The Examination Under Oath is a Condition Precedent to Obtain Policy Benefits
Since the EUO is an essential weapon in the insurer’s arsenal of tools to defeat insurance fraud these decisions are exceedingly important to every SIU insurance fraud investigator and insurance fraud counsel.
A Test Case
In Brizuela v. Calfarm Insurance Co.,116 Cal.App.4th 578, 10 Cal.Rptr.3d 661 (Cal.App. Dist.2 03/03/2004) and in California Fair Plan Association v. Superior Court of Los Angeles County, 115 Cal.App.4th 158 (Cal.App. Dist.2, 01/23/2004) 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 EUO; 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 EUO requirement; that he had no valid bad faith claim; and that the court properly dismissed his action.”
The facts that supported the conclusion of the Court of Appeal in Brizuela were as follows:
- On April 23, 1999, Brizuela’s adjuster faxed CalFarm 33 pages of documents, including alarm company information, checks and checking account statements, and documents related to the purchase of the business.
- On May 27, 1999, CalFarm’s counsel sent a letter to Brizuela’s adjuster advising him that CalFarm had scheduled examinations under oath for Brizuela and Brizuela’s wife on June 16, 1999 at that counsel’s offices in Marina del Rey, California.
- The insurance policy CalFarm issued to Brizuela included a provision allowing CalFarm to “examine any insured under oath” in the event of a claim.
- In the May 27, 1999 letter, CalFarm’s counsel asked that Brizuela produce certain documents by June10, 1999 and confirm the examination date by June 11, 1999.
- Brizuela’s adjuster responded by requesting copies of recorded statements that Brizuela and his wife had given to CalFarm shortly after reporting the claim. CalFarm’s counsel denied this request.
- On June 14, 1999, CalFarm’s counsel offered to reschedule the examination and extend the time to produce documents. Brizuela’s adjuster responded by reiterating the request for copies of the recorded statements, and CalFarm’s counsel again denied the request.
On June 17, 1999, CalFarm’s counsel wrote to Brizuela’s adjuster stating:
“We understand that you have counseled Mr. Brizuela to appear for the EUO without additional delay, but he has elected instead to draw out the claims investigation by insisting on receiving documentation which the Insurance Code clearly and unambiguously indicates he has no entitlement at this stage of the proceedings. [¶] If Mr. Brizuela’s final position on this matter is that he is unwilling to come to an EUO without first receipt and review of his recorded statement testimony and that of his wife …”
Brizuela then retained counsel, who wrote to CalFarm’s counsel on June 24, 1999, complaining at length about CalFarm’s refusal to provide the Brizuelas’ previously recorded statements. Brizuela’s counsel wrote that “[t]he only purpose served by refusing to provide the transcripts would be the interest of the insurance carrier and its counsel to trick and confuse the insured to establish a basis for denial.” Brizuela’s counsel offered no dates for the EUO; instead he wrote that “[w]e will contact you directly to discuss time, dates and places for proceeding with the EUO as demanded.”
On July 6, 1999, CalFarm’s counsel sent Brizuela’s counsel a letter reiterating CalFarm’s denial of Brizuela’s request for the previously recorded statements and requesting proposed dates for the EUO.
Brizuela’s counsel responded by letter the next day accusing CalFarm of having “no interest to act fairly in this matter” by putting Brizuela “through an exercise to allow CalFarm to take advantage of its insured and subsequently deny the claim.”
On July 9, 1999, CalFarm’s counsel sent another request for examination dates and asked Brizuela’s counsel to respond by July 16, 1999. Brizuela’s counsel then sent two letters, dated July 20, 1999 and July 27, 1999, suggesting no dates for the examination but instead asking CalFarm’s counsel to provide dates.
