Premature Denial for Failure to Appear at EUO Fails
It is not Reasonable to Deny a Claim for Failure to Appear for EUO
Before the Date the EUO was Scheduled to Occur
In March 2021, an arsonist destroyed a building on the Brockton Fair
fairgrounds known as the "State Building," owned by BAS Holding
Corporation ("BAS") and, according to BAS, insured against loss by
Philadelphia Indemnity Insurance Company ("Philadelphia"). Philadelphia
undertook an investigation to determine coverage. The insurer sought an
examination under oath ("EUO") of George Carney, the president and owner
of BAS.
In Philadelphia Indemnity Insurance Company v. BAS Holding Corporation,
Brockton Agricultural Society, No. 22-1296, United States Court of
Appeals, First Circuit (August 17, 2023) the First Circuit recognized
that a requirement for EUO must be reasonable and the claimed premature
denial was probably not reasonable.
FACTUAL BACKGROUND
Philadelphia sued seeking a declaration that BAS breached the insurance
policy's EUO condition. In its answer, BAS denied that it had refused to
submit to an EUO. On cross-motions for summary judgment, the district
court granted judgment for Philadelphia on the ground that BAS failed to
cooperate by not providing Carney for an EUO. BAS appealed.
BAS is the record owner of the State Building, a landmark building
located on the Brockton Fair fairgrounds in Brockton, Massachusetts. The
interior of the building was mostly open space used for exhibits or
storage at the annual agricultural fair. The fire set by the arsonist on
March 17, 2021, caused a total loss of the structure. The remains of
the building were razed that same day.
At the time of the fire, BAS held a policy (the "Policy") issued by
Philadelphia that BAS claimed covered the State Building.
On June 16, 2021, Philadelphia also sought an EUO of BAS in accordance
with the Policy's EUO condition.
BAS presented Susan Rodrigues as its designee to attend the EUO. She
did "everything" to help put on the fair and also oversaw maintenance
work on the fairgrounds and buildings throughout the year, including the
State Building.
During her examination, Rodrigues identified six people – five
maintenance workers and Carney – who might be able to provide additional information in response to BAS's questions.
ANALYSIS
Under Massachusetts law, attendance at reasonably requested EUOs is a
condition precedent for insurance coverage. Thus, the question before
the First Circuit was a narrow one: did the district court rule
correctly -- as a matter of law -- that BAS willfully and without excuse
refused Philadelphia's request for an EUO of Carney, thereby breaching
the insurance contract?
The timeline of Philadelphia's denial weighs heavily against any
conclusion that BAS refused to produce Carney for an EUO.
The entire discussion between the parties about whether there should be
additional EUOs of Carney and the five maintenance workers spanned only
nine days. The First Circuit vacated the district court's grant of
summary judgment for Philadelphia and remanded for further proceedings
not inconsistent with the opinion.
ZALMA OPINION
I have personally taken hundreds of EUOs. I, like the First Circuit,
cannot understand how an insurer can deny a claim for failure to appear
on a date prior to the date scheduled for the EUO to take place. Such a
denial makes no sense. I have sat with a court reporter at the time and
place scheduled for an EUO and no one appeared and, thereafter denied
the claim only to withdraw the denial when the witness produced an
excuse like the birth of a child or the hospitalization of the witness.
The failure to wait a week or two to deny the claim gained Philadelphia
nothing more than the ire of the First Circuit.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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