Insured Refusal to Comply with Insurer Request for Exam under Oath Material Breach of Condition Precedent

 

In Hanover Ins. Co. v. Cape Cod Custom Home Theater, Inc., 72 Mass.App.Ct. 331 (2008), the defendant insured had filed a claim of loss with the plaintiff insurer under a businessowner's policy of insurance. The claimed loss arose from a reported break-in at the insured's business premises.

 

Following an investigation giving rise to reasonable suspicion that the break-in may have been an “inside job,” the insurer requested that the insured produce certain financial documentation and submit to an examination under oath. The insured failed without explanation to appear at the first scheduled examination, and was nonresponsive in material respects at two rescheduled examinations. The insured refused throughout to produce the requested financial records.

 

Only when the insurer filed the action at hand did the insured produce the requested documents. In the action, the insurer sought, among other things, a judgment declaring that the insured's failure to comply with policy obligations requiring its cooperation relieved the insurer of any liability to the insured for the claimed loss.

 

The trial judge concluded that the defendant insured had committed a material breach of its obligations under the policy and in so doing, had caused the insurer prejudice. Nonetheless, because the judge determined that such prejudice could be cured by an order requiring the insured to pay the insurer's costs and attorney's fees, he refused the declaratory relief that the insurer requested.

 

The insurer appealed the decision, maintaining that the judge erred in failing to declare that the insured's material breach of conditions precedent precluded the insured from recovery under the policy of insurance.

 

The Massachusetts Appeals Court affirmed in part and vacated in part, holding that the insured's willful and unexcused refusal to comply with the insurer's reasonable request for an examination under oath was a material breach of a condition precedent to an insurance contract, such that the insurer did not have to show prejudice to be relieved of its obligation to provide coverage.

 

In its decision, the court explained that under the cooperation clauses generally included in insurance contracts, insureds have a general obligation to cooperate with their insurer during any investigation of claims made under such policies. And, when an insurer's demand for cooperation is reasonable and the insurer has acted in good faith and with due diligence, an insurer may be relieved of liability for claims in certain circumstances where an insured commits a material breach of a cooperation clause.

 

The court noted that in situations where information material to a claim investigation is “primarily or exclusively within the possession of the insured,” the provision requiring submission to an examination under oath was particularly important for obtaining corroboration of a claim and possibly weeding out fraud. Thus, an insurer's request for an examination under oath, if reasonable under the circumstances, should be strictly construed as a condition precedent to the insurer's liability.