Shortly thereafter, counsel for Brizuela and CalFarm had a telephone conversation during which CalFarm’s counsel said he would be unavailable for three weeks in August 1999, and the parties discussed proposed dates for the examination. On August 18, 1999, CalFarm’s counsel sent a letter to Brizuela’s counsel stating, “[w]hen we last spoke, several weeks ago, several proposed dates for your client’s EUO were exchanged: We have heard nothing from your offices since that time.” CalFarm’s counsel requested that “a date certain for the examination and the production of documents requested in our initial letter be supplied to our offices on or before the close of business on Wednesday, August 25, 1999,” noting that CalFarm would reach a decision on the claim “based on the available information to date” if no EUO occurred.
On August 20, 1999, Brizuela’s counsel responded by stating that his client had been available during the first three weeks of August and that “[w]e will contact you with available dates now that we know you have surfaced from your Trial matter.” There is no suggestion in this letter as to Brizuela’s availability for an EUO at any particular date or period of time.
On October 5, 1999, Brizuela’s counsel wrote another letter to CalFarm’s counsel, criticizing CalFarm’s conduct but offering no dates for the now long-delayed examination. Instead, Brizuela’s counsel suggested that CalFarm’s counsel “contact my office regarding proposed EUO dates.”
On November 15, 1999, Brizuela’s counsel wrote CalFarm’s counsel requesting proposed dates “immediately inasmuch as we are set to commence to Trial on December 13.”
Brizuela had never proposed a date for the EUO, and no examination ever occurred.
Brizuela sued CalFarm for breach of contract and for tortious bad faith breach of an insurance contract. Explaining the reason for its decision that the Insured breached the contract the court recited the history of the condition in California case law as follows:
An insured’s compliance with a policy requirement to submit to an EUO is a prerequisite to the right to receive benefits under the policy. (Hickman v. London Assurance Corp. (1920) 184 Cal. 524, 534 (Hickman).) In Hickman, an insurer investigating a loss under a fire policy demanded that the claimant attend an EUO, as required by the claimant’s policy. The claimant attended the examination, but refused to answer the insurer’s questions, invoking his Fifth Amendment right against self-incrimination because of pending criminal charges against him for arson. At the examination, the claimant offered to comply with the demand for an EUO after the arson charge was dismissed, or at any time if the insurer would cause the charge to be dismissed. The court held that the claimant’s refusal to submit to an examination was not justified and that by refusing to submit to an examination, the claimant forfeited the right to benefits under the policy: “`If the insured cannot bring himself within the terms and conditions of the policy he cannot recover. The terms of the policy constitute the measure of the insurer’s liability. If it appears that the contract has been violated, and thus terminated by the assured, he cannot recover. He seeks to recover by reason of a contract, and he must show that he has complied with such contract on his part.'” (Hickman, supra, 184 Cal. at p. 534; see also California Fair Plan Association v. Superior Court (2004) 115 Cal.App.4th 158; Globe Indemnity Co. v. Superior Court (1992) 6 Cal.App.4th 725; Robinson v. National Auto, etc. Ins. Co. (1955) 132 Cal.App.2d 709; West v. State Farm Fire & Casualty Co. (9th Cir. 1988) 868 F.2d 348.) After Brizuela failed to comply with CalFarm’s initial demand for an EUO, the Insured was obligated to take affirmative action to fulfill the requirement of being examined “by offering to submit to such an examination at a later time.” (Bergeron v. Employers’ Fire Ins. Co. (1931) 115 Cal.App. 672, 676.) Brizuela did not submit, or agree to submit to an EUO on any specific date after June 16, 1999. CalFarm “had done all that it was required to do to set in motion the policy provisions for an examination of the insured under oath.” Although CalFarm reiterated its demand numerous times thereafter by asking Brizuela to provide dates for the examination, Brizuela failed to do so.
