Almost all property insurance policies require that the insured “assist and cooperate” in an insurer’s investigation. If an insured fails to “cooperate,” an insurer may have the right to deny a claim. However, the insurer cannot demand that an insured cooperate with every request. This blog discusses what requests you should ensure an insured cooperates with, what lack of cooperation may be grounds for a denial, and how to manage an insurer’s overbroad and unreasonable request. Most of the principles here are not unique to California and can serve as a general guide almost everywhere else.
The ISO HO 02, HO 3, and HO 5 policy forms all state in the Conditions section that the insured must “Cooperate with us in the investigation of any claim.” ‘Us’ generally refers to anyone who conducts an investigation on behalf of an insurer, including an inside adjuster, an outside adjuster, a private investigator, an attorney, an expert consultant, or some combination of these individuals. Cooperation with the insurer’s claim investigation typically involves the duties set forth in the policy’s Conditions section. These include the following:
- Giving prompt notice of the loss to insurer or its agent;
- Notify the police if the loss was a theft;
- Protecting the property from further damage after a loss;
- For damaged personal property preparing an inventory that contains a description, the actual cash value and amount of loss;
- Allowing the insurer to view the damaged property;
- Providing the insurers with requested records and documents;
- Appearing for an examination under oath; and
- Submitting a signed sworn proof of loss.
Other requests an insured may have to cooperate with are requests for witness statements, which may include recorded statements, responding to the insurer’s requests for information about the claim, and timely responding to the insurer’s requests so that the insurer’s investigation is not delayed.
In California, an insurer does not have an absolute right to deny a claim for any failure to comply with any of the above duties, with one exception: An insurer has an absolute right to deny a claim if an insured does not appear from an examination under oath. California Fair Plan Ass’n v. Supreme Court (2004) 115 Cal.App.4th 158, 167. Furthermore, an insured’s delay in appearing for an examination under oath may be treated as a refusal. Brizueal v. CalFarm Ins. Co. (2004) 116 Cal.App.4th 578, 588. An insured’s failure to answer questions may also be considered a failure to appear. Robinson v. National Auto. & Cas. Ins. Co. (1955) 132 Cal.App.2d 709, 714.
An insurance company does not have carte blanche power to request whatever they want as part of the investigation and cannot force an insured to jump through hoops just so they may be able to deny the claim on a non-cooperation basis. The requests must be related to the insured’s ability to complete a reasonably complete claim adjustment. Thus, an insurer can only deny a claim if it can demonstrate that it was substantially prejudiced by the insured’s failure to cooperate. Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 882. There is no bright-line test as to what prejudice to an insurer is. As a general rule, when assisting an insured, the primary question you should ask as the insured’s representative is – if the insured does not comply with an insurer’s request, can the insurer make a reasonable argument that it was unable to determine either coverage for the claim or the amount that was owed for the claim. If you believe the insurer can make a reasonable argument, then you should use your best efforts to ensure the insured complied.
An insured is not required to acquiesce to absolute and literal compliance with every insurer request. Instead, an insured must only substantially comply. McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030. Again, there is no bright-line test for what “substantial compliance” is. You should also, again, ask a similar question when determining if the insured substantially complied with an insurer’s investigation – did the insured provide enough information, enough documents, or sufficiently allow the insurer to view the property so that the insurer could reasonably determine either coverage for the claim or the amount owed. If the answer is no, then you should use your best efforts to ensure the insured substantially complies with the investigation. Before instructing an insured not to comply with a request, be sure to carefully and thoughtfully ask yourself these questions.
You will undoubtedly run into situations where the insurer makes either unreasonable requests, continues to insist the insured has not provided enough information, or needs to show the property again. If you believe that an insured should not have to respond to an insurer’s investigation request or that the insured has substantially complied with a request, the best practice is to state your position in writing and force the carrier to justify its requests. This will often result in the insurer either backing down or, in some instances, may result in the insurer providing a reasonable explanation for its investigative requests that you overlooked. In the event of litigation, putting such requests to the insurer in writing will set the groundwork for any potential bad faith claim.
Future blogs will provide a more in-depth focus on the cooperation issues discussed above. In the interim, please feel free to reach out if you have any particular questions on any of these issues.