In an examination under oath (EUO), a representative of the insured (when the insured is a business entity) or the named insured (when the insured is an individual) is placed under oath, akin to a deposition, and asked a series of questions by a representative of the insurer so that the insurer can further investigate and adjust the insurance claim.
EUOs are generally treated as a condition precedent to insurance coverage. Nearly all first-party property insurance policies contain a provision allowing the insurer to examine the insured under oath.
What is the procedure for an EUO? The insured is sworn in at the onset of the examination, and a stenographer records the entire proceeding. An EUO is considered sworn testimony. The insured is entitled to be represented by counsel, but the insured’s counsel is not allowed to participate. Objections are generally not permitted.
There are procedural requirements that govern the insurer’s demand for an EUO. First, the insurer must make a formal, written demand on the insured that the insurance company is exercising its contractual right to conduct the EUO. A demand for an EUO should specify the date, time, and place for the examination and the identities of those before whom the examination will be taken. If documents and information are necessary for the insurer’s examination, those documents and information should be requested in connection with the EUO demand and produced in advance of the EUO to avoid the necessity of a subsequent examination. Failure by the insurance company to comply with the proper procedures for demanding and conducting EUOs can provide an insured with a basis for noncompliance with the EUO.
Why is an EUO demanded? An EUO is generally not demanded as a matter of course and/or in response to every insurance claim. Whether an EUO is necessary is a factually dependent, claim-specific exercise. For example: (1) What information after the initial adjustment and investigation is completed remains unknown? Would sworn testimony from the insured assist in resolution? (2) Has the insured’s claim for damages changed and/or evolved throughout the course of the claim adjustment and investigation? (3) Has the insured’s theory of causation or coverage changed and/or evolved throughout the course of the claim adjustment and investigation? Additionally, if there is suspicion of fraud: (4) Was the policy purchased shortly before the date of loss? (5) Is there a history of multiple claims under the policy or from the specific insured? (6) Is there apparent financial distress on the part of the insured? (7) Does the loss involve suspicious circumstances?
Ramifications of failing to submit to an EUO. Refusal to attend a scheduled EUO will be viewed as a failure to submit, although rescheduling an EUO is certainly permissible. Refusal to answer certain questions has also been found to be noncompliant, though some insureds have successfully argued the information sought was immaterial and irrelevant to the claim.
Insureds have also challenged the EUO process on Fifth Amendment grounds, citing the right against self-incrimination. Courts have summarily rejected that argument, however, relying on the contractual relationship of the parties and the necessity of the EUO to insurers. Even though testimony in an EUO can later be used against the insured in a criminal proceeding, the Fifth Amendment provides no relief.
If noncompliance with a term of the insurance policy exists regarding the insurer’s right to take an EUO, such as the cooperation clause or an explicit EUO provision, the insurer can deny coverage for the entire claim as an EUO is treated as a condition precedent to insurance coverage.
Statutes. All 50 states have explicitly endorsed the EUO process in their standard fire insurance policies or statutes. In Minnesota, the statutory standard fire policy contains an express provision authorizing the EUO, also mentioning the insured’s right to counsel. The California Insurance Code also provides for an EUO in the case of a fire loss. Forty-six states have adopted the “165-line” policy initially adopted in New York, with an EUO provision that resembles the California provision.
Case law. In Claflin v. Commonwealth Ins. Co., 110 U.S. 81 (1884), the U.S. Supreme Court declared that the object of the EUO is to enable the insurer to possess itself of all knowledge and all information as to other sources and means of knowledge, in regard to the facts, material to its rights, to enable it to decide on its obligations and to protect it against false claims. Every interrogatory that is relevant and pertinent in such examination is material, in the sense that a true answer to it is the substance of the obligation of the insured.
In Weber v. General Accident Fire & Life Assurance Corp., 462 N.E.2d 422 (Ohio Ct. App. 1983), the Ohio Court of Appeals ruled that demand for an EUO should be made on the insured, not only the insured’s attorney.
In Twin City Fire Ins. Co. v. Harvey, 662 F. Supp. 216 (D. Ariz. 1987), the district court of Arizona found that if a dispute arises as to the materiality of a particular question, counsel for the insurer should explain the relevancy of the question. In State Farm Fire & Casualty Ins. Co. v. Walker, 459 N.W.2d 605 (Wis. Ct. App. 1990), and Mello v. Hingham Mutual Fire Ins., 656 N.E.2d 1247 (Mass. 1995), the Wisconsin Court of Appeals and the Massachusetts Supreme Judicial Court, respectively, recognized that the failure to answer material questions at an EUO was a violation of the cooperation clause and the concealment clause. The contention that the privilege against self-incrimination justified the refusal was rejected, as was the insured’s belated offer to comply.
Practical tips. An insured should be prepared by his or her attorney in advance of an EUO, much like a deposition. The insurer will examine the insured about causation, witnesses, the insured’s physical location at the time of loss, the insured’s response to the loss, the amount of damage that is being claimed, the history of any property damage or repairs that occurred prior to the loss, and anything else regarding the factual circumstances of the insurance claim. Additionally, the insurer is likely to inquire about the insured’s finances—especially if there are indications of fraud. The only limitation on questioning in an EUO is that all questions asked must be material to the claim.
Prior to the EUO, there should be comprehensive “fact checking,” including a review of: (1) the police for the correct identity of the named insured to ensure that the witness appearing at the EUO is the proper witness; (2) relevant storm/event data regarding the cause of loss; (3) proof of loss and estimates submitted; (4) photographs documenting the loss and in comparison with the estimates and proof of loss submitted; and (5) the date of the notice of loss, the proof of loss, and/or the event causing the loss.
Honesty at an EUO is vitally important. Peer v. Minnesota Mutual Fire & Casualty Co., No. 93-2338, 1995 WL 141899 (E.D. Pa. Mar. 27, 1995), demonstrated the catastrophic consequences of not being forthright with the insurance company. In Peer, the court found that the insured had made false statements in an EUO, which amounted to fraud. That policy was voided in light of the insured’s fraud, and the court ordered the insured to return all monies previously distributed under the policy.
ABA TORT TRIAL & INSURANCE PRACTICE SECTION
This article is an abridged and edited version of one that originally appeared on page 54 of The Brief, Fall 2017 (47:1).
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