This article discusses the examination under oath requirement in insurance policies that insurers can use as a tool in fighting fraud.

Topics covered:

Introduction

Purpose of EUO

Requirement of EUO

The people subject to EUO

The production of documents

The role of an attorney

Interview Techniques for the EUO

A duty owed by the insured to the insurer

The need to prove prejudice

EUO as a condition precedent

Court decisions

Introduction

A reason for the examination under oath (EUO) is to allow the insurer to cross-examine the insured after an accident or loss in accordance with the insured's contractual duties as noted in the insurance policy. For example, the New York Standard Fire Policy provides as follows: “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 current edition of the standard homeowners policy states in the property coverages conditions section that after a loss, an insured must “submit to examination under oath … and sign the same.”

The reason for this type of cooperation clause was explained by the United States Supreme Court. The court noted that “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. 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 examination under oath is an investigative tool made available to the insurer. It allows the insurer to delve deeply and under oath into most aspects of the policy and the loss, and gives the insurer the ability to question the insured on each item of documentation the insured has submitted in support of the claim, and indeed, to compel the insured to produce such documentation. The only restraint on the EUO is reasonableness. Unlimited questions are allowed, but totally irrelevant and unreasonable questions dealing with facts completely outside the policy, its acquisition, or the loss are not favored by courts (although irrelevant questions can be tolerated by courts if there is any possibility the questions may lead to an inquiry about facts relevant to the policy or claim).

Any person appointed by the insurer can take an EUO, whether a company adjuster, independent adjuster, private investigator, attorney, paralegal, or law student. The examination under oath should complement, and be part of, the thorough investigation of the insurance claims professional.

Purpose of EUO

The purpose of the examination under oath is to enable the insurer to obtain the information necessary to process the claim. An insured's failure to comply with the policy requirement for examination under oath 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.

The examination under oath is an effective tool for learning as much information as is possible and 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 loss because evidence was destroyed by a casualty or is otherwise unavailable.

Requirement of EUO

To protect its right to the examination under oath, the insurer should always “require” the insured's attendance at the examination. A mere request would seem to allow the insured a reason to refuse the examination; in fact, if the insurer only “requests” the insured's presence, the insured can reasonably contend that he did not violate a policy condition if he fails to appear. On the other hand, if the insurer requires the insured's presence, it will be clear that a failure to appear and testify may very well void coverage because of a breach of a material condition of the policy.

However, there are exceptions to the requirement that the insured appear for examination under oath. For example, when the insured is under arrest for fraud and proclaims his innocence, the insurer is required to postpone the EUO until after the insured eliminates the charges and no longer needs to protect against self-incrimination. Also, deportation or incarceration can excuse the insured from compliance with the requirement of an EUO.

The EUO should be required by an insurer under the following conditions:

·when the insured has insufficient documentary evidence to prove his loss;

·when the insured refuses to cooperate in the investigation of the claim;

·when the insured needs help proving his or her loss (for example, if the insured has lost the documentary evidence necessary to adequately prove his loss, the insured can prove his loss through oral testimony);

·when the insurer has no other means of cross examining the proof of loss submitted by the insured;

· and when the insurer suspects a fraudulent claim is being attempted.

The People Subject to Examination Under Oath

The people subject to the duty of an examination under oath include the named insured and all those persons who fall within the policy definition of insured, plus employees of the named insured. A corporation must produce its officers for examination under oath. Note that a petition in bankruptcy does not relieve the insured of the obligation to appear for examination under oath. The trustee or receiver is not a substitute for the insured.

The Production of Documents

The right to examination under oath is much broader than the right of discovery under a Code of Civil Procedure. Books, records and other documents may be examined.

In The Georgian House of Interiors, Inc. v. Glens Falls Insurance Co., 151 P.2d 598 (1944) SeeThe Georgian House of Interiors, Inc. v Glens Falls Insurance Co.the Supreme Court of Washington held that the standard fire policy obliged the insured to produce any and all documents relevant to the rights and obligations of the parties. In so ruling the Wisconsin court stated: “If the provisions of the policy mean anything, they must contemplate that the books shall be so kept as to reveal the transactions without making it necessary to depend on the oral testimony of the assured, at least not to any considerable extent”. The Mississippi Supreme Court in Southern Guaranty Insurance Company v. Dean, 172 So.2d 553 (1965) SeeSouthern Guaranty Ins Co v Dean. concluded that, when the insured refused to produce relevant documents, “the insurer would be deprived of a valuable right for which it contracted. Moreover, in an examination of the insured, all of those matters are materials that have a bearing on the insurance and the loss. The insured is required to give the best information attainable”.

Examples of specific documentary areas allowed by courts include the insured's financial condition, the profitability of the insured's business, income tax returns, consideration for property where a deed indicates only nominal consideration, previous losses, all information regarding the manner in which the loss occurred, any other matter material to the existence or extent of the company liability, removal of personal property prior to the loss, exaggerated claims, and the insurance history of the insured (including cancellations, refusals, non-renewals, and claims).

