Condominium Insurance Law : Condo Insurance Lawyers & Attorneys : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables & West Palm Beach

It is true that during the examination under oath, the person being questioned may face some tough questions concerning the loss, the description of damages as well as efforts to conduct repairs. But what happens if the insurer unfortunately uses the examination under oath process to harass the witness with a laundry list of questions completely unrelated to the loss itself?

Recently the Third District Court of Appeal in Florida issued an opinion addressing the unreasonableness of an insurance company’s lawyer’s questions during an examination under oath. De Leon v. Great American Assurance Co., No. 3D09-646, 2011 WL 4824135 (Fla. 3d DCA October 12, 2011). Chip Merlin wrote about this case on October 17, 2011 in his post The Games Insurance Companies Play on the Property Insurance Coverage Law Blog. Chip noted that the title to the post was actually a quote from the Third District Court’s opinion.

The De Leon case involved an insurance claim where someone stole a truck owned by De Leon and insured by Great American. When it was recovered, the truck was damaged and was missing nine large valuable tires. When the insurer demanded an examination under oath, De Leon appeared without counsel. Great American’s lawyer did not even discuss the truck and the tires. As the Court described, “[i]nstead, he insisted on probing into the details of, among other things, a prior, totally unrelated criminal conviction, and the person with whom the claimant was then living.” The Court quoted numerous pages from the examination under oath transcript and described it as “a never-to-be-emulated model of its kind.”

The Court stated in its opinion that when De Leon was asked about the unrelated questions of who he was living with and the criminal conviction, that:

With complete justification, De Leon declined to answer most of these questions, even though Diz [the insurer’s lawyer] specifically warned him that he was jeopardizing his insurance coverage and invited him to withdraw his claim in lieu of responding. In fact De Leon told Diz that if he continued on that track, he would leave, get an attorney, and see him in court. Diz did not desist. He persisted. True to his word, De Leon got a lawyer and filed suit.

In the De Leon opinion, there is a strong statement written after the majority opinion by Judge Shepherd:

This court recently admonished ‘all counsel’ who practice in the courts of this state that ‘improper conduct’ in the courtroom ‘will not be condoned by this court.’ This case involves conduct outside the courtroom, stemming from the theft of a 2000 Freightliner “eighteen wheeler” commercial truck…After suit was filed, the trial court abated the action and ordered completion of the previously begun examination under oath. The same lawyer who conducted the first aborted EUO conducted the second. It lasted over seven hours. It stains credulity to assert—as the insurer does in this case—that a seven-hour sworn statement of a single individual is necessary to the investigation of an $8000 tire loss claim, whatever may be the insurer’s suspicions. ‘Over-lawyering’ is a frequent affliction found in the legal profession. If there is any question concerning whether the insured’s instincts about the interrogator’s purpose was any different in the second EUO than in the first, the doubt can be dispelled easily by reviewing the transcript of the latter EUO.

An attorney is an officer of the court, and he plays his role badly, even outside the courtroom, if he trespasses against the obligations of his professional responsibilities. A careful review of the transcript of the second EUO reveals the role played by counsel during that EUO was performed just like the first—badly. As in the first EUO, counsel’s misunderstanding of the permissible range of inquiry in a sworn statement taken to verify a simple theft loss, whatever might have been the insurer’s suspicions, was palpable.

This is strong stuff. For an appellate court to be admonishing this behavior by the insurer and its representatives in this opinion is as if to say enough is enough. An examination under oath should not be utilized as an all day fishing expedition into detail that has nothing to do with the insurance claim and damages. The Third District Court ordered the insurer in De Leon to pay for the policyholder’s attorney’s fees for filing the lawsuit after the abusive treatment during the examination under oath because the claim was “not resolvable absent judicial intervention.” The Court ended its opinion with the statement:

We cannot permit Great American to escape the consequences of what it tried to get away with in this case.

Bravo!

The El-Ad Enclave Condominium Association suffered a loss from Hurricane Wilma in 2005 and made a claim to its property insurer, Mt. Hawley. On February 4, 2009, the insurer requested that the insured sit for an EUO and produce documents to the insurer. On February 18, 2009, the insured responded to the request and attempted to coordinate the EUO and production of documents. The EUO was rescheduled a few times before finally being set for June 9, 2009. Meanwhile, on May 15, 2009, before the insured had appeared for the EUO or produced documents, it filed suit against the insurance company.

