In a case of first impression, the Supreme Court of Washington has ruled that an insurer’s express and unqualified contractual right to request an examination under oath is subject to an implied requirement that the request be “reasonable or material.” The court further held that an insured’s refusal of even a reasonable request for an EUO will not excuse the insurer from paying a claim, absent a showing of actual prejudice. The court’s ruling means insurers cannot limit potential controversies about how they choose to investigate a claim by including specific provisions about claims procedures in their policies.
In Staples v. Allstate Ins. Co., No. 86413-6 (Jan. 24, 2013), the plaintiff’s van was stolen from a parking lot with a large number of tools inside. According to the police report, the plaintiff told the police the tools “were worth around $15,000,” and that the van was a “mobile workshop for the business that [the plaintiff] contracted with.” Two weeks later, the plaintiff submitted a claim for the tools under his Allstate homeowner’s policy; he stated that the tools were worth between $20,000 and $25,000, and that he kept them for his personal use.
Allstate’s special investigations unit took over the claim; it requested a number of documents, it conducted two interviews and it asked for a sworn proof of loss. When the plaintiff had complied with only some of its requests, it sent a letter requesting an EUO. The parties argued about the propriety of the request, but, eventually, the plaintiff refused to attend, and Allstate denied the claim.
The plaintiff’s policy included a provision that stated:
What You Must Do After A Loss
In the event of a loss to any property that may be covered by this policy, you must: . . . as often as we reasonably require . . . at our request, submit to examinations under oath . . . .
The Supreme Court acknowledged that this provision gave Allstate greater rights than would “a general cooperation clause.” But it reasoned that “there must be some outside limit to an insurer’s ability to demand an EUO. . . . For example, it would surely violate an insurer’s good faith duty to demand an EUO from every single claimant, simply to burden insureds and set up pretexts for denying claims.”
Even where there is an express EUO clause, therefore, the court held that “if an EUO is not material to the investigation or handling of a claim, an insurer cannot demand it.” Information is “material,” the court stated, “when it concerns a subject relevant and germane to the insurer’s investigation as it was then proceeding at the time the inquiry was made.” In this case, the court found that it lacked sufficient information to decide whether Allstate’s proposed EUO would have concerned “relevant and germane” subjects.
The court also ruled that the insurer was required to show actual prejudice before denying a claim for violation of the EUO requirement—a ruling that was based, in part, on the language of the policy at issue. (“We have no duty to provide coverage . . . if you . . . fail to comply with [the EUO provision], and this failure to comply is prejudicial to us.”) And it found that the record was insufficient to determine whether the plaintiff had substantially complied with the EUO term.
Allstate told the court it considers the examination under oath “an essential and valid tool for investigating claims and cross-examining policyholders.” The insurer’s point was that an EUO can uncover facts in ways that other inquiries into the same information do not—regardless of whether the information itself is “relevant and germane.” By making insurers’ right to conduct EUOs subject to challenge on a case-by-case basis—even where, as in Staples, the policy expressly authorizes the procedure, and the insured has submitted a claim that directly contradicts statements reported by the local police—the Washington court appears to have complicated the job of investigating claims.
* Update February 13, 2013: Applying Louisiana law, the U.S. Court of Appeals for the Fifth Circuit strongly affirmed an insurer’s right to compel an EUO in Kerr v. State Farm Fire & Cas. Co., No. 12-30332 (5th Cir. Feb. 5, 2013). The policy in Kerr required the insured, upon the loss of covered property (in this case, a bass boat and fishing equipment), to “submit to an examination under oath,” and it provided that “[n]o action shall be brought [against the insurer] unless there has been compliance with the policy provisions.” When State Farm asked the plaintiff in Kerr for an EUO, he responded by filing suit.
The Fifth Circuit’s unpublished opinion, affirming summary judgment for the insurer, took it as a matter of settled law in Louisiana that refusal to submit to an EUO constituted a material breach of the policy. The court did not rule on whether it is necessary for the insurer to establish that it has been prejudiced by the refusal, because it found that the threshold for establishing prejudice is extremely low: State Farm satisfied the requirement by submitting affidavits from its investigators, stating “that an EUO is an important tool in the claim investigation process and that by refusing an EUO, [the plaintiff] impeded State Farm’s ability to gather information about the claim.” The court also approvingly cited Lee v. United Fire & Cas. Co., 607 So.2d 685 (La. App. 1992), for the proposition that “[a]n outright refusal to submit to an examination is the easy case.”
