Written by Matthew Liller, Esq.
Edited by Bill Pfund, Esq.
Nearly all insurance policies require that an insured cooperate with their carrier during the investigation of a loss. Many policies also require the insured to submit to an Examination Under Oath (E.U.O.) should the carrier so elect. But what happens if the insured is under criminal investigation for the same circumstances as the loss? Can the carrier force the insured to testify at an E.U.O. during the pendency of a criminal proceeding despite the Fifth Amendment’s Constitutional protection against self-incrimination?
The Supreme Court of the United States has made clear that the Fifth Amendment not only protects an individual against being involuntarily called as a witness against himself in a criminal prosecution, but also privileges him not to answer official questions put to him in any other proceeding, civil or criminal, formal or informal, where the answers might incriminate him in future criminal proceedings. Lefkowitz v. Turkey, 414 U.S. 70, 77 (1973).
Perhaps the most common circumstance under this rubric is a house fire. Soon thereafter, the insured reports a substantial loss for the structure and destroyed personal belongings. Subsequent investigation by authorities reveals suspicious circumstances, and criminal arson charges are then brought against the insured. The insurance carrier wishes to invoke its contractual right to require an E.U.O. The insured, of course, has an interest in not making any statements – particularly any under oath – about the circumstances related to ongoing criminal charges, as any and all statements could then be used against them in the criminal case.
Under Virginia law, substantial compliance with a “cooperation clause” is a condition precedent to an insured’s recovery under the insurance policy. Lord v. State Farm Mut. Auto. Ins. Co., 224 Va. 283 (1982). An insured’s failure to cooperate is deemed to be a material breach of their insurance contract, and is a defense to the insured’s suit to collect the proceeds of the policy. Lumbermens Mut. Cas. Co. v. Harleysville Mut. Cas. Co., 406 F.2d 836 (4th Cir. 1969). The failure to cooperate may be manifested by the insured’s refusal to submit to an E.U.O., refusal to answer material questions during the E.U.O., or the insured’s refusal to produce documents. American States Ins. Co. v. Enterpriser Lighting, 1994 U.S. Dist. LEXIS 14988 (E.D. Va. 1994). This means that an insured may avoid incriminating himself by refusing to comply with relevant requests made by the insurer under the policy; however, doing so may ultimately cost them insurance coverage. Powell v. United States Fid. & Guar. Co., 88 F.3d 271 (4th Cir. 1996).
Accordingly, while a carrier cannot force an insured to provide substantive testimony at the E.U.O., the carrier can use this refusal to deny coverage for the claim. In practice, however, even if the carrier is aware of the insured’s likely refusal to cooperate, it still must properly notice the E.U.O. and proceed as if the insured will cooperate. Only if the insured fails to attend, or attends and refuses to testify, can the carrier properly deny the claim. All evidence of the insured’s refusal(s) could then be used as an affirmative defense should the insured later bring suit to enforce the policy.
The attorneys at KPM LAW have extensive experience in advising clients and conducting Examinations Under Oath, and are ready to assist with any questions you may have.