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In March 2021, an arsonist destroyed a building on the Brockton Fair fairgrounds known as the “State Building,” owned by BAS Holding Corporation (“BAS”) and, according to BAS, insured against loss by Philadelphia Indemnity Insurance Company (“Philadelphia”). Philadelphia undertook an investigation to determine coverage. The insurer sought an examination under oath (“EUO”) of George Carney, the president and owner of BAS, scheduled the EUO and denied the claim before the scheduled date.
In Philadelphia Indemnity Insurance Company v. BAS Holding Corporation, Brockton Agricultural Society, No. 22-1296, United States Court of Appeals, First Circuit (August 17, 2023) the First Circuit recognized that a requirement for EUO must be reasonable and the claimed premature denial was probably not reasonable.
FACTUAL BACKGROUND
Philadelphia sued seeking a declaration that BAS breached the insurance policy’s EUO condition. In its answer, BAS denied that it had refused to submit to an EUO. On cross-motions for summary judgment, the district court granted judgment for Philadelphia on the ground that BAS failed to cooperate by not providing Carney for an EUO. BAS appealed.
BAS is the record owner of the State Building, a landmark building located on the Brockton Fair fairgrounds in Brockton, Massachusetts. The interior of the building was mostly open space used for exhibits or storage at the annual agricultural fair. The fire set by the arsonist on March 17, 2021, caused a total loss of the structure. The remains of the building were razed that same day.
At the time of the fire, BAS held a policy (the “Policy”) issued by Philadelphia that BAS claimed covered the State Building. BAS gave notice of the fire to Philadelphia mere hours after it broke out. As its investigation unfolded, Philadelphia became convinced that the State Building may not be insured under the Policy and wrote a “reservation of rights” letter to BAS.
On June 16, 2021, Philadelphia also sought an EUO of BAS in accordance with the Policy’s EUO condition. Philadelphia did not ask BAS to produce any specific person for the EUO. Instead, Philadelphia asked BAS to designate someone who could answer questions relating to eight enumerated topics.
BAS presented Susan Rodrigues as its designee to attend the EUO. The president of BAS, Carney, testified in his deposition that “Sue [Rodrigues] . . . and Joe Cappucci, they handled all the insurance.” She did “everything” to help put on the fair and also oversaw maintenance work on the fairgrounds and buildings throughout the year, including the State Building.
During her examination, Rodrigues identified six people – five maintenance workers and Carney – who might be able to provide additional information in response to BAS’s questions. On August 4, the day after Rodrigues appeared for her EUO, Philadelphia sent an email to BAS’s counsel requesting EUOs of the six individuals she identified as potentially having additional relevant information. In that email, Philadelphia specifically asked for Carney to appear for an EUO on August 19, 2021. Pointing to Policy language stating that Philadelphia could only take an EUO if it is “reasonably required,” BAS wrote that Philadelphia’s request for six additional examinations under oath was improper and was not permitted by the Policy or law, particularly where Philadelphia has still not identified a factual basis upon which it has reserved its rights, and the information produced to date establishes that coverage is owed under the Policy for the loss.
According to Philadelphia, this email constituted a second refusal of BAS to produce Carney for an EUO. On August 13, less than 72 hours after sending the August 10 email, and before BAS had sent any response, Philadelphia sent an email denying BAS’s insurance claim for “refusing Philadelphia’s requests for Examinations Under Oath. The email stated, in relevant part: “BAS’s refusal to participate in the EUOs [that counsel] requested on August 4, 2021 constitutes a material breach of the Insured’s obligations under the policy and reflects its continuing failure to cooperate in Philadelphia’s investigation or settlement of the claim.”
ANALYSIS
Under Massachusetts law, attendance at reasonably requested EUOs is a condition precedent for insurance coverage. Thus, the question before the First Circuit was a narrow one: did the district court rule correctly — as a matter of law — that BAS willfully and without excuse refused Philadelphia’s request for an EUO of Carney, thereby breaching the insurance contract?
The timeline of Philadelphia’s denial weighs heavily against any conclusion that BAS refused to produce Carney for an EUO. On August 3, Rodrigues appeared for an EUO on behalf of BAS. On August 4, Philadelphia asked for EUOs of Carney and the maintenance workers. On August 4 and August 9, BAS sent emails that, read together, requested further information before submitting to additional EUOs. On August 10, Philadelphia wrote to BAS asking for “confirm[ation] that Mr. Carney will appear next Thursday, August 19th, for an EUO as previously requested, or [make] contact . . . to arrange for a new date, time and place within the next two weeks” and to “confirm that BAS will make the other individuals available for their EUO’s [sic] on Friday, August 20, 2021,” or on various dates thereafter. This email from Philadelphia provided some explanation as to why the interview of Carney was reasonably required.
Moreover, Rodrigues’s EUO testimony reveals that Philadelphia’s assertion that “Ms. Rodrigues . . . was in fact unable to testify about any of the topics of examination specified by [Philadelphia]” is flatly wrong. While it is clear that Rodrigues was not able to answer all of Philadelphia’s questions.
The First Circuit found that it was impossible to find on the record that BAS willfully and without excuse refused to present Carney for an EUO. In other words, Carney’s non-appearance at an EUO, especially since his first possible opportunity to appear on August 19 had not yet passed when Philadelphia notified BAS of its decision to deny coverage, in and of itself does not support the district court’s grant of summary judgment as a matter of law in favor of Philadelphia.
The entire discussion between the parties about whether there should be additional EUOs of Carney and the five maintenance workers spanned only nine days. The First Circuit vacated the district court’s grant of summary judgment for Philadelphia and remanded for further proceedings not inconsistent with the opinion.
ZALMA OPINION
I have personally taken hundreds of EUOs. I, like the First Circuit, cannot understand how an insurer can deny a claim for failure to appear on a date prior to the date scheduled for the EUO to take place. Such a denial makes no sense. I have sat with a court reporter at the time and place scheduled for an EUO and no one appeared and, thereafter denied the claim only to withdraw the denial when the witness produced an excuse like the birth of a child or the hospitalization of the witness. The failure to wait a week or two to deny the claim gained Philadelphia nothing more than the ire of the First Circuit.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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