Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Once SIU is implicated the entire tenor of the claim-handling changes. That is, the policyholders will be looked upon as fraud perpetrators. They can expect investigators to be dispatched by the insurer to question the policyholder’s neighbors and associates concerning the claim and circumstances of the insured’s life. After which the information garnered will then be used at the EUO, if possible, against the policyholder. Next, in conjunction with the EUO, the policyholder will be asked for reams of documentation, which can include financial records, records of repairs, records of renovations, records of prior insurance claims, records of prior lawsuits, etc. The carrier will use these documents, the facts garnered through investigating the claim, and responses in the EUO in trying to narrow the perceived fraud down to one of three explanations: outright over-inflation of the claim in scope or pricing, a failure to mitigate causing damage to worsen, or the policyholder trying to include areas with uncovered damages or areas where the insured is renovating the home.

If the carrier believes the claim to be black-letter fraud their questions will focus on several areas, including the insured’s finances. You can expect them to ask for tax returns, monthly debt invoices, loan documents, credit card account summaries, and like items. Rest assured, a good fraud attorney will ask the policyholder to outline their monthly/yearly income as compared to their debts, with a deficit showing financial distress, hence a motive to commit insurance fraud.

The carrier will also ask questions about prior insurance claims in order to see if there were areas of damage from a previous claim which were not completely repaired and for which the insured is seeking double recovery. In this situation, if the policyholder does not have proof of the prior repairs this presents a serious problem, as it really bolsters the carrier’s position. Further, the carrier will ask questions and seek documents about all previous insurance claims filed by the insured. As likely as it is that any good person may suffer a covered loss, it is substantially unlikely that one good person will suffer multiple insurance losses. Believe it or not, there are people out there who are serial insurance claim frauds who look upon policies as contracts for supplemental income. Similar to the serial claim frauds are the people who have a loss and attempt to expand its scope in order to renovate a kitchen or bathroom, for example. All public adjusters and attorneys should take a truly skeptical eye to a claim were the damage overlapped areas of renovation or where the scope of the loss appears overreaching. Policyholders should know that while some contractor may give them a wink and a nod about including an undamaged bathroom in the scope of his work with an eye toward the insurer subsidizing that work, at the end of the day it’s the policyholder on the hook for that fraud. Thus, all policyholders should be able to readily answer questions as to when renovations began, when completed, and proof of payments made in order not to fall under the jaundiced eye of fraud.

The final corral in to which the carrier may attempt to wrangle alleged fraud is through failure to mitigate. While a failure to mitigate is truly not fraud –unless the insured lied about making repairs or when the repairs were effectuated-- it is certainly fraud’s ugly step-sister. That is, often when the carrier can not quite prove the fraud charge, it may diminish its liability by demonstrating that the insured failed to make proper temporary repairs in order to prevent the damage from worsening, which, of course, is a post-loss obligation of every property insurance policy. The insured will undoubtedly be asked questions about what repairs were made and when they were made, not to mention to produce receipts, invoices and proofs of payment to substantiate that the damage was addressed. With all of this being said, the better practice is to submit claims as accurately as possible, thus avoiding the specter of an SIU investigation.

As a final note to all you insurance fans, Happy Holidays and a prosperous New Year!

First, when a theft loss avails itself to you, look at it through a lens of common sense. Are the circumstances asserted by the claimant plausible? Was there forced entry, for example? Simply stated, if the facts do not bear scrutiny, pass on it. Any decent insurance defense attorney will harp on inconsistencies at an EUO. The claim mentioned above is an excellent example. Think about things logistically, that is, in order for a burglar to steal furniture, they need assistance moving the furniture, a truck to transport it, and a place to store it until it may be sold. Primarily speaking, three guys moving furniture into a large truck is substantially more likely to be seen than a lone thief in the night pocketing jewelry. Further, it is not very plausible that petty criminals have access to moving trucks and warehouses for storage. Finally, do thieves typically take the time to inspect power tools, leaving their casings behind? Of course not, they would simply take case and all. These points may seem picky, but they are precisely the type of suspicious facts that carriers will exploit and, often, ring true with jurors.

Especially in today’s economic climate, there will be no doubt that the insured’s finances will be poured over with a fine-tooth comb by defense counsel. Be prepared to give tax records, income documents, records of debts, etc. and, YES, the carrier does have the right to ask for them. Now this does not mean that legitimate theft losses do not happen to people in financial trouble, but financial trouble may be a motivating factor to commit insurance fraud. To those ends, the insurance professional looking at a suspicious theft loss must be extremely mindful of the list of stolen contents, as this is often the source of big problems. All too often, policyholders are tempted to exaggerate just a bit on that contents list. This is usually done in three ways: adding items that simply did not exist, changing an item’s value, or changing the age of the item in order to thwart potential depreciation. Take care to make sure the policyholder is not stating that they purchased $25,000 in contents in the last 12 months with a $35,000 salary, for example, or that they purchased several big-ticket items within the past year but with no savings and little disposable income.

Finally, the carrier will ask for receipts and proof of purchase for every single item claimed in a theft loss. It is very important to provide these receipts to substantiate the claim. What if the client can not locate receipts? I guarantee the insurer will say they are unable to pay for items which are not substantiated by receipts. This is complete foolishness. Most people do not retain receipts for every item they own. Further, I know of no policy provision stating, “no receipt, no payment,” rather, there are plenty of other methods to justify contents. Photographs, owner’s manuals, affidavits from people who can confirm the contents etc., all may be used to justify contents… so long as they actually existed!

Tune in next week insurance fans when we discuss Typical Questions Asked During an Examination or Sworn Statement Under Oath of a Disputed Structural or Personal Property Valuation Claim Suspected of Being Inflated, Exaggerated, or Made Up.

Assuming, however, that there are no outstanding requests from the carrier once the EUO concludes, the PA has one course of action: PUSH! That is, pressure the carrier into making a decision and/or paying the claim. For example, under Florida Statute 627.70131, an insurer has ninety days from a residential claim’s inception to either pay or deny, unless factors outside the insurer’s control prevent such. Well, by the time the EUO has occurred, all requested documentation has presumably been provided and a re-inspection at least offered by the PA/policyholder.  Thus, upon EUO’s conclusion, there should be no excuses by the carrier. Remind them of this statute. Demand a decision. But always do so professionally. (As I am fond of saying: being a rude jerk does not make you a hard-nosed professional, merely a rude jerk.)

If the carrier does demand a re-inspection post-EUO or more documentation, coordinate the re-inspection or gather the documents immediately. If you suspect that the insurer is asking for more information as a delay tactic, review the matter with an attorney and see if filing a civil remedy notice is warranted. For those not from Florida, a civil remedy notice (CRN) of insurer violation may be filed with the Department of Financial Services to formally place the carrier and the state on notice of the carrier’s bad faith actions. In Florida, if the carrier refuses to pay within 60 days of filing the CRN, they may be subject to suit for bad faith actions at the conclusion of the underlying claim for direct damages. Texas has a similar requirement, but the letter placing the carrier on notice of bad faith allegations is sent directly to the insurer. But whatever jurisdiction in which you work, use all methods at your disposal to push the carrier into rendering its decision post-EUO, unless the carrier wish to place itself in a position of being liable for its own bad faith.

Tune in next week insurance fans, when we discuss Typical Questions Asked During an EUO of an Arson or Suspicious Fire Case.

First and foremost, I implore everyone reading this, before you sit for an EUO hire an attorney. While I know that sounds self-serving, I mean it. If a carrier requests an EUO, its representative will undoubtedly say something like, “We are here to evaluate all facts and circumstances surrounding this claim so that the carrier may make an informed assessment of the claim.” And while this may be true sometimes, many other EUOs are called with an eye toward looking for reasons to deny the claim.

Insurance defense attorneys reading this just cringed. Why? Insurance companies are mandated by law to evaluate claims in terms of looking for coverage and, in fact, it is an act of bad faith for insurers to misuse the post-loss obligation in an attempt to search for reasons for denial. With that being said, I attended an EUO recently in which opposing counsel opened the questioning by holding the policyholder’s application for the policy and asking the policyholder the same questions contained within said application. The insured was very confused and asked for a break to confer with me outside the room. I, however, was not confused. Under Florida law, and most other jurisdictions, if a misrepresentation has been rendered by the insured on the application for the policy, it’s possible for the insurance company to void the policy ab initio, that is, as if it never existed and return the policyholder’s premium. Thus, no policy, no claim.

My point is, in the EUO process, the insurance companies have attorneys working very hard for their best interests, most insureds are by no means experts in insurance law, and even a question innocently answered could lead to a denial. If the same question had been answered in a different fashion, but still honestly, no denial would result. For example, let’s suppose an insured suffers a pipe break. Water from the pipe is spraying behind a wall and soaking the dry wall. Within a few days, even if reasonable effort is employed to dry up the area, mold may grow in the effected area. If the insured is called to EUO and innocently testifies that his/her loss consists of mold all over the drywall the defense attorney will squeal with delight, as mold is usually excluded or severely limited under most policies. What should have been said is: the drywall was wet by the water from the broken pipe and later, despite efforts to dry the area, mold grew on the drywall. What’s the difference? The drywall being wet by a broken pipe is completely covered under most policies without limitation. Further, the mold growing on the wet drywall would also be covered up to the limits for mold on the policy, but even if mold is excluded from coverage, the wet drywall is still covered. This is a prime example of why the policyholder needs an attorney advocating for them at an EUO.

With that being said, what can a policyholder do to prepare for an EUO? First, I recommend that a policyholder sit down and create a time line for the claim. When did they become aware of damage? What was the property’s condition prior to the loss? What steps were taken immediately to mitigate the damage (taking steps to temporarily repair the property so it is not further damaged is another post-loss obligation with which an insured must comply)? When was the insurance company called? Were any statements made by the insured to the insurer? And if yes, consistency is a must in the EUO process. What repairs were made? Who effectuated the repairs? How much did they cost? If an estimate has been submitted by a public adjuster or other professional, have the person who generated the estimate explain it to the policyholder so everyone agrees on the damage being claimed. Also, it is important to note that EUOs are not memory tests. If a policyholder wants to write down a list concerning the above questions and refer to it at an EUO they may. One caveat, however: if notes are being used, be prepared for the defense attorney to ask for a copy and possibly attach the notes to the EUO as an exhibit.

Further, the insurer has probably asked the policyholder for documentation to be provided in conjunction with the examination. The policyholder should diligently gather these documents and provide them to defense counsel BEFORE the EUO in order to avoid having defense counsel demand to review the documents and ask the insured to come back for a second examination in which they are asked questions about the documents. In addition to gathering and providing the documentation, the policyholder should review and become familiar with the contents of said paperwork in order to be able to answer questions directed to them by defense counsel. In other words, the policyholder should become an expert about the facts and circumstances surrounding his/her own claim. I know some people reading this are saying, “Why? Isn’t the insurance company there to help me?” In a perfect world, yes, but, unfortunately, the world we live in is all too often imperfect. For even if one is an expert on the facts and circumstances surrounding the claim, they are still not an insurance expert. As a mediator I know is fond of saying: hire a good attorney, get a good result, and this is especially true during the EUO process.

Tune in next week insurance fans when we discuss What Public Adjusters Need to Tell Their Clients About Examinations Under Oath and Why Public Adjusters Need to Be Careful About Giving Legal Advice.

Therefore, in order for the policyholder to place his/her claim in jeopardy, the incorrect answer must have been asserted intentionally. But do all willfully made incorrect answers place the insured’s claim at risk? For example, suppose an insured was a bit touchy about their age and misrepresented it when asked at the examination. Does this misstatement alone lead to a potential denial? I would tend to doubt that. For unless the policy at issue is a life insurance policy, for example, or for some other reason the policyholder’s age is germane to either the underwriting of the policy or the claim directly, it would not seem just for the insurer to be able to deny a claim over the misrepresentation of a fact or circumstance that had nothing to do with the actual loss or evaluation thereof. Hence, as was previously discussed in this blog, it would appear that an incorrect answer given at an examination must be material to the loss and/or the carrier’s investigation and evaluation of the claim in order to place said claim in danger of denial.

Thus, willfulness and materiality appear to be the hallmarks necessary for an incorrect answer given by a policyholder an examination under oath to lead to the carrier to potentially conjure the specter of denial. In fact, a case from the Supreme Court of the United States of America concurs with this analysis. In Claflin v. Commonwealth Ins. Co,, 110 U.S. 81, 94-95 (1884) the High Court held:

The object of the provisions in the policies of insurance, requiring the assured to submit himself to an examination under oath, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with intent to deceive the insurer, would be fraudulent.

So there you have it: “A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with intent to deceive the insurer, would be fraudulent.” Of course, materiality may be viewed as a nebulous term which may be looked upon by a judge or jury as all-encompassing. As such, as in almost all circumstances, but especially when answering questions under oath, honesty is the best policy. Tune in next week insurance fans when we discuss how to prepare for an examination or sworn statement under oath if you are a policyholder or public adjuster.

In last week’s blog, I mentioned the 1909 case of Southern Home Insurance Co. vs. Putnal, 57 Fla. 199 (Fla. 1909), in which the Supreme Court of Florida held that if the policyholder refuses to sit for the EUO, then the claim may be denied. Of course, that decision was rendered by the high court of Florida one hundred years ago. Is it still binding today?

In 1993, the Third District Court of Appeal in Florida held in Stringer vs. Firemen’s Fund, 622 So2d 145 (Fla. 3d DCA 1993), in a very brief decision, that an insured’s failure to submit to EUO is a material breach of the policy conditions for which denial will be upheld. Not much grey area there…refuse to sit for the requested EUO and the claim may be denied. But in another Florida case, Goldman vs. State Farm, 660 So.2d 300 (4th DCA 1995) (in which the court cited Putnal), an interesting counter argument was posed by counsel for the policyholders. It was argued that the insurance company was not prejudiced by the Goldman’s failure to submit to EUOs because State Farm had taken a recorded statement and could also depose the Goldman’s during litigation, hence the denial was improper.

The court, however, rejected this argument, holding that an examination under oath is a contractual agreement which is also a condition precedent to the policy; hence, the insurer need not show prejudice to deny the claim. Rather, the policyholder’s refusal to sit for the examination begets the denial. In addition, the court distinguished an EUO from a deposition, essentially saying that EUOs are contractual agreements where policyholders have a duty to volunteer information to the insurer, where no such duty exists during a deposition. Therefore, the Court concluded, depositions were not an adequate substitute for EUOs, and it upheld the denial.

A small sample of courts from other jurisdictions that agree with Goldman’s holding: Pervis v. State Farm Fire & Cas. Co., 901 F.2d 944 (11th Cir. 1990), Fineberg v. State Farm Fire & Cas. Co., 113 N.C. App. 545, 438 S.E.2d 754 (N.C. Ct. App. 1994), and Watson v. National Sur. Corp., 468 N.W.2d 448 (Iowa 1991). These cases all held that refusal by a policyholder to sit for an EUO allows the insurer to deny the claim.

The moral to this story? According to the courts, EUO requests MUST be complied with or the claim may be denied, period, end of story.

Please tune in next week for part 3 of our series on EUOs when we look into: Where Can Examinations Under Oath Be Held?

--Bob Reynolds