The Fifth Circuit recently affirmed the Eastern District of Louisiana’s grant of summary judgment to the insurer where the insureds refused to submit to an Examination Under Oath (“EUO”) before filing a law suit against their insurer.

In Hamilton v. State Farm Fire & Casualty Ins. Co., State Farm insured the Hamiltons under a homeowners’ policy at the time that the Hamiltons’ home was damaged by Hurricane Katrina. 2012 U.S. App. LEXIS 8744 (5th Cir. Apr. 30, 2012)1. The Hamiltons moved out of the home, and bought a storage truck that they kept at the property. Five years after Katrina, Mr. Hamilton noticed that the storage truck was missing. The insureds notified State Farm within a few days, and submitted a list of 292 items missing from the storage vehicle with a total value of over $120,000. The Hamiltons claimed that they could not provide receipts because the receipts were kept in a bag in the storage vehicle. After receiving conflicting information from the Hamiltons regarding the loss, State Farm requested EUOs, to which the Hamiltons did not respond. The Hamiltons also failed to provide other documentation of their loss. The Hamiltons filed suit against State Farm alleging breach of contract and bad faith.

The Fifth Circuit affirmed the lower court’s grant of summary judgment to State Farm finding that the Hamilton’s materially breached the policy by failing to submit to the requested EUOs. In doing so, the Fifth Circuit flatly rejected the Hamiltons’ argument that State Farm was not prejudiced by the failure to submit to the EUOs because State Farm would be able to take depositions in litigation. This was because an EUO serves a different purpose than a deposition:

The purpose of the oral examination of the insured is to protect the insurer against fraud . . . .
. . .

The underlying purpose of the cooperation clause is to allow the insurer to obtain material information it needs from the insured to adequately investigate a claim of loss prior to the commencement of litigation.

The Fifth Circuit also affirmed the lower court’s holding that the Hamiltons were precluded from asserting a claim for bad faith, finding that State Farm’s denial of the claim was based on the Hamiltons’ material breach of the policy.

As this decision demonstrates, insurers often can use the EUO provision in a property insurance policy as a powerful investigative tool in investigating claims prior to litigation. Most courts do not allow an insured to simply ignore a request for an EUO, wait until suit is filed and then offer to submit to a deposition.

1 Reproduced by Robinson & Cole LLP with the permission of LexisNexis. Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.  All rights reserved.  No copyright is claimed as to any portion of the original work prepared by a government officer or employee as part of that person’s official duties.