.com. Available as a Kindle book Available as a paperback. Available as a hardcover.]
Wisdom

“Democracy, with its promise of international peace, has been no better guarantee against war than the old dynastic rule of kings.” —Jan C. Smuts

“It was a wise man who said that there is no greater inequality than the equal treatment of unequals. — Felix Frankfurter

“Too bad all the people who know how to run the country are busy driving taxis and cutting hair.” — George Burns

“He who wants peace must prepare for war.” — Claudius

“Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue.” — Barry Goldwater

“The state governments have a full superintendence and control over the immense mass of local interests of their respective state