I recently resolved a case that I thought was interesting for this day and age, particularly here in Tennessee. Here’s the scenario – an insured claims to have had cattle stolen from him on multiple occasions, but by the same person - yes, you guessed it, the “cowpoke” in our story.
It seems that our “cowpoke” used his position as ranch hand to take cattle. The “cowpoke’s” trailer carried no more than 20 head of cattle at one time, but there were several hundred head missing. The policyholder submitted a claim for “rustling loss.” Let’s assume for the sake of argument there were over 200 head taken over a year period. For the sake of example, let’s assume the cattle were valued at $1,500.00 per head, and the applicable policy limit was only $60,000.00. The deductible was $1,000.00 per loss.
Obviously, there is not enough in the coverage limit to cover all the cattle unless, as a very good lawyer argued – each event when the cattle were transported from the farm was a separate theft, thereby opening up a separate limit each time it occurred. Obviously, the insured’s attorney recognized that his argument meant a separate deductible would apply to each claim, but he was more than willing to “bear that burden.”
Case law in Tennessee was harder to find than those cattle, so we turned elsewhere. We obviously found that policy language was important, but that courts which had addressed losses where there was a systematic and organized scheme to steal from an insured have held that such a scheme would be a single occurrence or theft subject to a single deductible. For instance, one court found that there was but a single occurrence even though there were 653 separate “thefts.” EOTT Energy Corp. v. Storebrand Internat. Ins. Co., 45 Cal.App.4th 565, 578, 52 Cal.Rptr.2d 894, 901 - 902 (Cal.App. 2 Dist.,1996). The Court, based on the language in the contract and precedent, found one occurrence because “there was a systematic and organized scheme to steal” that proximately caused the injury. Id. at 575, 52 Cal.Rptr.2d 894.
In PECO Energy v. Boden, 64 F.3d 852 (3rd Cir.1995), an electric utility presented a claim to its various insurers under a series of all risk policies for losses it sustained over a six-year period as a result of a multitude of thefts of fuel oil by an independent trucking firm with whom the utility had contracted to haul its fuel oil to various generating facilities. The case was tried to a jury, which found that each theft was a part of a larger scheme and that the scheme to steal was the proximate cause of each theft. The Third Circuit upheld the district court's determination that the multiple thefts constituted a single occurrence, noting that in deciding the number of occurrences, a court should determine “if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.” Id. (quoting Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir.1982)). The Court concluded that “when a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses for liability insurance purposes constitute part of a single occurrence.”
There are cases to the contrary, but this seemed to be the majority position. One court noted that each event had to be separate because each theft required a new decision by thief to get into his truck, drive to insured's storage facility, and steal insured's property. Basler Turbo Conversions LLC v. HCC Ins. Co., 601 F.Supp.2d 1082 (E.D.Wis.,2009).
"Examinations under oath" and "recorded statements" are not the same thing. A recorded statement is usually taken within a few hours or days after the loss, and is typically taken by an adjuster. The questions asked are usually standard in nature, often asked verbatim from a written form, and the whole process customarily takes only twenty minutes or so. The statements are sometimes audio recorded by the adjuster, but sometimes the adjuster just takes notes. Examinations under oath, on the other hand, are much more formal and detailed in nature, and are almost always taken by an attorney engaged by the insurance company. The questions and answers are transcribed by a court reporter, and the insured is typically required to sign the transcript. Another distinction is that an examination under oath is literally "under oath," meaning that the insured legally swears or affirms that his or her answers are truthful. A recorded statement is not a substitute for an examination under oath, meaning the insurance company gets to ask the same questions at least twice.
An issue I often run across is the insured that can't remember the questions presented and the answers provided during the recorded statement. Although such a lack of memory may be understandable due to the traumatic nature of major losses, such as a house fire, consumers in Tennessee may not be entitled to receive a copy of their recorded statement before submitting to an examination under oath. In fact, the Tennessee Court of Appeals noted in a 2004 unreported decision that "the contractual right of the insurer to compel the insured to submit to a statement under oath concerning a fire loss is unconditional," impliedly holding that an insured has no right to obtain copies of his or her recorded statement prior to an examination under oath. Jones v. Tenn. Farmers. Mut. Ins. Co., 2004 WL 170359 (Tenn. Ct. App. Jan. 27, 2004). For you lawyers out there, the insured's attorney in the Jones case engaged in some "outside the box" tactical maneuvering, and filed a pre-suit petition under Rule 27 to take the depositions of the insurer's employees who took the insured's statements. That petition was granted by the trial court, but the Court of Appeals reversed, holding that the petition was purely tactical in nature and was not designed to perpetuate testimony pursuant to the spirit of Rule 27, but rather was being used as a discovery tool.
