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By Kirby G. Huget, Esq.
Research suggests that a significant percentage of all automobile and property/casualty claims are inflated, if not fraudulent in their entirety. Insurance companies, fully aware of the costs associated with fraud, have increased efforts to detect and avoid these claims. An often overlooked weapon in the carrier’s arsenal is the examination under oath (EUO).
The EUO is a contractual privilege that gives an insurer the ability to question its insured about issues material to a claim on an insurance contract. The EUO is similar to a deposition in a third-party lawsuit in that the witness is interrogated while under oath. The right to an EUO, however, is controlled strictly by the language of the insurance policy and is not limited to procedural rules governing discovery.
SCOPE OF THE EUO
The scope and frequency of the examination is limited by the terms of the policy. The process generally involves interrogation by question and answer in the presence of a stenographer. Most policies permit the insurer to require the production of physical and documentary evidence at the EUO.
Although contractual terms vary, the typical policy provides that the insured “as often as reasonably required, submit to questions under oath and sign and swear to them.” Most policies further require that the insured “to the extent that he is able, produce other persons for questioning under oath.” Under these circumstances, an insured’s spouse, children and business associates generally are available for examination.
In contrast to a discovery deposition, the claimant’s attorney technically is not permitted to raise objections or conduct cross-examination during an EUO. However, it is usually advisable to allow counsel to ask his own client questions to give the insured every opportunity to substantiate his suspicious claim. Additionally, cross-examination may further the insurer’s effort to become fully informed. Where the insured is not represented by counsel, it may be appropriate to invite the insured to volunteer additional information about the claim not elicited during the examination.
Q: Is there anything that I didn’t ask about this fire loss that you want the insurance company to know?
A: Well, I might have forgotten to mention that my original Picasso was totally destroyed in the fire.
The right to conduct an EUO includes the right to request that the insured produce documents and related financial information. The scope of such requests obviously will depend on the nature of the claim. The guiding factor is whether the information requested can, in any way, assist the insurer in determining the true cause or extent of the loss and the credibility of the insured.
WHAT TO EXPECT FROM THE EUO?
The course of the examination will be determined by the nature of the loss and questions developed during the preliminary investigation of the claim.
Q: Your testimony today is that you were in Massachusetts on the night that your New York estate burned to the ground?
A: That’s right. I was attending a conference at the Weston Hotel in Boston.
Q: How did you first learn about the fire?
A: My neighbor called my hotel room at midnight and told me that my house was burning.
Q: What did you do in response to that telephone call?
A: I immediately called my insurance agent at his home to confirm that my Picasso was covered by my homeowner’s policy.
The insurer is entitled to any information that will assist in determining the true cause or extent of the loss and the credibility of the insured.
Q: That telephone call to your agent would have been a long distance call?
A: That’s right. I called from my hotel room using my calling card.
Q: Can you show me where that charge appears on the telphone bills that you produced?
A: Hmmmm. Isn’t that strange. It looks like the telephone company made a mistake and forgot to bill me for that call.
Q: Do you have a receipt to document your purchase of the Picasso?
A: No. It was a cash transaction and the art dealer was out of receipts.
In the investigation of a suspicious or inflated claim, the EUO provides an excellent opportunity for the insurer to fully evaluate the claimant’s demeanor and credibility. It will further permit the insurer to explore the claimant’s attitude with respect to the investigation and his willingness and ability to document the loss.
The EUO provides the insurer with an opportunity to explore inconsistencies in the claimant’s testimony and to measure the claimant’s testimony against prior statements, including those contained in the police investigation and the proof of loss.
Q: If you were in Boston when you learned about the fire, why did you tell the fire marshal that you were at home and that you called 911 when you heard the smoke alarm?
A: I remember talking to the fire marshal, but I don’t remember saying that.
Q: When did you talk to the fire marshal?
A: That night, shortly after midnight. He came to the house as I searched through the debris for my Picasso.
Q: You testified a moment ago that you didn’t leave Boston until the next morning. How do you explain that?
A: Well . . .
Requesting the production of documents at the EUO is a corresponding right of the insurer under most policies. The insurer obviously is entitled to written materials documenting the claim, including canceled checks and receipts to demonstrate ownership or value. The right to demand written materials, however, is not limited to such documents.
Most courts have held that the insurer is entitled to explore the insured’s financial condition at the time of the loss. Although financial condition may be documented by a variety of means, courts have recognized that bills, receipts, bank records, business records, and personal income tax returns are all appropriately subject to production.
Q: You testified that you paid $50,000 in cash for your Picasso in 1993, but your tax returns declare no income that year.
A: Of course I had income. Nobody reports everything to the IRS, do they?
The submission by the insured to the examination usually is regarded as a condition precedent to recovery on the policy. The insured’s failure to submit to examination will result in a forfeiture of rights and will provide the insurer with a basis for denying the claim. Conversely, the insured’s willingness to cooperate and to provide explanation may indicate that payment is in order. In the event that the claim is accepted, the EUO may help to develop potential subrogation claims against third parties who may be responsible for the loss.
The EUO provides the insurer an opportunity to obtain information concerning the claim and the existence or extent of coverage. Further, it gives the insurer the ability to identify and obtain documents and to explore with the claimant the meaning or consequences of those records.
The EUO gives the claimant an opportunity to explain suspicious circumstances or inconsistencies. At least one court has suggested that the denial of a claim, prior to the insurer’s conducting an EUO, is in itself a basis for a bad faith claim.
A thorough investigation, including an EUO, can result in a successful denial of and defense to a fraudulent or inflated claim. When conducted properly, the EUO enables the insurer to protect against fraudulent claims and to confirm that losses are paid fully and in amounts that are based on properly supported and documented evidence.
PRACTICE POINTER
Because the EUO is often the only discovery avenue available to the carrier in a first-party claim that records sworn testimony attributable to the mouth of the claimant, it is absolutely critical that the testimony be “nailed down.” Unlike a third party claim, where other discovery avenues are available, which in essence allow for “follow up inquiry,” such as interrogatories, requests for admissions and/or requests for identification and production of documents, the EUO in the first-party homeowner’s claim, for example, should be viewed as the opportunity and should only be taken by one who is seasoned and skilled in interrogation. While it is impossible to delineate every scenario that might be encountered, careful consideration should be given to defining the issues of the case well before the EUO, for exploration and “nailing down” in the EUO. If either the questions asked or the answers given are vague, ambiguous or otherwise inexact, room will be afforded the claimant for change or modification of the response in question which could materially impact the analysis of the claim. If the decision to deny a claim is based upon the loose interpretation of testimony elicited during a poorly performed EUO, the consequence may also be the defending of and paying on a bad faith claim.
Kirby G. Huget is a Litigation Partner in the firm of Skelly Rottner in Hartford, CT.
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