The Role of an Attorney

An attorney is not an insurance adjuster. However, due to possible complex legal and factual issues, by definition, an attorney is a professional at asking questions and so, most examinations under oath are taken by an attorney. Of course, the attorney administering the EUO should be given explicit instructions by the insurance claims professional that retained him.

The claims person is always in charge of a claims investigation. If an attorney is retained to take an examination under oath, it is the claims person who retains the lawyer and instructs the lawyer on his or her conduct of the examination. The instructions should include: the reasons for the examination under oath; the facts that have been discovered that caused the insurance claims professional to refer the insured to the attorney for examination under oath; and that the insurance claims professional seeks advice and counsel from the attorney whether he or she concurs that it is in the best interest of the insurer and the insured that the examination under oath proceed. If counsel agrees the examination should go forward, it will. If counsel disagrees, the claims person must review the advice and either accept the advice or instruct the attorney to take the examination under circumstances that are directed by the claims person.

The attorney should then provide the insurance claims professional with his or her analysis of the file materials submitted to the attorney by the claims person. He or she will, invariably, request that the insurance claims professional fulfill certain investigative tasks not yet completed to make the examination under oath more fruitful.

The claims person will always attend the EUO as a witness. The claims person will learn, by attending examinations under oath, interview methods and skills that will assist him in future investigations. By being present at the examination under oath, the insurance claims professional can shorten the time necessary for completion of the investigation and receive requests for follow-up investigation on the spot. The claims person is also present to assist counsel in the examination because a claims person has more basic claims knowledge and knowledge of the policy wording than counsel. Moreover, since the insurance adjuster has been to the scene of the loss and the attorney has not, the adjuster's first-hand knowledge can greatly assist the attorney. The adjuster can also pass notes to the attorney pertaining to the insured and/or the claim, or call a break to suggest further detail or areas of inquiry.

The EUO should, when added to the claims investigation, be the cornerstone upon which the attorney builds the legal advice he gives the insurance claims professional concerning the resolution of the claim. Many times, the examination under oath will cause the attorney for the insurer to recommend payment of full indemnity to the insured. However, 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. Remember, it is the claims person who makes the decision, not the lawyer. All a lawyer can do is give advice. It is the claims person who must decide whether or not it is best for the insurer to take that advice.

If the attorney fails to provide the insurance claims professional with details sufficient to make a decision, the insurance claims professional must require the attorney to provide the details before making a decision. The insurance claims professional must make it clear to the attorney taking an examination under oath that it is his obligation to provide sufficient factual information supported by legal authority for the insurer to make a decision on the claim.

The attorney's report should include the following: all facts learned in the investigation; the testimony at the examination under oath that supports the opinion of the attorney; the facts of the incident analyzed in relation to statutory and case law; and recitation of the case and statutory law that the lawyer believes applies, with sufficient quotations from the law and precedent so the claims person can make a fully informed decision with regard to the claim. The claims handler will then be in a position to make a good faith decision about the claim.

Interview Techniques for the EUO

Facts important to an EUO that must be taken into consideration include: the formality of the proceedings make establishing rapport more difficult; the presence of opposing counsel hinders the free flow of information; the interviewer should make clear to counsel or the insured that counsel for the insured is present at the sufferance of the insurer and obstreperousness will not be tolerated; the interviewer must be ready to terminate the examination under oath if the insured or counsel make a travesty of the procedure; and if the insured's counsel insists on testifying, the interviewer should be ready to have the insured confirm that his attorney' statements are his statements and not the insured's.

Some interview techniques and approaches do not work in an examination under oath. When taking an examination under oath the interviewer should recognize, and use, the formality of the proceeding to his or her advantage. Always, therefore, warn the witness at the beginning of the examination under oath of the effects of a false statement, i.e. denial of the claim, arrest for perjury, arrest for insurance fraud. Start with innocuous questions to put the witness at ease. Be conversational in questioning rather than confrontational. The examination under oath is not a deposition. It is a formalized method of gathering information.

An examination under oath is not cross-examination, in the trial sense, but a search for truth. The interviewer is not seeking a confession at an examination under oath. The purpose of the examination under oath is to get all information available to the witness about the insurance or his claim.

A Duty Owed by the Insured to the Insurer

Policies issued in the United States provide that, in the event of a loss, the insurance company can require the insured to produce documents and testify at an examination under oath. This right to an EUO is based on language in the policy. Moreover, courts have consistently held that the requirement in an insurance policy that an insured submit to an examination under oath is reasonable.

Failure or refusal to testify at an examination under oath is a material breach of the contract of insurance and this breach could allow the insurer to legally deny coverage to the insured. This same legal remedy available to the insurer could apply if the insured makes a false material statement in an EUO (as long as the misrepresentations were made knowingly and deliberately, the intent to deceive the insurer will be implied according to some courts).

Full disclosure on the part of the insured and complete responses to questions at an examination under oath is also implied in this duty of the insured after a loss. This is not to say that an insured can be made to testify against himself, that is to self-incriminate himself, but courts have recognized that the insurer needs to cross-examine the insured as a tool to prevent fraud; the privilege against self-incrimination exists but it cannot be used as a weapon to prevent the insurer from defending its interests.

