Articles Posted in Claims Handling Process

A starting point for understanding an Examination Under Oath (EUO) is start with the principle that an insured has a duty under their insurance contract to cooperate with the insurer’s investigation of a claim.

In the first-party setting, which is the setting under which EUO’s are sought:  Duties of cooperation include the duty to submit to an EUO, the duty to respond to reasonable requests for information and documents, and the duty of candor which would prohibit the insured from concealing information from the insurer or providing false information in support of the insured’s claim.  An EUO and the information obtained therefrom is the core of the duty to cooperate.  The regard the courts have for the duty to cooperate is illustrated in the case, Aetna Casualty & Surety Co. v. State Farm Mutual Auto Insurance Co., a federal case out of Pennsylvania.  Mona Dobbins, the State Farm insured, refused to give a statement to State Farm regarding a car wreck that occurred in August, 1987.  In the accident, Dobbins struck and killed a pedestrian with the vehicle she was driving, which had been leased by her employer Brookline Social Club.  Dobbins fled the scene of the accident.  In light of the criminal proceedings against her, Dobbins refused to give a statement to State Farm based on her 5th Amendment privilege against self-incrimination.  Later, in August of 1987, State Farm sent Dobbins a reservation of rights letter.  In December of 1987, a civil action was filed against State Farm’s insured, Dobbins, by the estate of the pedestrian killed.  After a default judgment was obtained by the estate against Dobbins, State Farm sent two letter to Dobbins in March of 1989 “denying coverage under its liability policy issued to the Brookline Social Club and refusing to defend or indemnify her because of her refusal to cooperate with State Farm’s investigation.  Following State Farm’s denial of coverage, the estate of the pedestrian killed presented an uninsured motorist (UM) claim to Aetna, the uninsured motorist insurer.  After Aetna paid the UM claim, it filed an action against State Farm for indemnification from State Farm for the UM claim paid by Aetna.  The jury returned a verdict in favor of State Farm finding that State Farm insured, Dobbins, breached her duty to cooperate and that State Farm had suffered substantial prejudice.  Aetna filed a motion for judgment notwithstanding the verdict.  Upon consideration of Aetna’s motion for judgment notwithstanding the verdict, the court upheld State Farm’s coverage denial, rejecting Aetna’s argument that Dobbins’ 5th Amendment privilege excused her breach of contract as a matter of law.  As one commentator indicated, “In these trying times of exaggerated and intentionally false claims, EUO’s offer the insurance company’s best chance of aggressively investigating first party claims in a good faith atmosphere.  EUO’s should be effectively utilized by the insurance company in its search for truth in the war against arson and false claims.”

A frequent phone call to insurance law lawyers is someone asking about participating in an examination under oath (EUO).

Most people understand what taking the 5th means.  It refers to our right to not be compelled to say anything that may be self-incriminating.  It usually is discussed in the context of a criminal proceeding or investigation.  However, the privilege against self-incrimination also applies in civil proceedings.  Just because you are in a civil case rather than a criminal case does not require a person to surrender this right.

In an insurance situation, an insurance investigation is contractual in nature.  Almost all insurance policies are going to contain a cooperation clause that requires the insured to cooperate with the investigation of a claim for which the insured is seeking policy benefits.  Courts in interpreting the cooperation clause have universally found that the insured cannot use the 5th Amendment to avoid cooperating with the insurance company yet insist that the insurance company provide the requested coverage.

Insurance cases involving umpire’s are a little different.  The Amarillo Court of Appeals issued an opinion on May 14, 2018, styled, Mahmoud Abdalla v. Farmers Insurance Exchange.  The case deals with, among other issues, when an umpire’s appraisal award can be challenged.

This case is an appeal by Abdalla from a summary judgment in favor of Farmers.  Abdalla sued Farmers over an insurance dispute resulting from water damage.  The extent of the damage and insurance proceeds payable was ultimately submitted to appraisers in accordance with policy terms.  An umpire appointed by the trial court eventually (1) found the appraisal developed by Farmer’s appraiser (Albright) to be the “more sound and well supported appraisal” ad (2) designated the actual cash value of the loss at $345,664.21.  Farmer’s timely paid the umpire’s decision.