The condominium association’s insurance policy permitted the insurer to “examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or claim, including an insured's books and records.” The policy also required that no legal action could be taken against the insurer unless “[t]here has been full compliance” with all terms of the policy. The insurer filed a motion for summary judgment, arguing that the condominium association had not fully complied with its duties before filing suit because the EUO had not actually taken place before suit was filed.

In support of its motion, the insurance company cited case law in which insureds refused to comply with requests for or failed to appear for an EUO, and eventually never complied with the EUO request. The court distinguished those cases by saying:

In Goldman, for example, the insured had yet to submit to an EUO two years after having filed suit. See Goldman, 660 So.2d at 305. The Fourth District noted that an insured's “refusal to comply with a demand for an examination under oath is a willful and material breach of an insurance contract.” See id. at 303 (emphasis added). Accordingly, it held that the insured's refusal to comply prohibited a suit concerning the policy. See id. at 306. In another similar case cited by Mt. Hawley, the insured failed to show for scheduled EUOs, and never fulfilled the EUO requirement. The Second District held that the insureds' “failure to submit to the EUOs was a material breach of a condition precedent to [the insurer's] duty to provide coverage under the policy.” See AMICA Mut. Ins. Co. v. Drummond, 970 So.2d 456, 459 (Fla. 2d DCA 2007).

The Court found that summary judgment was not proper because the condominium association had amicably attempted to coordinate both the production of documents and the examination under oath and ultimately did both, albeit briefly, after suit was filed. Because there was an agreement in place to produce documents and sit for the examination under oath before suit was filed, the court denied the insurance company’s motion for summary judgment on the basis that there was an issue of fact as to whether the condominium association’s actions in agreeing to comply before filing suit, and complying briefly after filing suit, amounted to full compliance under the terms of the policy. The court noted that:

Moreover, if an insured has not demonstrated willful disregard of the policy preconditions, courts have either stayed the action or dismissed the suit without prejudice in order to allow belated compliance. See, e.g., Central Metal Fabricators v. Travelers Indemnity Company of America, 703 So.2d 1251, 1251 (Fla. 3d DCA 1998) (staying claim pending compliance with EUO); Southgate Gardens Condominium Association, Inc. v. Aspen Specialty Insur. Co., 622 F.Supp.2d, 1332, 1337 (S.D.Fla.2008) (dismissing suit without prejudice to allow belated compliance is “most prudent course of action”). Here, such relief is not necessary because Enclave produced the documents and the EUO was taken less than a month after the action was filed. But regardless, these cases indicate that dismissal is not appropriate here.

In the end, it is usually better to play it safe than sorry and actually sit for an EUO and produce documents before filing suit, but this case shows that the facts may permit the actual EUO to take place after filing suit, as long as there has been initial cooperation. Again, the facts and timeline will be key in the determination of whether the insured has complied, and some judges may be less inclined to find compliance under the above facts, so be sure to consult with your legal counsel regarding compliance.

One thing that surprised them most was the way insurers used the examination under oath process. The examination under oath process is supposed to be a way for insurers to gather factual knowledge about the claim in order to make a decision about coverage. Generally, the examination under oath was used rarely in the normal course of business.

Today, however, insurers and defense attorneys are demanding examinations under oath in the majority of claims. Many times, instead of attempting to gain facts about a claim, the insurer and its attorney use the process to intimidate the policyholder and its representatives as well as to find ways to wrongfully deny claims.

Who an association should send for an examination under oath is not always an easy question. While most policies only contemplate that the insured (i.e. the board members who represent the association) may be examined under oath, many insurers demand that other individuals, such as public adjusters, estimators, and even maintenance staff, be produced.

Producing individuals who are not representatives of the association for an examination under oath can be problematic. Recently, the U.S. District Court for the Southern District of Florida addressed the potential use of examination under oath testimony in subsequent litigation. In Royal Bahamian Assn. Inc. v. QBE Insurance Corporation, No. 10-21511, 2010 WL 4123989 (S.D. Fla. October 20, 2010), the association argued that the testimony it gave in its examination under oath was inadmissible hearsay and could not be used against the association at trial.

Royal Bahamian argued that the examination under oath process was not the same as a deposition taken during litigation. Because the rules of civil procedure do not provide the normal protections during an examination under oath, Royal Bahamian argued that the court should consider the testimony hearsay and not admissible at trial.

The Southern District, however, disagreed with this position. While the court did somewhat agree with Royal Bahamian’s argument that the examination under oath was not the same as a deposition, the court disagreed that the examination under oath was inadmissible hearsay. Simply put, the court determined that there were sufficient protections in the examination under oath process to make the testimony reliable, and since the individual produced was a “corporate representative” of the association, the statements made during the examination under oath were considered an admission under the Federal Rules of Civil Procedure.

