A Weapon to Defeat Fraud
The “examination under oath” (EUO) is a formal type of interview authorized by an insurance contract. It is taken under the authority provided by a condition of the insurance policy that compels the insured to appear and give sworn testimony on the demand of the insurer. A notary and a certified shorthand reporter are always present to give the oath to the person interviewed and record the entire conversation.
The adjuster (in complex cases, the attorney) retained to represent the insurer questions the person interviewed in a manner similar to a deposition in a legal proceeding. Because of the formality of the proceeding—it includes an oath, and the presence of the certified shorthand reporter—the task of establishing rapport with the person interviewed and obtaining information from him or her is more difficult than in an informal interview.
A tool for gleaning the maximum amount of information, the examination under oath 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 claim of loss in cases where evidence has been destroyed by a casualty or is otherwise unavailable.
Taking an Examination under Oath
The examination under oath is usually conducted by an attorney for the insurer. An attorney, however, is not required by law: any person appointed by the insurer can take the examination. Similarly, the insured is permitted counsel, if desired, but the presence of counsel is not a legal requirement. If the insured opts for it, his or her attorney has no right to ask questions or offer information during the examination. Regardless, the wise interviewer allows the insured’s attorney to ask any question he or she wishes, and to elaborate on any facts, since this will further the purpose of the examination—to get as much information as possible. The professional prefers to learn what the insured has to say immediately, rather than during later litigation.
In cases where more than one insured is named on a policy, the insurer may, depending on the state or the policy language, compel the insureds to testify separately outside the hearing of the other insured(s). The subject will provide less guarded responses if he or she knows that a coinsured is being questioned as well. Separate examinations under oath, exactly like separate civil interviews, lead to more accurate information and less chicanery.
The Insurance Services Office appears to have modified its form of Homeowners’ Policy–3 to avoid the impact of court decisions by specifically stating that the insurer can require each insured to appear and, furthermore, to testify separately, thereby avoiding the possibility of collusion.
The insured’s counsel may object to the form of the questions posed. If the objection is well taken, honor it, since your goal is to get usable testimony. If the objection is not well taken, though, the questioner may simply ignore it.
If the insured’s attorney instructs him or her not to answer a material question, this can in itself be sufficient grounds to deny the claim. It constitutes failure to comply with the policy condition concerning examinations under oath. When faced with an instruction not to answer, it is often effective for the interviewer to say to the insured and his or her attorney:
“I respect your decision not to answer the question. I must advise you, however, that the insurance company I represent considers the question you have refused to answer to be relevant and material to its investigation. The company can, if you continue in your refusal, decide to deny your claim on that ground alone. I make no such decisions, so I will honor your decision not to answer and go on to other questions. I feel, nevertheless, that it is my duty to advise you of the rights you gave to the company when you acquired the policy. You can certainly reconsider your decision. Would you like to meet privately with your attorney to discuss this matter?”
Usually, the insured and his or her attorney then reconsider the potentially heavy consequences and answer the question.
There is no reciprocal provision allowing the insured to take testimony of representatives of the insurer. Attorneys for insureds will attempt to pose questions to the claims person. These attempts must be rebuffed politely and with good grace.
The Role of the Insurer’s Attorney
A well-executed examination under oath is not only one of the insurer’s most effective weapons against fraud. It can also be highly instructive for the adjuster. If an attorney is responsible for performing the examination, the adjuster must make clear that it is his or her obligation to provide sufficient factual information supported by legal authority for the insurer to make a decision on the claim. The adjuster should also, if possible, attend the examination to help the attorney and to study questioning techniques. Attorneys, whose job it is to ask questions, will usually do a more thorough job of examination under oath than will insurance claims staff.
After the examination, the attorney can also give the adjuster legal advice as to the insurer’s rights, duties, and obligations.
Counsel’s report should include all the facts necessary to support any decision, whether learned in the course of the investigation or from testimony at the examination under oath. The adjuster must analyze the facts in relation to statutory and case law; only then will he or she be in a position to make a fully informed decision on the claim. More often than not, the examination will cause the insurer’s attorney to recommend payment of full indemnity to the insured.
