Cooperating With Insurance Company Investigation

Insurance lawyers know to tell their clients to cooperate with their insurance company investigation of a claim.  Failure to cooperate can void the coverage.  This issue was litigated in a Southern District, Houston Division case styled, Rosie’s Chicken & Waffles Restaurant, et al v. Acceptance Indemnity Company.

In a jury trial, the jury answered questions 1 and 2 in favor of Rosie’s, finding that the entire fire at their business was not the cause of arson attributable to its owners or employees.  The jury also found by inference that Acceptance failed to establish its defense that the premises did not have a working smoke alarm at the time of the fire.  The jury in questions 4 and 5 went on to find that the owner failed to provide financial information relating to the daily business transacted at Rosie’s business location and that her failure to provide financial documents prejudiced Acceptance.

This Court found that the jury’s answers to questions 4 and 5 are irrelevant in light of their answers to questions 1 and 2.

The insurance policy purchased by Rosie’s, in paragraph “C”, under “Common Policy Conditions”, reads:

All Coverage Parts included … are subject to the following conditions:  We may examine and audit your books and records as they relate to this policy at any time during the policy period and up to three years afterward.

Acceptance contends that provision “C” gives it the right to examine Rosie’s books and records and that Rosie’s failure to comply with this condition constituted a breach of contract and the jury answers to questions 4 and 5 bars any recovery by Rosie’s.  Acceptance argued that Rosie’s refusal to provide the records hid Rosie’s poor financial condition, thus, helping Rosie’s claim.  Acceptance also argued that despite being asked numerous times for these records, Rosie’s failed to produce them.

Rosie’s testified that the records were provided in hard copy and through Rosie’s bookkeeping service.  The owner testified that all business records were provided to the attorneys for Acceptance and provided proof of same in a letter to them which also included phone numbers for contacting the bookkeeper.

The record clearly shows the means for Acceptance to obtain the records was in the hands of Acceptance.  Therefore, the jury answers to questions 4 and 5 are immaterial to Rosie’s recovery for property damage.  Moreover, the property damage claim was undisputed.  In questions 1 and 2, the jury found that the fire, whether by arson or not, was not attributable to the owner or persons acting in behalf of the owner.  Contrary to Acceptance’s assertion that the jury could infer from the owner’s lack of cooperation that the owner or employees caused the fire, such an inference does not logically follow and the jury answer’s to questions 1 and 2 confirm that fact.  Hence, the absence of hard copies of Rosie’s books and records does not support nor defeat Rosie’s property damages claim.

Likewise, Acceptance’s claim that Rosie’s hid its books and records by utilizing an attorney, is inconceivable, particularly since both parties communicated through their attorneys.  Neither attorney was called to testify in the case.  Hence, there is no evidence that Rosie’s attorneys did not cooperate with Acceptance’s attorney concerning access to the books and records.

The Court’s instructions regarding questions 1 and 2 permitted the jury to find that the owner or employees caused the arson if they believed that the owner or employees did so in order to receive benefits from the arson.