The Court’s determination that the testimony during the examination under oath can be considered an admission by the policyholder is highly problematic for a number of reasons and should cause an association and their counsel to take extreme care when choosing the individuals to produce for an examination under oath.

Individuals produced may be considered corporate representatives of the association even though they may not even be an owner or part of the board. Since the individual’s testimony at the examination under oath may be considered an admission, the association should be careful to produce only those individuals that it chooses to have the power to potentially bind the association.
 

In addition to requests for the association’s board members, can the insurer request the individual unit owners of the association give examinations under oath? What about the insurer’s assertion that the particular policy classifies unit owners as additional insureds for purposes of fixtures and subjects them to post-loss obligations? An example of standard policy language which might provide such an argument is:

With respect to coverage for fixtures, installations and additions provided, each unit owner will be considered an additional insured.

I would argue that the policy provision cited above did not express a contractual intent to subject every single unit owner to lengthy examinations. Requesting each unit owner to appear for examination under oath would be an unreasonable attempt by the insurer to keep the policy post-loss conditions open and indefinitely delay the claim.

Importantly, in Florida, courts are required to construe an insurance policy in accordance with its plain meaning. The plain language of this policy provision restricts the classification of unit owners as additional insureds to coverage for fixtures, installations and additions provided within that limited section of the policy. In Paulucci v. Liberty Mut. Fire Ins. Co., 190 F.Supp.2d 1312 (M.D. Fla. 2002), the policy named a corporation as well as an individual as an additional insured. The Court determined that when a board member of the corporation, and not the individual named insured, submitted to examination under oath, the one examination under oath was sufficient to satisfy the post-loss obligations of the policy, despite the board member’s inability to answer all of the questions posed.

With the Florida case authority cited herein and in the previous posts related to examinations under oath, it is reasonable to conclude that a request by an insurer for individual unit owners to appear for examinations under oath during an association’s claim, especially when the unit owners have no involvement in the claim, is excessive and would be done for purposes of delay. Requesting each unit owner to appear for examinations would seem to be an effort to strong-arm the association insured and keep the “investigation” open indefinitely. There is not a definitive case in Florida at this time specifically addressing on the issue.

Of course, the definitive answer to this question depends on the particular policy language, which may differ from the example used above, and you should always weigh the particular facts of the claim with the “reasonableness” of such requests made by the insurer in its post-loss “investigation.”

The relevant facts of Vision I were similar to those that Shaun wrote about and were fairly common for Examinations Under Oath with condominium associations. The insurer requested an EUO and the insured complied, but the insurer did not get all of the answers it wanted, so it requested additional EUOs from additional condominium representatives and agents. The insured filed suit before complying with the additional EUO requests, and the insurer argued that was a material breach under the policy that precluded the insured from any recovery.

The condominium association argued that it had complied with the EUO policy provision, and cited the policy provision along with its assertion that there were no contractual requirements to sit for more than one EUO:

We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.

The court looked back to Paulucci v. Liberty Mut. Fire Ins. Co., 190 F. Supp. 2d 1312
(M.D. Fla. 2002), in which the insurer alleged a similar breach when the insured filed suit after one EUO but before sitting for additional requested EUOs. The Paulucci court reasoned that since neither side had submitted controlling authority for the premise that all EUO requests must be complied with in order to satisfy that pre-suit condition, four hours of questioning and submission of numerous documents substantially satisfied the pre-suit requirements. The court did note that additional facts that were not present in that case could defeat the substantial nature of performance that it found, but held the fact that the insurer still had some unanswered questions was not enough to support the insurer’s claim of material breach.

Back to Vision I, the court reasoned that the facts of Vision I were similar to Paulucci, in that both insureds filed suit after submitting to one EUO, but before complying with subsequent requested EUOs. The court held that the insured’s sitting for one EUO was enough to prevent it from finding that the insured failed to comply with the EUO requirement as a matter of law, and, at the most, the single EUO created a dispute of fact that would preclude summary judgment.

It is clear that the broad contractual language of an EUO provision like the one from Vision I places no numeric requirement as to how many EUOs must be complied with before an insured may file suit. I could not help but wonder why neither party in Paulucci cited legal authority for the premise that all EUO requests must be complied with before suit may be filed. My first assumption was that there was no controlling legal authority on point, but I know what happens when you assume, so I knew I must do some research on the topic. I set out on a research project to try to find any legal authority for the idea that all EUO requests must be complied with. The results of that quest will have to come in another post.