Brizuela’s failure, six months after CalFarm’s initial request for the EUO, to propose any dates for an examination, to respond in a timely manner to CalFarm’s proposed dates, and to submit to an examination legally constituted a refusal to submit to EUO. For example, note Rosenthal v. Prudential Property & Casualty Co. (2d Cir. 1991) 928 F.2d 493 [applying New York law and granting summary judgment in favor of insurer after concluding that purported scheduling conflicts did not justify the 13-month delay of EUO that included six adjournments]; Gould Investors, L.P. v. General Ins. Co. (S.D.N.Y. 1990) 737 F.Supp. 812 [applying New York law, insured’s unexcused failure to attend EUO was material breach of policy; upon insured’s unilateral cancellation of a scheduled examination, burden is on insured to offer alternative future date for the examination]; Home Ins. Co. v. Olmstead (Miss. 1978) 355 So.2d 310 the insured’s refusal to submit to EUO as scheduled, and subsequent failure to offer to submit to examination for 16 months caused insured to forfeit rights under policy.
One of the most important findings of the court with regard to the failure and refusal of the insured to appear at EUO 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. The court concluded 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 EUO.” Finding that the cases provide that compliance with the policy requirement for an EUO 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 Court of appeal cites its readers to the California Supreme Court’s decision in Hickman quoted above. Regardless of the finding that prejudice need not be shown the Court of Appeal concludes that the failure or refusal to appear is, by definition, prejudicial.
An insured’s failure to comply with the policy requirement for EUO 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.
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 that the entire suit was properly dismissed.
The same conclusion reached in the Brizula case was reached in Knowledge A-Z, Inc. v. Sentry Insurance, 857 N.E.2d 411 (Ind.App. 11/27/2006) that concluded that simply filing a declaratory relief action was not, nor could it be, conduct that allows a bad faith suit when the insured had failed to testify at EUO.
The court recognized that the EUO 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.
As described in Pervis v. State Farm Fire & Casualty Co., 901 F. 2d 944, 947-48 (11th Cir. 1990), failure or refusal to testify at EUO is a material breach of the contract of insurance:
Appellant made no offer to submit to an EUO at any time during the four months between the completion of his criminal trial and the filing of this lawsuit. Pervis chose between complete silence in response to State Farm’s request and maintaining an action against State Farm. . . . State Farm had no obligation to repeat its request for an examination after appellant breached the contract, and appellant’s offer to be examined, as expressed on appeal, comes too late to be considered. Under the circumstances of this case, there is no principle that excuses Pervis’ refusal to submit to an EUO such that he should be permitted to pursue his action against State Farm. In Hines v. State Farm Fire & Casualty Co., 815 F. 2d 648 (11th Cir. 1987), the Eleventh Circuit reversed and remanded a summary judgment in favor of the defendant insurance company on a diversity suit for recovery by the insured under Georgia law. The Georgia Supreme Court had limited the scope of EUO to “material information called for under . . . the policy.” Halcome v. Cincinnati Insurance Co., 254 Ga. 742, 334 S.E. 2d 155, 157 (1985). The Eleventh Circuit disagreed with the district court’s conclusion that an insured’s tax returns were “per se relevant” in Georgia. 815 F. 2d at 652. However, the Hines court dealt only with the question of whether failure to submit income tax returns on request would constitute breach of the insurance contract. It explicitly noted that the Georgia Supreme Court has held, in Halcome, that “a refusal to provide information relating to an insured’s income and sources of income would constitute a breach of the insurance contract.” Hines, 815 F. 2d at 652.
In Texas, the appellate court in Perrotta v. Farmers Insurance Exchange, 47 S.W. 3d 569 (2001) granted summary judgment in favor of Farmers because Perrotta refused to sign the transcript of the EUO. In its motion Farmers established that Perrotta refused to provide any documents establishing ownership, copies of financial statements confirming his claims of wealth, the names of individuals to corroborate his claims of ownership, locations of the storage facilities where he claimed to have stored various items.
Insurance claims people, insurance lawyers, and insurance management must understand that it is imperative that the insured appear and testify at EUO and if they do not, the claim can be denied without concern.
© 2017 – Barry Zalma
This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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