Essentials: Examinations Under Oath

Insurance companies have an early opportunity to obtain information and material that may be in the insured’s possession regarding a claim through the examination under oath (EUO) process. An EUO is an important investigative tool which permits an insurer to determine the merits of legitimate claims while exposing fraudulent claims and fraudulently inflated losses. The right to acquire an EUO emanates from the insurance contract and finds its origin in the New York standard fire policy, which has been adopted by statute in most states.

An EUO is not a deposition. There are distinct differences between discovery depositions and EUOs.

As an example, during an EUO the insured’s attorney (or other representative) is technically not authorized to ask questions or make objections. In litigation, state Rules of Civil Procedure permit discovery depositions from persons having relevant information and knowledge to the case at issue. Unlike depositions taken in discovery during litigation, the individuals who can be subjected to an EUO is more limited. The insurance company is entitled to examine named insureds, as well as individuals who fall within the policy’s general definition of an insured (e.g., a spouse, family member, business partner, manager, or key employee).

Failure to Submit

In GuideOne Mut. Ins. Co. v. Rock, 2009 WL 1854452 (N.D. Miss., June 29, 2009) (applying Mississippi law), the insureds refused to produce their children for an EUO in a claim involving a fire loss. The court held that the policyholders’ refusal to produce their children for an EUO was not a breach of the homeowner’s policy.

The court began its analysis by observing that clauses in insurance policies that require policyholders to submit to an EUO were reasonable and valid in Mississippi. Failure to submit to an EUO when obligated under the policy precluded coverage of the loss as a matter of law. However, the obligation was contractual in nature, and therefore persons with information material to the investigation of a fire loss were not required to submit to an EUO if not required to do so by the policy.

The court looked at the definition of insured under the policy, which did not qualify the children as insureds.

Where an EUO involves a corporation, an insurance company is entitled to examine officers, managing agents, and in some cases key employees of the insured. This permissive scope exists because a corporation can only act through its officers and agents where the insured under the policy is a corporation.

In some cases insureds will refuse an EUO and as an alternative they will offer to provide answers to written questions supplied in advance. However, this is not compliant with the insured’s duty to submit to an EUO under the policy.

In some jurisdictions where the insured refuses to submit to an EUO, the insured forfeits the right to pursue the claim in issue.

Insureds must attend the EUO on the scheduled date or at least make an attempt to reschedule the EUO as a condition precedent to the claim. At least one court has found that where the insured repeatedly interposes scheduling conflicts that prevent the completion of an EUO, the insured constituted a “willful and material” breach of the policy. See, e.g., Rosenthal v. Prudential Property & Cas. Co., 928 F.2d 493, 495 (2nd Cir. 1991).

Generally, where the insured is unable to attend an EUO for a valid reason, the insured must at least offer to submit to the EUO as soon as possible. However, some courts have held that coverage is forfeited as a result of the insured’s failure to submit to an EUO only in those situations where the insurer can establish that it has been prejudiced by the delay.

Courts are split on whether separate EUOs of co-insureds can take place outside the presence of the other insured.

An insurance company is entitled to inquire into any matter which is material to the existence and extent of the insurance company’s liability under the policy. Courts have recognized that the relevant inquiry is broad and includes any matter that has a bearing on the insurance loss. Where fraud is suspected, the insurer may be entitled to a more searching EUO.

EUO vs. Litigation

Faced with having to attend an EUO, some insureds decide to bring a lawsuit against the insurer, instead. This strategy subjects the insured to only one swearing under oath in the form a litigation deposition.

The question of whether an insured can avoid an assertion of non-cooperation by refusing to attend the EUO and subsequently filing litigation was recently considered by the court in Wells v. Farmers Alliance Mut. Ins. Co., 2009 WL 1259977 at *3 (E.D. Mo., May 4, 2009).

In Wells, the insurer had sought an EUO from its policyholder. The policyholder filed suit prior to the EUO date and did not appear for the scheduled EUO. Although the court held that the cooperation clause of the policy was valid and enforceable under Missouri law, the question of whether the policyholder breached the cooperation clause by failing to appear for the scheduled EUO was a question of fact for the jury.

The court concluded that the jury should determine whether the policyholder satisfied the requirements of the cooperation clause in those situations where the policyholder provided the requested information being sought by the insurer through a litigation deposition accompanied by written discovery presented during the litigation of the case itself.

The question arises as to whether the obligation to submit to an EUO is a condition precedent to recovery under the policy. If so, then avoiding the EUO by initiating litigation may not fulfill the condition precedent.