In Florida Gaming Corp. v. Affiliated FM Ins. Co., 502 F.Supp.2d 1257 (S.D. Fla. 2007), the insured filed a lawsuit against its insurer for breach of contract and other counts. The insurer moved to dismiss or to stay the litigation and compel compliance with the examination under oath requirement as a condition precedent to the lawsuit. The insured produced one of its representatives (the corporation’s vice president) for examination under oath before filing the lawsuit, however, the insurer argued that the insured failed to comply with the examination under oath request because the insured did not produce its maintenance supervisor and public adjuster for examinations under oath.

The policy in Florida Gaming required the “insured” to submit to examination under oath, and the Court was not convinced that the plain language of the policy contemplated examination of the insured’s maintenance supervisor or public adjuster. The Court recognized the rule of policy construction requiring it to read the term “insured” narrowly, and added that if the policy language was deemed ambiguous, it could not hold that the “insured” referred to the insured’s employees and agents because a restrictive interpretation was required since the term not defined in the policy.

In this light, if an association can produce one or two of its board members with sufficient knowledge regarding the areas of inquiry to testify at the examination under oath, and then if the insurer demands ten (10) more individuals to appear for examination under oath, one of which is the property manager, this demand could be deemed excessive and contrary to the particular insurance policy and Florida law.

 When evaluating an insurer’s right to investigate an insurance claim, the insurer’s rights tend to be measured by reasonableness, with the courts attempting to balance the insurer’s legitimate interest in ascertaining the validity and extent of the claim against an insured’s right to both privacy and prompt payment under the terms of the contract. 8A G. Couch, Couch on Insurance 3d §196:2.

These competing interests of reasonableness and compliance with the insurer’s requests are the source of debate between the parties regarding the number of examinations under oath that can be taken, particularly involving condominium associations. As such, there is not a bright line rule regarding the number of examinations that are always required, but the authority discussed above should be kept in mind while addressing these issues of concern and when the insurer’s requests become excessive and contrary to the plain language of the policy and Florida law.

The next logical question from the board’s perspective is:

“If we are providing the insurance carrier with volumes of documents and information requested and all of the details of the claim and the insurer’s requested areas of inquiry can be found in the documents, then does that document production relieve us of our obligation to appear for examination under oath since we really do not have much knowledge beyond what the documents reflect?”

The answer to this question is no. Providing the documents and information to the insurer does not fulfill the contractual obligation to appear for examination under oath, even when the board members will not be able to proffer much more in the way of detailed information.

In Laine v. Allstate Insurance Co., 355 F.Supp. 2d 1303 (N.D. Fla. 2005), the insured owner of a commercial property that suffered a fire loss attempted to rely upon this argument. He argued that because he provided Allstate with records and releases authorizing Allstate to obtain additional information from accountants and banks, and responsive documentation to Allstate’s requests, he cooperated under Florida law and was relieved of the obligation to appear for examination under oath. Allstate had denied the insured’s claim for fire damages, citing his failure to appear for the examination under oath. The insured then filed a lawsuit against Allstate alleging breach of contract for failure to compensate him for his damages sustained in the loss under the insurance policy.

The Court disagreed with the insured’s argument and entered a summary judgment in favor of Allstate, holding that when the insured chose not to appear for the examination under oath, despite the document production through which the insurer could ascertain the details of the loss, the insured committed a material breach of the policy that relieved the insurer of its obligation to pay the claim. The Court noted that there is no authority to support the insured’s argument that an insured may provide documents and avoid the obligation to appear for an examination under oath. Lastly, the Court noted that the insurance policy required the insured to submit to an examination under oath upon request by Allstate, and not just to produce records or cooperate with Allstate’s investigation in other respects.

The contractual obligations to appear for examination under oath and provide documents requested are independent of one another and different burdens imposed on the insured to comply with those requests. The particular language of the policy can vary, however, so board members should be aware of the specific language in the relevant policies and that production of documents and information will likely not relieve them of their obligation to appear for examination under oath.

One question arises when an insurer does not request an examination under oath until the insured has filed a lawsuit for breach of contract. Insurers sometimes argue that it is a requirement under the policy that an insured sit for an examination under oath when an insurer requests it, no matter when that request occurs. Florida courts have addressed this issue and have usually found that an insured is not required to comply with an examination under oath request if the request was not made prior to the insured filing suit.

