While working on a condominium’s Hurricane Wilma claim this week, I had the opportunity to discuss numerous aspects of insurance adjusting with two adjusters who have more than 40 years combined experience working only for insurance carriers. Thankfully, these individuals have seen the light and now work for policyholders, but their insight into the claims process is invaluable.

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.