False Answer at EUO Is Fraud
A False Answer as to Any Matter of Fact Material to The Inquiry, Knowingly And Willfully Made, With Intent to Deceive The Insurer, Would Be Fraudulent
The position taken by the U.S. Supreme Court in Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884) that the object of the provisions in the policies of insurance, requiring the assured to submit himself to an examination under oath, to be reduced to writing, 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, 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 (C.A. 7, 1945) the Seventh Circuit stated:
“We think there is no escape from the conclusion that these witnesses purposefully refused to answer questions upon examination under oath 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 to its extent ” (Emphasis added)
In Kisting v. Westchester Fire Insurance Co. 290 F. Supp. 141 (W.D. Wis, 1968) affirmed 416 F.2d 967 the District Court granted summary judgement because of the refusal of the insured to answer material questions. The court stated:
“It is well settled in other jurisdictions that noncompliance with a provision in an insurance policy requiring the insured to submit to an examination under oath precludes recovery by the insured.”
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 examination under oath 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.
Consequently at this stage of the proceedings the dilemma which the appellant attempts to present is a fictitious one.
The failure to appear at examination under oath 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.”
To protect its right to the examination under oath the insurer should always “require” the insured’s attendance at the examination under oath . The insurer, its Insurance Claims Professional or attorney should never “request” the presence of the insured.
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 it should be clear that a failure to appear and testify will void coverage.
An Examination Under Oath Is a Serious and Important Part of the Insurer’s Investigation
The attorney, Insurance Claims Professional or investigator who takes the examination under oath can take a role similar to the role of a prosecutor without the usual constitutional restraints effecting the examination under oath . [Hickman v. London Assurance Corporation, 184 Cal. 524, 195 P. 45 (1920).] A false statement as to any material fact during the examination under oath can cause the policy to be declared void, even if the fact has no relationship to the loss.
In Claflin the false testimony concerned a witness that would not affect the amount payable under the policy but to protect his reputation for veracity. The Supreme Court found that the witness of the injury was material to the investigation and declared the policy void for fraud because he made false statements under oath.
Contrary to the Belief of Lawyers for the Insured, the Examination under Oath Is Not an Adversary Proceeding like a Deposition in a Lawsuit.
The examination under oath is an investigative tool made available to the insurer. It allows the insurer to delve deeply and under oath into all aspects of the policy and the loss. It is not constrained by the rules of discovery or the Codes of Civil Procedure.
The only restraint on the examination under oath is reasonableness. Unlimited questions are allowed. Only totally irrelevant and unreasonable questions dealing with facts completely outside the policy, its acquisition or the loss are not favored.
Irrelevant questions are tolerated if there is any possibility the question may lead to an inquiry about facts relevant to the policy or claim.
The EUO is 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 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 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.
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.
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 and Casualty Co., No. 06-C-801 (E.D.Wis. 02/28/2008)] The same position as taken in Hanover Insurance Co. v. Cape Cod Custom Home Theater, Inc., No. 07-P-188 (Mass.App. 8/08/2008) where refusal to produce required documents and failure to testify destroyed the insured’s right to recover indemnity. 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.
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. 8/10/2000) 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.
© 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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