In Goldman v. State Farm Fire General Insurance Co., 660 So.2d 300 (Fla. 4th DCA 1995), the Court held that when an insured makes a claim under a policy in which one of the conditions precedent to filing suit requires that the insured comply with a request by the insurance company for an examination under oath, failure to do so may be a material breach of the policy. In Goldman, the insured filed a claim for a burglary and submitted a proof of loss setting forth the amount of losses claimed. State Farm requested an examination under oath in accordance with the policy conditions.

When the date for the examination under oath grew near, however, the insured rescheduled the examination for another more convenient time. After State Farm had agreed to this extension, the insured filed a lawsuit alleging that State Farm breached the contract by failing to pay the amounts claimed under the policy.

In the end, the Court ruled that because the insurer had requested the examination under oath prior to the lawsuit, the examination under oath was a condition precedent to filing suit. Therefore, the Court determined that the insured had breached the contract and was not entitled to payment under the policy.

A much different scenario exists when the insurer does not request an examination under oath prior to the lawsuit being filed. This situation arose in Willis v. Bankers Insurance Company, 736 So.2d 1272 (Fla. 4th DCA 1999). In Willis, the Court distinguished the facts in Goldman because of the time when the examination under oath was requested. Since the insurer did not request the examination under oath until after the suit was filed, the court held that the examination under oath was not a condition precedent to filing suit. Therefore, the insured in Willis did not breach the contract by refusing to sit for the examination under oath.

The important part of the policy language in both of these instances is the wording of the examination under oath provision. The provision generally reads that the insured must submit to an examination under oath when the insured requests it. The examination under oath is not always a requirement during the investigation of the claim. If the insurer does not request that one be taken, it would not make sense to allow them to come back after litigation is filed and claim that the insured has violated the policy conditions by not sitting for one.

Examinations under oath are important parts of insurance claims and should be taken seriously. Before making any decision about whether you or your clients must attend an examination, it is always best to check with an attorney. That way you can be fully informed about your options and do not risk the insurer claiming that there has been a material breach of the policy.

One of the most daunting tasks faced by associations is the insurer’s request for an examination under oath (EUO). An EUO is a creature of contract, thus, if there is no provision in the policy requiring an insured to sit for an examination, there is likely no obligation to do so. While it is extremely rare to find a policy that does not have such a requirement, an insured should always check before agreeing to a carriers’ request.

Most requests for an EUO come with a long list of general areas that the carrier wishes the insured to testify to. With a simple homeowner claim, determining who should be designated (if the request does not cover all of the individual homeowners) is pretty simple. For associations, however, the task of designating the person most knowledgeable about each area becomes more confusing.

Often, the requests center on the person most knowledgeable about current damages and previous repairs and construction projects. Due to the fact that many associations change boards quite frequently, there may be no current board members who have knowledge of both the current damages and previous repairs. This may lead to a situation where the board must designate more than one individual to testify to the areas requested.

Once an individual is identified as the person most knowledgeable about a certain area of inquiry, it is important to understand the basics of an EUO. First, attendance at the EUO should be taken very seriously. An insured’s refusal to submit to an examination under oath has been found to be a material breach of the insurance contract in some instances. Stringer v. Fireman’s Fund Insurance Company, 622 So.2d 145 (Fla. 3rd DCA 1993).

Second, it is important to remember that this examination is conducted under oath and will be transcribed by a licensed court reporter. Anyone sitting for an examination under oath should be careful to answer every question honestly and to the best of their ability. One problem frequently encountered is that some individuals are afraid to admit that the do not remember something that is asked. Before every EUO, I remind my client that “I don’t know” is not a bad answer if it is truthful. If you don’t understand a question, ask the individual to repeat it. If you think that the correct answer may hurt your claim, don’t attempt to hide anything. While the truth may cause problems for your claim, there are things far worse than having a claim completely denied because of an insurer’s assertions of misrepresentation or fraud. That is an uphill battle that many times could have been avoided.

Finally, anyone sitting for a EUO should remember that while it is not a “legal proceeding,” it is about as close as you can get. The insurance company’s representative asking the questions will undoubtedly be an attorney, and you should plan for some tough questions. I never recommend that anyone sit for an EUO without their own legal representation there as well. While there are very limited instances where an attorney can jump in during an examination, having someone there to protect your rights is extremely important. When choosing an attorney for this process, it is important to pick someone who is experienced with examinations under oath. Because the rules of an examination under oath and a deposition are very different, the best way to protect yourself and your association is to find a well versed insurance attorney to accompany you.