Insurance Claims And Examinations Under Oath (EUO)

Almost all insurance policies contain a requirement that the insured submit to an examination under oath (EUO) as often as is necessary for the insurance company to complete its investigation of the claim.

EUO”S were the topic in a Western District of Texas, Austin Division, opinion recently.  The opinion is styled, AXO Staff Leasing, LLC v. Zurich American Insurance Company, McCreadie & McCreadie, Inc., and Lassiter Ware Insurance.

The lawsuit is an insurance coverage dispute between Zurich and AXO.  Briefly, AXO contends that its former Chief Financial Officer (CFO), John Herzer, embezzled $4.7 million, and that the loss is covered by the Zurich policy.

Under the Policy’s “Duties In The Event of Loss” clause, Zurich asked AXO to “produce for our examination all pertinent records” before scheduling the EUO of AXO’s corporate representative required by the Policy.  The pertinent documents Zurich seeks include those establishing AXO’s loss and showing that Herzer qualified as an employee under the policy’s definition, which excludes persons “authorized by you AXO to sign your checks or make withdrawals from your bank accounts without the countersignature of another natural person similarly authorized by you.”

This Court entered an Order requiring AXO submit to an EUO and that the lawsuit be abated until AXO had complied with all the conditions precedent contained in the policy before filing suit.  The lawsuit was abated until 30 days after AXO “provides the information Zurich needs to complete its investigation,” including all documents set forth in Zurich’s motion to abate and the EUO of AXO’s corporate representative.

On December 6, 2019, AXO produced to Zurich three boxes of paper documents, two flash drives, and a computer hard drive; AXO filed the instant Motion six days later.  Between December 12, 2019, and the hearing on January 30, 2020, Zurich had the documents duplicated and digitized as needed, and partially reviewed them.  Some of the electronic materials AXO produced could not be opened, while one of the flash drives alone contained more than 59,000 separate records.  The materials AXO produced included“a number of pornographic photographs of Mr. Herzer.”

The parties now disagree whether AXO’s production is sufficient to enable Zurich to proceed with the EUO. Among their most significant disputes, Zurich contends that AXO has failed to establish the value of its loss by showing that the bank accounts to which Herzer allegedly fraudulently transferred funds were not owned by AXO.  AXO responds that such records are not within its possession, custody, or control, and because AXO has no corporate assets, Zurich should bear the cost of issuing subpoenas for any pertinent bank records.

This Court found that it remains AXO’s contractual obligation to establish the value of its loss and that its claim is covered by the insurance agreement.  It is therefore AXO’s duty to obtain any documents pertinent to its claim available only by subpoena.

This Court also found that it would not promote the interests of judicial efficiency to life the stay of these proceedings until AXO has produced pertinent documents requested by Zurich sufficient to complete a meaningful EUO, to the extent that they exist.  The parties are in the best position to identify the pertinent documents necessary at this stage of their dispute.  Nonetheless, on the current record, it appears that Zurich’s requests are overbroad for this purpose.  Subject to the parties’ agreement, the Court by way of example identifies the following as the subset of all pertinent documents requested by Zurich which, before the parties schedule the EUO, AXO must either (1) produce to Zurich or (2) if they do not exist, so inform Zurich:

The Court then listed the documents and made the appropriate Orders.