Property insurance policies generally contain provisions requiring the insured to cooperate with the insurer’s investigation of a claim, including appearing for an examination under oath (EUO) in the event a first-party claim is presented by the insured. The policies provide that a failure to cooperate can result in a denial of coverage.
In Charles Deng Acupuncture, P.C. v. Titan Ins. Co., a lawsuit involving a claim for recovery of first-party no-fault benefits under an auto insurance policy, the insurer obtained a dismissal of the case based on the failure of the plaintiff to appear for multiple EUOs. The insurer used the EUO transcripts of its attorney’s statements that the plaintiff had not appeared at the scheduled time and place for the EUOs to prove the nonappearances. These statements by the attorney, which are intended to demonstrate a violation of the policy conditions, are often referred to as “bust” statements.
On appeal, in a recent decision, the New York State Supreme Court, Appellate Division, Second Department, reversed the dismissal and granted judgment in favor of the insured/plaintiff, plus costs and attorney’s fees. The court held that the transcripts recording the plaintiff’s nonappearances at the EUOs were inadmissible hearsay—an out-of-court statement (by the attorney) being used to prove the truth of the matter asserted—and would thus only be admissible if a hearsay exception applied.
The court rejected the insurer’s contention that the statements were admissible as a business records exception because there was no basis to find the records were “made in the regular course of any business.” As such, the court held that the insurer was not entitled to dismissal of the lawsuit on the basis of the plaintiff’s failure to appear, which was the sole issue in the case. The court awarded the plaintiff damages, plus costs, interest, and attorney’s fees.
This decision is a reminder that insurers and their attorneys must be careful to document EUO nonappearances thoroughly in order to establish lack of coverage on this basis. While stating on the record during an EUO that the plaintiff has failed to appear despite due notice (and marking those notices as exhibits), the insurer’s attorney who conducted the EUO should also prepare a sworn affidavit attesting to the nonappearance and notice provided to the insured. In the alternative, where an insured later contests the denial in coverage litigation, the insurer should make use of other discovery devices, such as a request for admission, to prove the EUO nonappearance. Without admissible evidence of a nonappearance, insurers may be precluded from denying coverage on this ground.
If you have any questions regarding the content of this alert, please contact Nick Constantino, associate, at nconstantino@barclaydamon.com; Tony Piazza, Insurance Coverage & Regulation Practice Area chair, at apiazza@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.