Property Insurance Policies: Sandy Claims Likely to Test EUO Provisions

(Editor's Note: The following has been contributed by Lynda A. Bennett, partner, chair of the insurance coverage practice, and Andrew S. Zimmerman, member of the insurance coverage practice at Lowenstein Sandler LLP.)

In the months ahead, disputes are likely to increase over insurance companies’ requests for an Examination Under Oath (EUO) for Superstorm Sandy claims.  Policyholders need to know that there are limits to how much information they must supply.

Insurers, Policyholders and EUOs

As commercial lines policyholders continue to pursue insurance recoveries for property damage and business-interruption losses resulting from Superstorm Sandy, they may find insurers asking for an EUO, a deposition-like proceeding where the insurer may question the policyholder on the claim’s details. Policyholders need to know there are limits to the amount of information they need to provide and the methods used to provide it.

Noncompliance Does Not Always Mean Coverage Loss

Some policies require EUOs as a condition of coverage and insurers typically threaten policyholders with forfeiture of coverage if they refuse. Courts sometimes agree.  However, many courts will excuse a policyholder’s noncompliance if the insurer’s request is unreasonable or the refusal does not affect the basis of the claim, or both.  An explicit denial of coverage will almost certainly excuse the policyholder from submitting to an EUO, and a “constructive” denial may be sufficient.

Policyholders who have supplied loss documentation, sworn proofs of loss and generally responded to an insurer’s requests for information on a loss should push back on an EUO request.  At a minimum, an insurer should explain the reason for the EUO and the issues covered so the policyholder can properly prepare for the examination and, if necessary, designate who within their organization will testify.

Insurers Are Fighting Claims

There have been numerous anecdotal reports since Superstorm Sandy of insurers offering lowball settlements, misrepresenting policy terms and using other chicanery to avoid paying claims and to reduce the amounts that are paid. Policyholders should expect insurers to use the EUO as another weapon in their arsenal. 

As a practical matter, policyholders should respond to such tactics by meticulously documenting all interactions with the insurer; promptly acknowledging and complying with all reasonable requests for information, and explicitly stating to the insurer what they are unwilling to supply and why. Reasons for not supplying the information could be relevance of the information to the claim; the burden it places on the insured to obtain the information, the excessive cost of produce the data, or another reason.

A strong paper record documenting the policyholder’s good faith efforts to comply with reasonable requests and the insurer’s unending requests for duplicative or irrelevant information go a long way toward justifying a policyholder’s decision not to participate in an EUO and establishing an insurer’s bad faith, if necessary. 

The Trend Favors Policyholders

The recent trend has been for courts to limit and condition insurers’ right to demand EUOs by applying general standards of reasonableness and requiring a showing of harm when claims are denied because the policyholder refused to submit to an EUO. For example, the Washington State Supreme Court recently rejected an insurer’s claim of failure to cooperate in a case where the policyholder refused to submit to an EUO.  (Staples v. Allstate Ins. Co.; No. 86413-6 1, 10; Washington-state, Jan. 24, 2013).

In the Staples case, the policyholder submitted a claim for theft of tools. In the police report, Staples said the tools were worth $15,000, but in Staples’ insurance claim the tools were valued between $20,000 and $25,000. As a result of this discrepancy, Allstate demanded an EUO along with proof of ownership, a sworn statement in proof of loss, an authorization to release information and three years of tax returns. When Staples failed to produce the documents, Allstate cancelled the EUO and denied coverage.

Staples sued, arguing that Allstate’s EUO demand was not material, justifiable or reasonable. Allstate argued that it had an absolute right to an EUO without regard to materiality or reasonableness under the terms of the policy.

Allstate never explained what additional information it was seeking from the EUO, and given that Staples already provided two recorded interviews, produced documents and signed a broad authorization allowing Allstate to obtain records from other sources.

The court refused to hold that Allstate’s EUO demand was reasonable or justified. Siding with Staples, the court said, “[g]iven the quasi-fiduciary nature of the insurance relationship, we hold that if an EUO is not material to the investigation or handling of a claim, an insurer cannot demand it.”

The court went even further, however, and held that where an insured refuses to submit to an EUO, the insurer must demonstrate that it suffered harm by the refusal in order to sustain a claim denial on the grounds that it has a right under the terms of the policy. “We have required a showing of prejudice in nearly all other contexts to prevent insurers from receiving windfalls at the expense of the public . . . [and] the same concerns apply equally to the EUO requirement.”   


EUO disputes are increasing as Superstorm Sandy claims continue to rise.  New York and New Jersey courts will undoubtedly confront these disputes in the coming months and years. The courts should evaluate these disputes under the rubric of reasonableness, prejudice and materiality.

The EUO should not be a fishing expedition or a mechanism to obtain free discovery for an inevitable insurance coverage lawsuit. Policyholders should comply with reasonable requests for EUOs if they have not provided complete information to document their claims and the insurer identifies the purpose of the EUO.  Conversely, insurers must be required to show that their demand for an EUO is reasonable and material to their claim investigation.

Finally, insurers must be required to demonstrate that they will be harmed if the policyholder does not submit to an EUO in order to sustain a coverage denial based on a policyholder’s refusal to comply with the request. 

About the Author
Lynda A. Bennett

Lynda A. Bennett

Lynda A. Bennett is Partner and Chair, insurance coverage practice, at Lowenstein Sandler LLP. Bennett has extensive experience negotiating, litigating and resolving complicated insurance disputes, including 18 years of experience in commercial litigation. She may be reached at  

About the Author
Andrew S. Zimmerman

Andrew S. Zimmerman

Andrew Zimmerman is Counsel to Lowenstein Sandler LLP’s litigation department and a member of the firm’s insurance coverage group. Zimmerman represents business policyholders in coverage disputes with insurers, with particular focus on the construction industry. He may be reached at


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