I received a question last week about whether a hotel owner had to answer questions and provide financial documents about the hotel’s finances after the hotel suffered a loss. I have addressed the subject recently What is the benefit of refusing to appear for an examination under oath?
Yesterday’s post, Hawaii insurance contract interpretationwas about a case from Hawaii involving a yacht that sank under unusual circumstances and a changing story of how the sinking happened.1 The policyholders eventually hired an attorney who told them not to answer a number of questions in the investigation under oath. The lawyer should have called his malpractice operator immediately after giving this advice.
So financial documents were not handed over and questions were not answered under advice of counsel. Most readers of this blog can guess the following findings from the court without reading it:
The purpose of an EUO provision is to enable the insurer to “take possession of all knowledge and information of other sources and knowledge, in respect of facts, material to [its] rights, to enable [it] to decide on [its] obligations and to protect [itself] against false claims.̵7; Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 94–95, 3 S.Ct. 507, 28 L.Ed. 76 (1884); see also Schmidt v. Allstate Ins. Co., 2007 WL 1430341, at *5 (D.Haw. May 11, 2007) (stating that a cooperation clause generally “is judged to be valid because” the insurer is entitled by law to learn from [insured] the facts that the insured asserts regarding its claim, in order to decide for itself whether it should contest or attempt to settle the claim.” ‘…
Under Hawaii law, a policy’s requirement that the insured submit to an EUO is a condition precedent to the insurer’s obligation to pay benefits. See Barbarian82 Hawaii at 264, 921 P.2d at 738 (‘[B]By failing to submit to AIG’s request for an EUO, Barabin breached its duty to cooperate under the policy, a condition precedent to AIG’s duty to pay benefits.’). Accordingly, a failure to submit to an EUO may warrant summary judgment in favor of the insurer…see also Sarkisyants v. State Farm Mut. Car. ins. Co., 2007 WL 4195729, at *1 (9th Cir. Nov. 19, 2007) (affirming summary judgment for insurer where insured did not participate in a reasonably requested second EUO); West v. State Farm Fire & Cas. Co., 868 F.2d 348, 351 (9th Cir. 1989) (finding that when the insured did not answer questions during his EUO, it was reasonable as a matter of law for the insurer to request the EUO for his family); Brizuela v. Calfarm Ins. Co., 116 Cal.App.4th 578, 10 Cal.Rptr.3d 661, 668 (Cal. App. 4th 2004)(affirming summary judgment, finding that after the insured failed to comply with the insurer’s original demand for an EUO, it became [the insured] to satisfy the requirement to be examined by offering to submit to such an examination at a later date”…
The Hawaii Supreme Court has yet to address the permissible scope of an EUO, and whether failure to answer certain categories of questions violates an insured’s duty to submit to an EUO. However, other courts have found that an EUO can include investigation of possible motives for fraud and the insured’s financial position. See e.g. Powell v. US Fid. & Guar., 88 F.3d 271, 273 (4th Cir.1996) (collecting cases and finding that an EUO clause is sufficiently broad to cover financial information); Phillips v. Allstate Indem. Co., 156 Md. App. 729, 848 A.2d 681, 691–92 (Md. App. 2004) (affirming summary judgment for insurer where insured refused to answer questions of an EUO about his finances); Wright v. Farmers Mut. of Neb., 266 Neb. 802, 669 NW2d 462, 466 (Neb. 2003) (finding that the insured’s failure to answer questions about finances at an EUO is a material breach of contract); Halcome v. Cincinnati Ins. Co., 254 Ga. 742, 334 SE2d 155 (Ga. 1985) (answering Eleventh Circuit’s question on certification that an insured would breach the contract by failing to provide any material information (such as financial information) under an EUO where evidence of possible fraud existed) ; see also Nichols v. Aetna Life & Cas. Co., 1995 WL 102801, at *2 (SDNY Mar. 9, 1995) ( “Where the alleged violation is based on the insured’s failure to answer questions about his financial situation, summary judgment is appropriate only when the circumstances surrounding the claim are suspect.’ ).
The Court finds this case law persuasive and believes that the Hawaii Supreme Court would hold that an insured violates an insurance policy’s requirement to submit to an EUO by failing to answer material questions during an EUO. The court further holds that under the circumstances presented in this case, the Hawaii Supreme Court would hold that questions of an insured’s finances are material where there is an objectively credible open question as to whether the claim is fraudulent.
Applying these principles and construing the facts in a light most favorable to plaintiffs, the Court finds that there is no genuine issue of material fact that there was an objectively open, good faith issue as to whether the loss of PRINCESS NATASHA was fraudulent. Specifically, the facts surrounding the loss of PRINCESS NATASHA reasonably raised questions of coverage, making the initial and subsequent requests for EUOs reasonable. It is undisputed that at the time Allstate initially requested that plaintiffs submit to the EUOs, Allstate knew, among other things, that (1) plaintiff had put PRINCESS NATASHA up for sale shortly after purchasing the boat, and the loss occurred while it was still for sale; , (2) PRINCESS NATASHA had not been found, (3) the captain gave potentially different stories about how the loss occurred and left Hawaii shortly after the loss, (4) Deguchi gave different names for the crew than those reported by the Coast Guard, and (5) Allstate was unable to even identify and locate the other crew member.
There are cases where questions are inappropriate and obviously not relevant. But if it’s remotely close, answer the questions and provide financial documents requested by the insurer.
The photo above was taken immediately after the finish in the 2019 Transpac Race. I obviously wrote this blog post before I left. Hopefully we’ll make some progress, even if the weather forecast before the start calls for light winds and a slow ride. I hope we brought enough rum to make it to Hawaii.
If you want to see how the race progresses, the link is here.
Racing, competing, it’s in my blood. It’s a part of me, it’s a part of my life; I’ve been doing it my whole life and it stands out above everything else.
— Ayrton Senna
1 Deguchi v. Allstate Ins. Co., no. 07-144, 2008 WL 1780271 (D. Haw. Apr. 9, 2008).