Examinations Under Oath: The Basics

Understanding the Rights and Obligations Imposed on the Insured

One of the most powerful tools available to an insurer in adjusting first-party property claims is the right to examine the insured under oath (EUO). Thus, it is important that every broker understand what an EUO involves, as well as the rights and obligations imposed on the insured.

California Insurance Code Section 2071 requires that the right to an EUO must be included in all policies affording fire coverage, such as a homeowner’s policy. The insurer’s right to conduct an EUO also is generally contained in other first-party property policies.

The provision for an EUO provides: “The insured, as often as may reasonably be required, and subject to the provisions of Section 2071.1, shall … submit to examinations under oath by any person named by this company, and subscribe the same …”

The purpose of an EUO is to make all material facts and evidence available to an insurer to assess the scope of its obligations under the policy, and to protect against fraudulent claims. An EUO is frequently used where the insurer’s investigation raises questions about the cause of the loss, or the nature and value of the lost, stolen, damaged or destroyed property. An EUO is a valuable investigative tool because claims are occasionally exaggerated, values inflated, quantities increased and true ages of items concealed. An EUO is also used where elements of a claim are suspected to be fraudulent. The American Insurance Industry Association has estimated that 15 percent to 20 percent of all claims are fraudulent.

An EUO is similar to a deposition in a civil action: A reporter is present, testimony is given under oath, the insured may be represented by counsel, the insured may assert appropriate objections to questions, and a written transcript is prepared. Yet unlike a deposition (where state and federal rules limit the frequency with which one may be deposed), Section 2071 requires an insured to submit to an EUO “as often as may reasonably be required.” The right to depose an individual in a lawsuit arising from a claim is independent of the right of an insurer to conduct an EUO. An insurer may properly do both (and in effect get two bites at the apple).

Submitting to an EUO is not optional. It is a condition precedent to coverage. An insurer may rely on an insured’s refusal to submit as a basis for not paying a claim. Robinson v. National Auto & Cas. Co. (1955) 132 Cal. App. 2d 709, 714; West v. State Farm Fire & Cas. Co. (9th Cir. 1989) 868 F.2d 348. Because submitting to an EUO is a condition to coverage, an insurer is not required to show it has suffered prejudice. Brizuela v. California Ins. Co. (2004) 116 Cal. App. 4th 578; California Fair Plan Ass’n v. Superior Court (2004) 115 Cal. App. 4th 158. Likewise, false statements at an EUO justify a refusal by an insurer to pay a claim. Hickman v. London Assurance. Corp. (1920) 184 Cal. 524; Cummings v. Fire Insurance Exchange, (1988) 202 Ca. App. 3rd 1407. Section 2071 also requires the insured to “subscribe” i.e. sign the transcript as a condition of coverage.

Complying with a request for an EUO is also a condition precedent to the filing of a lawsuit against the insurer relating to the claim. Section 2071 provides that “No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all of the requirements of this policy shall have been complied with …”

Where the insured is a corporation, its officers, employees and agents may also be questioned. Myer v. Niagara Fire Ins. Co., (W.D. La. 1962) 205 F. Supp. 108. However, the failure to produce an employee who had quit or was fired does not violate the policy condition.

One case also suggests that an insurer may also require the insured to produce its public adjuster for an EUO. Gipps Brewing Corp. v. Central Manufacturers Mut. Ins. Co., (7th Cir. 1945) 147 F. 2d 6.

The Fifth Amendment privilege against self-incrimination was held not to be a valid basis for refusing to submit to or answer questions at an EUO. Hickman v. London Assurance. Corp. (1920) 184 Cal. 524. Hickman involved a claim for a fire loss. The insured, during an EUO promised to answer questions posed by the insurer if it would wait until after pending criminal charges of arson were resolved because his answers at the EUO might incriminate him in the criminal action. The court rejected his claim because the constitutional immunity only applied where the compulsion was sought under some public process.

A more recent case held that an insurer’s demand for an EUO under those circumstance might provide evidence that the insurer was not acting in good faith. Gruenberg v. Aetna Life & Cas. Co., (1973) 9 Cal.3d 566. It is, questionable whether the Hickman rule still applies after the enactment of Section 2071.1, which provides that at an EUO “an insured may asset any objection that can be made in a deposition under state or federal law.”

The insurer has the right to examine the insureds separately. In State Farm Fire & Cas. Co. v. Tan (S.D. Cal. 1988) the court ruled that a husband and wife could be examined separately, outside of each other’s presence, and noted that “… separate examinations would enhance State Farm’s ability to discover the true facts and to assess the veracity of Trans’ claims.” The court observed that [t]he expedient of sequestration is (next to cross examination) one of the greatest engines that the skill of man has ever invented for the detection of liars.”

In 2001, the California Legislature enacted Section 2071.1 which is, in essence, a Bill of Rights for an insured regarding EUOs. An insurer is required to provide the insured with a copy of Section 2071.1 when it notifies the insured of the EUO. Among other things, Section 2071.1 provides that (1) an insurer may only obtain evidence that is “relevant and reasonably necessary to process or investigate the claim”, (2) the EUO be conducted on reasonable notice, at a reasonably convenient place, and for a reasonable length of time, (3) the insured may be represented by counsel, and (4) the insured may assert any objection that can be made at a deposition under state or federal law.

Topics California Carriers