If the attorney advises the insurer that indemnity should not be paid, the adjuster should carefully analyze the recommendations to independently verify that there are sufficient facts, supported by policy language and legal precedent, to support the conclusion. It is the claims person who makes the decision, not the attorney. Decisions made by insurers must sometimes be based on reasons other than the law.
Insurers should use the examination under oath tool judiciously. It should only be used in cases where the insured is unable to prove his or her loss, when the insured’s proof is inconsistent or incomplete, or when the insurer has a reasonable belief that a fraud is being attempted. Used properly by insurers, adjusters, and insureds who are intent on providing (or obtaining) only the indemnity promised by a policy of insurance to which they are entitled, the examination under oath will help the insured and the insurer fulfill the promises they made each other at the inception of the policy.
The Right to an Examination Under Oath
A Duty Owed by the Insured to the Insurer
Every fire insurance policy issued in the U.S. provides that, in the event of a loss, the insurance company can require the insured to produce documents and testify at an “examination under oath.” The examination under oath is not a deposition; there is no prerequisite lawsuit, nor is the examination subject to formal rules of procedure. The EUO is a product of a contractual promise. The insured, when he, she or it acquires a policy of insurance the insured promises that if a claim is presented and the insurer asks, the insured will appear for, testify at EUO and then read, correct and sign under oath the transcript of the EUO.
The purpose of examinations under oath was first described in Claflin v. Commonwealth Insurance 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.
The position taken by the Court in Claflin has been upheld by every court that has considered it to date. For example, in Gipps Brewing Corp v. Central Manufacturers Mutual Insurance Co., 147 F. 2d 6, 13 (7th Cir. 1945), the court stated:
We think there is no escape from the conclusion that these witnesses purposely refused to answer questions which were material to the inquiry. We see no basis for refusal to answer upon the ground that they were controversial or that the answers thereto might have been used for the purpose of impeachment. Such a limitation would seriously impair and perhaps destroy defendants’ right under this provision of the policy. . . . We would think that defendants had a right to examine as to any matter material to their liability, as well as its extent. (Emphasis added by the court).
The examination under oath and the requirement that insureds produce relevant documents in the event of a fire are essential tools to insurers faced with a possible fraud or other issue affecting insurance coverage. Insureds, and their counsel, will often argue that they are not required to produce tax returns or other financial documents because to do so would violate the so-called “taxpayers privilege” or right of privacy. They may refuse to testify about subjects they claim are irrelevant or protected by a privilege or right of privacy. In most states, refusals to testify or produce documents can result in a forfeiture of claims presented by the insured.
If, as a result of a fire, the insured has lost the documentary evidence necessary to adequately prove the loss, then the insured can only prove the loss by oral testimony. By his or her testimony, the insured can remove the suspicions of the insurer. The purpose of the examination under oath is to allow the insured a medium to prove the loss. Sworn testimony is as, or more, effective evidence than documents for an insured to prove his or her loss.
The right to examination under oath is based on language in property or fire insurance policies. For instance, the Standard Fire Policy provides:
The insured, as often as may be reasonably required, shall exhibit to any person designated by this company all that remains of any property herein described and submit to examination under oath by any person named by this company, and subscribe the same; and as often as may be reasonably required, shall produce for examination and copying all books of account, bills, invoices, and other vouchers.
Similarly, the 1991 edition of the Homeowners’ Policy (Insurance Services Office Form HO 00 03 04 91) provides, in easy to read language:
Your Duties After Loss. In case of a loss to covered property, you must see that the following are done:
- As often as we reasonably require:
(1) Show the damage property.
(2) Provide us with records and documents we request and permit us to make copies; and
(3) Submit to examination under oath, while not in the presence of any other ‘insured’ and sign the same.
In Rymsha v. Trust Insurance Company, 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 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.