The Need to Prove Prejudice

In a minority of jurisdictions, the courts will not allow forfeiture in favor of the insurer for refusal to answer questions at examination under oath unless there is some evidence that the insurer was prejudiced by the failure or refusal. Most courts have taken the position that for an insurer to be released from its obligations under the terms of an insurance policy, it must show not only that the insured breached the insurance contract, but also that the insurer was prejudiced as a result. (Note that the current version of the ISO homeowners policy declares in the duties after loss clauses that “in case of a loss to covered property, we have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us.” And, the current ISO personal auto policy states that “we have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us.”).

Therefore, while a failure on the part of the insured to comply with the requirement for an EUO may result in no duty on the part of the insurer to cover the loss, this is not a foregone conclusion.

EUO as a Condition Precedent

The Eleventh Circuit Court of Appeals in Galindo v. ARI Mutual Insurance Co., 203 F.3d 771 (2000) SeeGalido v ARI Mutual Insurance Co, refused to allow appraisal to go forward until the insureds had submitted to examination under oath; the court stated that the insureds must comply with post-loss terms of their respective homeowners policies. Similarly, in Lentini Brothers Moving & Storage Co. v. New York Property Insurance Underwriting Association, 428 N.Y.S. 2d 684 (1980) SeeLentini Bros Moving And Storage Co Inc v New York Property Ins Underwriting Ass'.the intermediate appellate court in New York 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 in this instance. Thus, recovery is barred.”

In Allstate Insurance Co. v. Longwell, 735 F. Supp. 1187 (1990) SeeAllstate Ins Co v Longwell, the court held that failure to appear for examination under oath is a breach of the cooperation clause even if the insured offers to cure the breach by answering the questions after denial of his claim.

A Florida court in Shaw v. State Farm Fire and Casualty Company, 37 So. 3d 329 (2009) SeeShaw v State Farm Fire and Cas Co, advised the federal court that failure or refusal to appear for examination under oath is fatal to a claim on the policy. The court said: “The issue we must resolve is whether an Examination Under Oath (EUO) clause in an insurance policy is binding on an assignee of the no-fault benefits and the cause of action to recover those benefits, thereby prohibiting a noncompliant assignee from making a claim or seeking payment under the policy. The clause provides in pertinent part that any person or organization making claim or seeking payment… must, at our option, submit to an examination under oath, provide a statement under oath, or do both, as reasonably often as we require. The trial court held that this EUO provision is a condition precedent with which the assignee must comply in order to make a claim and file suit. Because the assignee refused to comply, the trial court rendered summary judgment in favor of the insurer. We affirm.”

(Note that this decision was disapproved by the Supreme Court of Florida in Nunez v. GEICO General Insurance Company, 117 So.3d 388 [2013]. SeeNunez v Geico Gen Ins Co Furthermore, the Shaw ruling was also superseded by statute, as detailed in Lewis v. Liberty Mutual Insurance Company, 121 So.3d 1136 [2013].) SeeLewis v Liberty Mut Ins Co

Court Decisions

Importance of EUO: Claflin v. Commonwealth Insurance Company, 110 U.S. 81 (1884) SeeClaflin v Commonwealth Ins Co; Robinson v. National Automobile and Casualty Insurance Company, 282 P.2d 930 (1995) SeeRobinson v National Auto And Cas Co.

Importance of Cooperation: Marina Beasley v. Pacific Indemnity Company, 19 Cal. Rptr. 299 (1962) SeeBeasley v Pacific Indem Co.

False Answer to/Failure to Answer Any Matter of Fact Material: Gipps Brewing Corp. v. Central Manufacturers Mutual Insurance Company, 147 F.2d 6 (1945)SeeGipps Brewing Corp v Central Mfrs' Mut Ins Co; Wright v. Farmers Mutual of Nebraska, 669 N.W.2d 462 (2003) SeeWright v Farmers Mut of Nebraska; Wagnon v. State Farm Fire & Casualty Company, 146 F.3d 764 (1998) SeeWagnon v State Farm Fire and Cas Co;

Income Tax Information: Ransom v. Selective Insurance Company, 550 A.2d 1006 (1988) SeeRansom v Selective Ins Co; Rymsha v. Trust Insurance Company, 746 N.E.2d 561 (2001) SeeRymsha v Trust Ins Co.

Bad Faith: Brizuela v. Calfarm Insurance Company, 10 Cal. Rptr.3d 661 (2004) SeeBrizuela v Calfarm Ins Co; Perrotta v. Farmers Insurance Exchange, 47 S.W.3d 569 (2001) SeePerrotta v Farmers Ins Exchange.

Fifth Amendment Privilege: Pervis v. State Farm Fire & Casualty Company, 901 F.2d 944 (1990) SeePervis v State Farm Fire and Cas Co; State Farm Indemnity Company v. Warrington, 795 A.2d 324 (2002) SeeState Farm Indemnity Co v Warrington.

Compelling Insured Testimony: State Farm Fire & Casualty Company v. Tan, 691 F.Supp. 1271 (1988) SeeState Farm Fire and Cas Co v Tan.