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Placing Conditions On The Insurer’s Right To Demand An Examination Under Oath

Insureds and their counsel have attempted to avoid compliance with an insurer’s demand that the insured submit to an examination under oath. Insureds and their counsel have a variety of reasons to avoid the examinations. In some instances, the insured is the subject of a criminal investigation and may not want to submit to an examination for fear that the prosecuting authority will obtain a copy of the transcript, providing the prosecutor with information he or she might not otherwise have. The insured may wish to delay the examination until memories of other witnesses fade or physical evidence disappears. Whatever the reason, counsel for insureds have invented a variety of excuses or delay or avoid the examination.

One approach insureds and their counsel have used to avoid producing an insured for an examination is to demand that the insurer produce information to the insured before the insured submits to an examination under oath. The courts have repeatedly rejected such excuses. An insured cannot demand that the insurer produce a copy of the insured’s previously recorded statements before submitting to an examination. Brizuela v. CalFarm Ins. Co., 116 Cal. App. 4th 578, 589, 10 Cal. Rptr. 3d 661, 669 (2004); Karamanoukian v. United Financial Cas. Co., 2013 WL 4149260 *3 (Cal. App. 2nd Dist. 2013). An insured cannot demand that the insurer provide reasons supporting its demand for an examination under oath with evidence supporting a reasonable suspicion of arson before agreeing to appear for an examination. Trayhan v. Fire Ins. Exchange, 179 S.W.3d 669, 674 (Tex. App. Beaumont 2005).

The Sixth Circuit United States Court of Appeals recently rejected what might be viewed as one of the boldest attempts by an insured to avoid an examination under oath. In Lester v. Allstate Property & Cas. Ins. Co., 743 F.3d 469 (6th Cir. 2014), the insurance company demanded that the insureds submit to an examination under oath. The insureds responded by

advising that they would only submit to examinations if the insurer “first showed them its investigation files.” 743 F.3d at 469. The insured declined to do so and denied the insured’s claim. The insureds filed suit and the district court entered summary judgment in favor of the insurer. In affirming the district court’s entry of summary judgment in favor of the insurer, the court noted that nothing in the insurance policy required the insurer to hand over its investigation file to the insured before demanding an examination under oath. In responding to the insured’s argument that the insurer had an implied duty of good faith that required each party to honor the party’s “reasonable and contractual expectations” and that the insurer breached that obligation by failing to hand over its investigation file, the court reasoned:

The point of an examination is to allow insurance companies to sort out fraudulent claims from honest ones, exorbitant claims from accurate ones. Telling the policyholder what the investigation has already uncovered undermines that purpose, as it would allow the policyholder to tailor her answers to the facts already discovered by the company. Suppose the insurance investigator suspects arson. And suppose his investigation uncovered a potential source of the arson or disclosed that the policyholder had moved some items out of the house shortly before the fire. That is useful information, particularly for a policy holder suspected of fraud. Alerted to these suspicions, the policyholder could shape her answers accordingly.

743 F.3d at 470. The court relied on a Tennessee state court opinion that held that “avoiding fraud justifies preventing a policyholder from learning what her husband has said in his examination” and thus avoiding fraud also justified preventing a policyholder from learning what the company has already uncovered in the investigation. (743 F.3d at 470, citing Shelter Ins. Cos. v. Spence, 656 S.W.2d 36, 38 (Tenn. App. 1983).

As the public and the courts become increasingly aware of the burden placed on society by fraudulent insurance claims, and the dangers faced by firefighters, adjacent landowners, and the public in general by arson fires, the courts appear to be increasingly supportive of insurers’

attempts to ferret out fraud. The recent decisions are a welcome and refreshing reassurance that the courts will not permit insureds and their attorneys to engraft provisions in the policy of insurance that will thwart the efforts of insurers and their special investigative units to combat fraud.