Failure to provide records dooms $400,000 jewelry claim

The U.S. Court of Appeals for the Sixth Circuit has ruled that an insurer did not have to pay its insured’s claim for theft of close to $400,000 in gold jewelry when the insured failed to meet her obligation to cooperate with the insurer’s investigation into the claimed loss.

Missing jewels

About eight months after Ngoc Tran purchased a valuable articles insurance policy from Federal Insurance Company to insure the nearly $400,000 worth of gold jewelry she owned, she reported that the jewelry had been stolen and she sought to collect on the policy.

Federal suspected that the burglary was an inside job. For starters, the responding officer did not think the crime scene, which would have required the purported burglar to make a rather acrobatic leap through a window, looked like a break-in.

Federal also spotted what it thought were of other inconsistencies and oddities in Tran’s story, including the substantial disparity between her reported annual income ($0) and monthly living expenses (sometimes in excess of $5,000).

Federal asked Tran to provide various business and personal records to corroborate her story.

She failed substantially to do so and, after several unsuccessful attempts to obtain the records, Federal denied Tran’s claim, citing her “failure to cooperate,” in violation of her insurance policy’s requirement that she “produce all records and documents” that Federal requested.

Tran filed suit, seeking to compel Federal to cover her claimed loss.

The U.S. District Court for the Southern District of Ohio granted summary judgment in favor of Federal, holding that Tran had failed to cooperate with the insurer’s investigation. Tran appealed to the Sixth Circuit.

The Sixth Circuit’s decision

The circuit court affirmed.

In its decision, the Sixth Circuit found that Federal had repeatedly requested records from Tran, and she had repeatedly failed to produce many of those records. Initially, the circuit court said Tran claimed that she did not have the records. Then, instead of retrieving copies of those records from third parties – such as her bank and accountant – she gave Federal written authorization to get the documents. The problem, according to the circuit court, was that even with Tran’s written authorization, many of the third parties would not provide the records directly to Federal.

The circuit court said that when Federal eventually got some records, Tran refused to confirm their accuracy. For example, Federal obtained several years’ tax returns from Tran’s accountant, but Tran would not verify that they accurately represented her income. In another instance, the circuit court observed, Federal obtained Tran’s phone records from AT&T, but Tran claimed not to remember the identities of eight key telephone numbers listed in the log.

When Federal obtained win/loss statements from local casinos (Tran’s live-in boyfriend was a gambler), she disputed the statements’ accuracy.

The Sixth Circuit noted that Federal also unable to obtain Tran’s complete bank account information, as well as two years’ tax returns. The circuit court pointed out that Tran initially told Federal that she did not have any bank accounts but that, after further questioning, she admitted to having two accounts – although she still never gave Federal complete account information.

Tran also claimed that two years of missing tax returns did not exist, but she did not offer evidence to support that claim, according to the circuit court.

‘Material and substantial non-compliance’

In summary, the Sixth Circuit found, Tran provided Federal with “only some of the documents and information it requested and refused to confirm the accuracy of several key documents Federal obtained on its own accord.”

The Sixth Circuit ruled that this level of noncompliance was “material and substantial.” In its opinion, Federal had reason to question Tran’s story about the burglary and her failure to provide the requested records “impeded its ability to investigate the truth of her claims.” In the circuit court’s view, the bank records, tax returns, and casino records would have shed light on Tran’s financial situation in the years surrounding the alleged burglary.

Instead, the circuit court said, Federal confronted a record that suggested that Tran “had no annual income, yet somehow maintained monthly expenses sometimes exceeding $5,000 around the time of the loss.” Likewise, it continued, identifying the phone numbers that Tran contacted around the time of the burglary would have provided Federal with the names of potential witnesses (or accomplices).

The Sixth Circuit decided that Tran’s “obstinacy” had frustrated Federal’s ability “to determine [Tran’s] motive, alibi or any other aspect of [her] involvement (or non-involvement)” in the alleged burglary.

Moreover, because her noncooperation persisted for months and affected several categories of information, it impaired Federal’s “ability to complete a full and fair investigation.” Her noncooperation, the circuit court ruled, “was thus prejudicial too.”

The Sixth Circuit was not persuaded by Tran’s contention that her attempted compliance and the records she provided was enough, declaring that she set “the bar for compliance too low.” According to the circuit court, “A party’s compliance with some of a policy’s requirements does not excuse the party’s material failure to comply with others.” Although Tran provided Federal with authorizations to obtain records from third parties, it was her “undisputed responsibility under the contract to obtain the requested documents – not Federal’s.”

The circuit court also rejected Tran’s contention that Federal could not prove that her failure to cooperate was willful, because she did not destroy any documents or fail to produce documents that she had in her possession, finding that this argument “misse[d] the point.” If Tran did not have the requested records, “the cooperation clause obligated her to make an effort to obtain them.”

The Sixth Circuit decided that there were no circumstances outside Tran’s control, such as a fire, that prevented her from obtaining the records and that her “imperfect recordkeeping” was “not a license to sit on her hands.” Her suggestion that she eventually made an effort to obtain her tax returns also was insufficient, according to the circuit court, given that she had not done so until more than a year after she sued Federal. That was not “cooperation,” the circuit court concluded.

The case is Tran v. Federal Ins. Co., No.17-3921 (6th Cir. April 18, 2018).

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals.