Most policyholders usually do not know what to expect when they submit a claim to their insurance company. Some simply expect to fill out a claim form, maybe answer a few questions, and then receive a claim check from the insurer compensating them for the loss. Most policyholders are usually taken back when the insurance company asks for copies of their income tax returns, bank statements, bills, and other financial records.
Most insureds usually want to know if they have to provide this information to their insurance company and what are the ramifications if they fail or refuse to provide this information. The answer generally depends on whether the failure to comply can be viewed as a violation of the duty to cooperate that the insured owes to the insurer.
In most modern policies, there is an express duty for the insured to cooperate with the insurer’s investigation of a claim. For example, the Homeowners 3 – Special Form policy, in pertinent part, reads:
Duties After “Occurrence”
In case of an “occurrence”, you or another “insured” will perform the following duties that apply. We have no duty to provide coverage under this policy if your failure to comply with the following duties is prejudicial to us. You will help us by seeing that these duties are performed:
* * *
2. Cooperate with us in the investigation, settlement or defense of any claim or suit
Even the 1943 New York Standard Fire Policy, which is imposed as a matter of law into the insurance policies in a number of states, dictates a duty to cooperate:
The insured, as often as may be reasonably required, shall exhibit to any person designated by this Company all that remains of any property herein described, and submit to examinations under oath by any person named by this Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers, or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by this Company or its representative, and shall permit extracts and copies thereof to be made.1
The consequences if a policyholder fails or refuses to provide the requested information to the insurance company differ from jurisdiction to jurisdiction.
For example, in Arizona, an insurance company generally has very broad discretion in what can be demanded to be provided by the insured. The failure or refusal of the insured to comply with his obligation of cooperation will generally constitute a bar to any recovery against the insurance company, if the information is material to the circumstances surrounding the insurer’s liability and the extent thereof.2 In other words, if the requested information can be deemed relevant to the investigation (such as to assess liability or the amount of the loss), the insured who does not provide the requested information runs the risk that the claim will be denied.
The type of claim also may be influential in determining whether such financial information might be considered material. For instance, evidence of the insured’s personal financial position is usually material in fire or theft claims (i.e., to determine whether finances may have provided the insured with incentive to commit arson or theft).3 The financial records may also be relevant to coverage for lost rents, business interruption, and additional living expenses claims.
As a practical matter, an insured can ask the insurance company to explain the relevancy and materiality of the requested materials; if the carrier fails to do so and the relevancy and materiality are not patently obvious, the failure or refusal generally will not constitute a bar to recovery.4
The insured’s duty to cooperate is taken seriously and, in some cases, even if the insurance company is able to obtain the information from another source, the failure to cooperate may still be deemed sufficiently prejudical to warrant a complete denial of the claim.5 So, given the potentially dire consequence, if a policyholder has any questions about providing financial documents requested by its carrier following a loss, the policyholder should consult with a knowledgeable insurance law attorney.
1 1943 New York Standard Fire Policy, Requirements in Case Loss Occurs, lines 113-122.
2 See Home Ins. Co. v. Balfour-Guthrie Ins. Co., 13 Ariz. App. 327, 476 P.2d 533 (1970); Warrilow v. Superior Court of State of Ariz. In and For Pima County, 142 Ariz. 250, 689 P.2d 193 (App. 1984).
3 Safeco Ins. Co. of America v. Duckett, 852 F.2d 1290 (9th Cir. (Ariz.) 1988) (information sought pertaining to insured’s personal financial affairs, e.g., his income tax returns and his bank statements, might be considered material in determining whether Duckett’s personal financial position gave him motivation to commit arson); see also Durden v. State Farm Fire & Cas. Co., 238 F.Supp.3d 1370, 1378–81 (N.D.Ga. 2017) (insureds’ failure to produce documents, including bank records, tax returns, household income or expense records, and moving or storage records, at request of renters policy insurer, was breach of the policy, precluding insureds from recovery on personal property theft claim, where information requested was material to insurer’s suspicion of fraud and possible financial motive).
4 Twin City Fire Ins. Co. v. Harvey, 662 F.Supp. 216, 219 (D. Ariz.1987).
5 See, e.g., Herman v. Safeco Ins. Co. of America, 104 Wash.App. 783, 17 P.3d 631 (2001) (the insured’s breach of the cooperation clause of a renters’ policy prejudiced the insurer in investigating claims for fire and theft losses, even though the insurer independently obtained a copy of the insured’s new lease and allegedly was ultimately able to contact virtually all relevant witnesses; the insured was being evicted and had planned to move the day after the fire, the insurer suspected an overstatement of living expenses and fraud, and the insured failed to sign the examination under oath or to produce the names, addresses, and telephone numbers of material witnesses and financial data including tax returns and proof of income).