Abdalla filed motions to set aside the decision based on the umpire’s decision being a mistake and to appoint a new umpire.

Like all property insurance policies, the Business Personal Property (BPP) policy imposes a number of duties on the insured.  Insurance attorneys will tell these duties constitute conditions precedent to coverage; that is, the insured must comply with these requirements before the insurance company is obligated to pay any loss.  This requirement was made clear in the 1999, 5th Circuit opinion styled, Griggs v. State Farm Lloyds.  These duties generally include:

  1.  the insured must provide notice to the insurer of the loss
  2.  the insured must preserve the property as much as possible

Insurance lawyers will tell you that a person must have an insurable interest in the insured property to recover under an insurance policy.  This is also stated in the 1993, Dallas Court of Appeals opinion, Jones v. Texas Pacific Indemnity Co.

The purpose of the requirement of an insurable interest is to discourage the use of insurance for illegitimate purposes as discussed in the 1999, Austin Court of Appeals opinion, Valdez v. Colonial County Mutual Insurance Co.

The 1998, Fort Worth Court of Appeals opinion, Foust v. Old American County Mutual Fire Insurance Co., tells us an insurable interest exists when the insured derives a pecuniary benefit or advantage by the preservation and continued existence of the property or would sustain pecuniary loss from its destruction.

One of the primary duties of an insured under his insurance policy is to cooperate with the insurer’s investigation of a claim.  As an example –

The Texas Auto Policy  provides:

A person seeking coverage must (1) cooperate with us in the investigation, settlement, or defense of any claim or suit; and (2) properly send us copies of any notices or legal papers received in connection with the accident or loss.

Here is some general property insurance information and personal property insurance information.

Property insurance involves the indemnification of the insured by the insurer for the oss of, or damage to, identifiable property described either specifically or by general language in the policy.  That is what was stated in the 1973, Dallas Court of Appeals opinion, Cumis Insurance Society v. Republic National Bank of Dallas.

As stated in the 1989, Corpus Christi Court of Appeals opinion, Warrilow v. Norrell, coverage evaluations in the context of property insurance examine the relationship between perils covered under the policy and perils excluded under the policy.

Insurance attorneys know about the statutory requirements of making a claim.  These rules can be looked up in the Texas Insurance Code.  The problem arises when the insurance companies do not comply with these rules.  So, what are some of these rules.

Start with Texas Insurance Code, Section 542.056(a).  This statute requires an insurance company to give written notice it is accepting or rejecting a claim.  A telephone call from the insurance company adjuster notifying the insured of the amount of the loss will not constitute “notice of payment of claim, because the statute requires that the acceptance or rejection be in writing.  This writing requirement is discussed in the Houston Court of Appeals [14th Dist.] opinion styled Daugherty v. American Motorists Insurance Company.

However, an insurance company’s written response acknowledging only that a claim has been received does not constitute an acceptance or rejection under the statute according to a Corpus Christi Court of Appeals opinion styled, Northern County Mutual Insurance Company v. Davalos.

Cooperation with the insurance company investigation of a claim is required under the insurance policy.  Failure to cooperate can result in the policy being rescinded and the claim denied.

The 1994, Amarillo Court of Appeals opinion, Andy Costely and Cathy Costley v. State Farm Fire And Casualty Company, illustrates the necessity of cooperation with the insurance company investigation of a claim.

In this case, State Farm was allowed to rescind a policy based on the insured failure to cooperate.  Cathy had her truck, tractor, and other personal property destroyed by a fire while it was parked on Andy’s father’s (Robert) property.  Andy and Cathy sued Andy’s father.  Later Robert sued Andy alleging the damage was due to the negligence of Andy.

The United States 5th Circuit Court issued an opinion in October 2017, that is basic to insurance law.  The opinion is styled, Nautilus Insurance Company v. Irma Miranda-Mondragon.

This is a declaratory judgment action filed by Nautilus against its insured Houston Star Security Patrol and Mondragon.  Nautilus argued it had no duty to indemnify Houston Star regarding a claim brought by Mondragon.  Summary Judgement was granted in favor of Nautilus.

Mondragon worked as a waitress at a nightclub when armed gunmen entered and began shooting customers and employees.  Mondragon was shot and required significant treatment.