A few thoughts about the impact of this decision. First of all, be honest when answering the insurance company's questions. If insureds will just do that, then the risk of giving conflicting testimony goes down significantly. Second, bring an audio recorder with you and record the initial "recorded statement" yourself. Although the adjuster probably won't like it, I don't think there is much he or she can do about it. And finally, if you don't have a tape recorder handy, just ask the adjuster to confirm, on the record, that the insurance company will promptly provide a transcript of the statement upon request. If the adjuster agrees, then the insurance company has arguably waived the right to take an EUO without first providing a copy of the recorded statement. If the adjuster refuses, well . . . I guess you better find that recorder.
What is an Examination Under Oath?
The number one trigger that drives clients to my office is that dreaded letter from some fancy law firm, usually with lots of names at the top of the letterhead, that directs the insured to show up at a designated time and place for an “examination under oath.” The letter usually will also request the insured to bring numerous documents with him or her to the examination under oath. Those receiving the letter are usually frightened by the formality of it all, and then that fear turns into anger because the company they've been paying premiums to all these years is now treating them like a criminal. My next few posts will deal with common issues and questions surrounding examinations under oath. Hopefully it will help a few insureds understand what an examination under oath is, and why, in my opinion, a request for an examination under oath should be a red flag that the insurance company believes something is afoul.
An examination under oath, commonly referred to as an “EUO”, is a formal statement taken by the insured on issues related to the insurance claim or insurance policy at issue. EUOs are typically, although not always, conducted by an attorney representing the insurance company. A court reporter will be present, typing every question and answer verbatim. There is sometimes a videographer present as well. Examinations under oath usually last only a few hours, but I’ve been involved in a few that have taken multiple days.
The subject matter of the questions in an EUO varies depending on the issues at hand. For example, in a fire damage case, an insured should anticipate questions about the cause and origin of the fire, the financial condition of the insured leading up to the fire (motive), the insured’s whereabouts at the time of the fire (opportunity), the nature and extent of the loss, particular items claimed to have been damaged or destroyed, and the accuracy of answers provided in the insurance application. This is just a small sampling of the multitude of pitfalls for the unwary, and an insured would be wise to seek qualified legal counsel well before appearing for the examination under oath.
An insurance company’s authority to take an examination under oath comes from the insurance contract, which typically contains a provision, under the section “Duties of the Insured,” that the insured must answer questions under oath when requested by the insurer. Even without such a provision, there is almost always a “duty of cooperation” provision in the policy which would also require the insured’s participation in an examination under oath. If an insured refuses, it could result in the insurance company’s denial of the claim based on its assertion that the insured breached the insurance policy by refusing to cooperate. See Spears v. Tenn. Farmers Mut. Ins. Co., 300 S.W.3d 671 (Tenn. Ct. App. 2009).
Tennessee courts have consistently recognized an insurer’s right to take an examination under oath. See Shelter Ins. Co. v. Spence, 656 S.W.2d 36 (Tenn. Ct. App. 1983) (holding insurer was entitled under cooperation clause of policy to take sworn statement from each insured privately and out of each other’s presence); Widener v. Tenn. Farmers Mut. Ins. Co., 1995 WL 571868 (Tenn. Ct. App. 1995) (recognizing an insurer’s right to take an insured’s examination under oath); Jones v. Tenn. Farmers Mutl. Ins. Co., 2004 WL 170359, at *2 (Tenn. Ct. App. 2004).
Examinations under oath are certainly valid tools in an insurance company’s vast arsenal of weaponry to be used to deny claims, but there are several nuances which most insureds and many lawyers who represent them are unaware. Over the next few posts, I’ll try to identify those to better equip those unfortunate souls who receive the dreaded letter requesting an EUO.