Taking a contrary position, the Sixth Circuit Court of Appeal, applying the law of Tennessee in Talley v. State Farm Fire and Casualty Co., 223 F. 3d 323, 223 F. 3d 323, 2000 Fed. App. 0267, 2000 Fed. App. 0267 (6th Cir. 08/10/2000) found that the insurer was required to show prejudice due to the insured’s refusal to submit to an examination under oath. It reasoned that a showing of prejudice is required before an insurance provider is permitted to defeat liability in the context of a fire insurance policy claim. Talley breached a condition precedent in that Talley refused to submit to an examination under oath. Tennessee courts appear to follow the approach where a condition precedent has not been satisfied to require a showing of prejudice. The court found there is a presumption that State Farm, the insurer, was prejudiced by the failure of Talley to cooperate by submitting to an examination under oath. However, a plaintiff can rebut the presumption of prejudice with competent evidence. It then sent the case back to the trial court to determine if the insured could produce evidence that rebutted the presumption of prejudice.
Reasonableness of the Examination Requirement
Courts have consistently held that the requirement in an insurance policy that an insured submit to an examination under oath is reasonable. More than 80 years ago, in Hickman v. London Assurance Corp., 184 Cal. 524, 529, 195 P. 45 (1920), the California Supreme Court expressly approved the reasonableness of an examination under oath as a means of “cross-examining” other statements of the insured.
In West v. State Farm Fire & Casualty Co., 868 F. 2d 348, 351 (9th Cir. 1989), the Ninth Circuit, applying California law, held:
For West to claim that the scheduled examination under oath was unreasonable is tantamount to a claim that insurance companies are always required to pay claims at their face value on the basis of a preliminary interview. Besides being patently illogical, this argument is controverted by the insurance policy and by California law.
In West v. State Farm, the insurance company interviewed James West in the presence of a court reporter. During the interview West refused to answer any question that he had been asked during the interview by the adjuster because he claimed the adjuster’s interview was a statement under oath. West based this claim on a question that the adjuster, Stone, asked West at the end of the interview; namely, whether West had answered Stone’s questions truthfully.
After the interview with West, State Farm sought to interview Mrs. West, who was also named as an insured under the policy. In addition, State Farm attempted to interview the Wests’ two teenaged daughters. All three women failed to appear for the scheduled interviews. State Farm then denied the claim because of West’s alleged breach of a material condition.
In Globe Indemnity Co. v. Superior Court (Guarnieri), 6 Cal. App. 4th 725, 8 Cal. Rptr. 2d 251 (1992), the court held: “The right to require the insured to submit to an examination under oath concerning all proper subjects is reasonable as a matter of law.”
In California FAIR Plan Association v. The Superior Court, 2004 DJDAR 796 (California Court of Appeal, 01/23/04), the Court of Appeal adopted Hickman, West and Globe, and ordered the trial court to enter summary judgment in favor of the insurer because of the insured’s refusal to appear for examination under oath. The insured, as the plaintiff in the action, argued that Gruenberg v. Aetna Insurance Co., 9 Cal. 3d. 566, 108 Cal. Rptr. 480 (1973)—which found failure of an insurer to allow an insured to dispose of criminal charges before he testified at examination under oath could be considered bad faith—allowed the insured to refuse to testify. The California Court of Appeal rejected the argument:
Unlike the complaint in Gruenberg, this case does not involve allegations that the insurer rejected an insured’s claim based on trumped up charges by the insurer. Here, there is no evidence in the record that the lack of cooperation in submitting to an examination under oath was due to any statements or conduct by Fair Plan or any of its agents…An examination under oath being a condition precedent to suit on the policy, the trial court erred in denying summary judgment to Fair Plan.
This posting is my start in the work to write a book about the EUO. It is not complete but it provides a good look at what the EUO is and how it is used to protect the interests of the insured and the insurer. Remember, an EUO can also be used as a tool to allow the insured to prove a loss that cannot be proved because the fire or theft took away the documentation needed to prove a loss.
© 2015 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
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