The Examination Under Oath - A Condition Precedent
Fulfill Condition or Lose Coverage
Adapted from my book, Zalma on Insurance Claims - Third Edition Volume 2
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The Condition Precedent
When used in contract law, the word condition refers to an event, the occurrence or non-concurrence of which alters the previously existing relations of the parties by creating or extinguishing a legal duty.[1] A condition is different from a promise or warranty. When used in an insurance policy the condition imposes duties on the insured (the promisor) and gives a corresponding right to the insurer (the promisee). Breach of a condition gives the insurer legal justification for refusing to perform its obligations under the policy.
There are two types of conditions:
· conditions precedent; and
· conditions subsequent.
A condition precedent, as known in the law, is one which is to be performed before the agreement of the parties becomes operative. A condition precedent calls for the performance of some act or the happening of some event after the contract is entered into, and upon the performance or happening of which its obligation is made to depend. [Lake Co. v. Molan, 269 Minn. 490, 498-99, 131 N.W.2d 734, 740 (1964) (quoting Chambers v. Northwestern Mutual Life Insurance Co., 64 Minn. 495, 497, 67 N.W. 367, 368 (1896)).
The violation of a condition precedent precludes recovery. [Gordon v. St. Paul Fire & Marine Ins. Co., 163 N.W. 956, 957 (Mich. 1917); Yeo v. State Farm Ins. Co., 555 N.W.2d 893, 895 (Mich. Ct. App. 1996).” Durasevic v. Grange Ins. Co. of Mich. (6th Cir., 2019)]
Failure to appear for a properly noticed Examination Under Oath (EUO) constitutes a breach of a condition precedent, vitiating coverage under the no-fault policy if timely and properly requested (Ace Am. Ins. Co. v. Dr. Watson Chiropractic, P.C., 2018 NY Slip Op 30867[U] [Sup Ct, NY County 2018]. Country-Wide Ins. Co. v. St. Michelle, 2019 NY Slip Op 31923(U) (N.Y. Sup. Ct., 2019)]
First party property insurance policies require as a condition precedent that the insured appear for and testify at an examination under oath when the insurer finds an examination necessary When an insured claimed that the giving of recorded statements or the taking of depositions with both sides fulfills the condition, the Florida Court of appeal found that those actions do not constitute substantial compliance with the policy condition.
The EUO
In Brizuela v. Calfarm Insurance Co.,116 Cal.App.4th 578, 10 Cal.Rptr.3d 661 (Cal.App. Dist.2 03/03/2004) and in California Fair Plan Association v. Superior Court Of Los Angeles County, 115 Cal.App.4th 158 (Cal.App. Dist.2, 01/23/2004) the California Court of Appeal concluded that, “as a matter of law,” the insured “violated the requirement of the insurance policy that he submit to an EUO; that the insurer could on that basis deny his claim without a showing of prejudice; that the availability of a deposition in litigation does not excuse his breach of the EUO requirement; that he had no valid bad faith claim; and that the court properly dismissed his action.”
Since the EUO is an essential weapon in the insurer’s arsenal of tools to defeat insurance fraud these decisions are exceedingly important to every SIU insurance fraud investigator and insurance fraud counsel. The facts that supported the conclusion of the Court of Appeal in Brizuela were as follows:
On April 23, 1999, Brizuela’s adjuster faxed CalFarm 33 pages of documents, including alarm company information, checks and checking account statements, and documents related to the purchase of the business.
On May 27, 1999, CalFarm’s counsel sent a letter to Brizuela’s adjuster advising him that CalFarm had scheduled examinations under oath for Brizuela and Brizuela’s wife on June 16, 1999 at that counsel’s offices in Marina del Rey, California.
The insurance policy CalFarm issued to Brizuela included a provision allowing CalFarm to “examine any insured under oath” in the event of a claim.
In the May 27, 1999 letter, CalFarm’s counsel asked that Brizuela produce certain documents by June10, 1999 and confirm the examination date by June 11, 1999.
Brizuela’s adjuster responded by requesting copies of recorded statements that Brizuela and his wife had given to CalFarm shortly after reporting the claim. CalFarm’s counsel denied this request.
On June 14, 1999, CalFarm’s counsel offered to reschedule the examination and extend the time to produce documents. Brizuela’s adjuster responded by reiterating the request for copies of the recorded statements, and CalFarm’s counsel again denied the request.
On June 17, 1999, CalFarm’s counsel wrote to Brizuela’s adjuster stating:
“We understand that you have counselled Mr. Brizuela to appear for the EUO without additional delay, but he has elected instead to draw out the claims investigation by insisting on receiving documentation which the Insurance Code clearly and unambiguously indicates he has no entitlement at this stage of the proceedings. [¶] If Mr. Brizuela’s final position on this matter is that he is unwilling to come to an EUO without first receipt and review of his recorded statement testimony and that of his wife …”
Brizuela then retained counsel, who wrote to CalFarm’s counsel on June 24, 1999, complaining at length about CalFarm’s refusal to provide the Brizuelas’ previously recorded statements. Brizuela’s counsel wrote that “[t]he only purpose served by refusing to provide the transcripts would be the interest of the insurance carrier and its counsel to trick and confuse the insured to establish a basis for denial.” Brizuela’s counsel offered no dates for the EUO; instead, he wrote that “[w]e will contact you directly to discuss time, dates and places for proceeding with the EUO as demanded.”
On July 6, 1999, CalFarm’s counsel sent Brizuela’s counsel a letter reiterating CalFarm’s denial of Brizuela’s request for the previously recorded statements and requesting proposed dates for the EUO.
Brizuela’s counsel responded by letter the next day accusing CalFarm of having “no interest to act fairly in this matter” by putting Brizuela “through an exercise to allow CalFarm to take advantage of its insured and subsequently deny the claim.”