Appeals Court Blasts Insurer’s Conduct in Denying Claim Over Insured’s Conduct

Philadelphia Indemnity Insurance Co. is not entitled to the summary judgment it was granted by a federal district court in a building fire case in which it claimed the insured was not cooperative in accommodating its requests for examinations under oath.

The U.S. Court of Appeals for the First Circuit harshly criticized the insurer and the federal district court for Massachusetts in rejecting their positions that the insurer was justified in denying the claim because of the alleged non-cooperation.

The appeals court found that the insurer mischaracterized the conduct and communications of the building owner, Brockton Agricultural Society (BAS), over a request for examinations under oath (EUO) with its president and others and that the insurer ended discussion prematurely.

“The evidence unequivocally shows that BAS never willfully and inexcusably refused to submit to an EUO,” the appeals panel concluded.

The appeals court further found that the district court’s decision to grant summary judgment was “well outside the norm of relevant cases absolving insurance companies of coverage liability because of the conduct of an insured.”

In March 2021, an arsonist destroyed a building on the Brockton Fair fairgrounds known as the State Building, owned by BAS Holding Corp. (BAS) and insured against loss by Philadelphia. Questioning whether the policy did in fact cover the State Building and, even if it did, whether the coverage would be limited because the building was vacant, Philadelphia undertook an investigation to determine coverage.

During the investigation, Philadelphia submitted multiple document requests to BAS, and BAS “cooperated fully” with these requests, supplying more than 700 documents.

First EUO

Also, BAS sent a representative who worked for the president of BAS to an EUO scheduled by the insurer on August 3. She was an employee who the president said handled the insurance and did “everything” to help put on the fair and also oversaw maintenance work on the fairgrounds and buildings throughout the year. She tried to answer all questions put to her at the EUO, and promised to research additional information, but the parties disagreed about the adequacy of her answers.

The next day, the insurer sought additional EUOs of the president and owner of BAS, as well as five maintenance workers. The parties communicated by email over the reasons and timing for the follow-up EUOs. Philadelphia interpreted the communications as the insured not cooperating. as required under the policy, and thus denied the claim.

Unlike the district court, the appeals court declared that Philadelphia was wrong, that BAS never refused to cooperate, never refused to produce the president for a second EUO as the insurer claimed, never delayed or missed a scheduled EUO, and was within its rights to ask why the EUO of the president was necessary.

Furthermore, the appeals court was troubled that instead of waiting weeks or months to deny coverage after requesting confirmation of an EUO, Philadelphia waited less than 72 hours and denied coverage before an EUO had ever been missed. The entire discussion between the parties about whether there should be additional EUOs spanned only nine days.

Timeline

On August 4, the day after the first EUO, Philadelphia sent an email to BAS’s counsel requesting EUOs of the six individuals. BAS replied on the same day. Philadelphia claimed that this reply constituted BAS’s first refusal to present the president for an EUO. But the appeals court, citing the language of the BAS reply email, found that BAS promised to further respond to Philadelphia’s request in a separate correspondence. “There is no way to read this email as a willful refusal,” the court stated.

On August 9, as promised, BAS responded, pointing to policy language stating that Philadelphia could only take an EUO if it is “reasonably required.” BAS asked Philadelphia to provide an explanation for why a further EUO was “reasonably required” so that BAS could consider the request and respond further. According to Philadelphia, this email constituted a second refusal of BAS to cooperate with an EUO. But the appeals court rejected that conclusion as well. “This position is not an unexcused and willful refusal” to present for an EUO, the appeals court wrote.

The next day, Philadelphia responded that it was not obligated to explain its reason but did say it was permitted to take an EUO of the president because he owns and manages BAS. Philadelphia requested that BAS “confirm” that the president would appear for an EUO scheduled for August 19.

But on August 13, less than 72 hours after its August 10 email, and before BAS had sent any response, Philadelphia denied BAS’s insurance claim for “refusing Philadelphia’s requests” for EUOs. Philadelphia argued that the attendance of the president and the maintenance workers at the requested EUOs “was a condition precedent” to coverage and BAS’s refusal to produce them prevented Philadelphia from completing its investigation.

BAS responded that the insurance policy did not require BAS to submit to Philadelphia’s specific selection of who should appear on BAS’s behalf at the EUO, that it complied with Philadelphia’s request for an EUO by producing a knowledgeable person who answered questions, and that it never missed an EUO. BAS further argued that it never refused to produce the president or others for an EUO; instead, it merely asked Philadelphia to clarify why further EUOs were required.

The district court indicated that it was troubled over the president not undergoing an EUO and granted Philadelphia’s motion for summary judgment on the basis of the lack of cooperation of the president.

Condition Precedent

Under Massachusetts law, attendance at reasonably requested EUOs is a condition precedent for insurance coverage. The question before the appeals court was whether BAS willfully and without excuse refused Philadelphia’s request for an EUO of the president, thereby breaching the insurance contract.

The court said that the record supported BAS’s “reasonable belief” that providing the president for an EUO was in no way necessary to advance Philadelphia’s investigation of the fire.

In addition to citing the timing of the claim denial, the court took issue with some statements by Philadelphia. The court found that Philadelphia’s assertion that the BAS employee who testified was “unable to testify about any of the topics of examination” was “flatly wrong.” The court found she was not evasive, attempted to answer every question asked of her without objection, and offered to research the questions she could not answer and get back to Philadelphia. Philadelphia further falsely claimed that she said it was reasonable to ask the company president for his EUO. However, the court said she never so testified.

In short, given the sequence and content of the emails between the parties, as well as the responsive EUO testimony already provided, “it is impossible to find on this record that BAS willfully and without excuse refused” to cooperate with the insurer, the appeals court concluded.