The examination under oath (EUO) is a new wrinkle to most lawyers. Although long used in property insurance claims, EUOs started to appear in auto accident litigation only recently. We now regularly see demands for EUOs in PIP and UIM claims. Between medical exams and EUOs, an insurer can require the insured to miss at least two full days from work, hire a lawyer, and spend more money that a small PIP claim is worth. Perhaps it will help to learn something about examinations under oath in the PIP and UIM context.

With no authority to guide us in this new field, how are we to handle the carrier's demands? Where should the exam be held? Must we provide documents prior to the exam? Who may be examined? Who pays for the transcript?

Before answering these questions, however, consider the begging question: Does the carrier have a right to demand an EUO in the first place?

1. Bases for the Right to Examine the Insured.

A. The Policy: An insurance policy is a contract which defines the rights and duties of the parties. Any right to examine must be found within the four corners of the policy. The policy will also answer some, but not all, of the many questions surrounding this unique discovery tool.
Most EUO clauses simply give the carrier the right to examine the insured. If so, the carrier has no right to examine anyone else. Usually, the policy says the insured must sign the transcript. Beyond that, most policies are silent. Carriers may try to read further "reasonable" requirements into the policy, and such efforts should be resisted.

B. The Proof of Loss Statute: Real problems emerge when the policy is silent. No examination under oath provision appears anywhere in the policy, yet the carrier says it can examine your client. What gives?
In 1995, the Washington Legislature passed a comprehensive anti-insurance fraud law. One part of this legislation amended the proof of loss statute:

RCW 48.18.460 Proof of loss--Furnishing forms--May require oath. An insurer shall furnish, upon request of any person claiming to have a loss under any insurance contract, forms of proof of loss for completion by such person. But such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion. If a person makes a claim under a policy of insurance, the insurer may require that the person be examined under an oath administered by a person authorized by state or federal law to administer oaths. (New language is italicized).

Insurers argue that the italicized language permits an examination under oath whether the policy says so or not. Some trial judges buy this argument. The insurers' argument, however, ignores key facts.
RCW 48.18.460 was amended, not to give insurers a blanket EUO authorization, but to plug a judicially created loophole in the perjury laws created by the opinion in State v. Hovrud, 60 Wn. App. 573, 805 P.2d 250 (1991). The court said:

Hovrud allegedly lied under oath while being interrogated by his insurance company's lawyer, who was investigating Hovrud's fire loss claim. The examination under oath was required by a provision in Hovrud's standard form insurance policy.

RCW 9A.72.040 provides, in relevant part:
(1) A person is guilty of false swearing if he makes a false statement, which he knows to be false, "under an oath required or authorized by law". (Italics ours). . . . RCW 9A.72.010(3) defines the phrase "required or authorized by law", as follows: "[a]n oath is "required or authorized by law" when the use of the oath is "specifically provided for by statute or regulatory provision."

State v. Hovrud, 60 Wn. App. 573, 805 P.2d 250 (1991). Hovrud was tried for criminal arson and for making a false statement at his EUO. The jury acquitted him of the arson charge, but convicted him of lying at the EUO. The trial court overturned the conviction, and the Court of Appeals affirmed. Since Hovrud was required to appear and testify by his policy, rather than by a statute or regulation, he could not be convicted of a crime for lying at the exam under oath. The use of the oath by the insurer was not "specifically provided for by statute or regulation." As a result, between 1991 and 1995, it was legal to lie at an EUO.

The amendment to RCW 48.18.460 plugged the Hovrud hole, and nothing more. It makes no sense to imply an EUO provision into a policy which has none. Doing so violates the basic tenet of policy construction. RCW 48.18.520 provides:

"Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy . . .." The most basic insurance law principles argue against adding unwritten conditions to a policy. In Washington, insurance policies are construed as contracts, and interpretation of policies is a matter of law. State Farm v. Emerson, 102 Wn.2d 477, 687 P.2d 1139, 1141-42 (1984). The basic rule of construction is that words and language in an insurance policy must be interpreted as they would be understood by an average purchaser of insurance. Grange Ins. Co. v. Brosseau, 113 Wn. 2d 91, 776 P.2d 123, 125 (1989). If policy language is ambiguous, reasonably susceptible to more than one meaning, the Court must adopt the meaning favorable to the insured. Government Employees Insurance v. Titus, 18 Wn. App. 208, 566 P.2d 990 (1977); McDonald Industries v. Rollings Leasing Corp., 95 Wn.2d 909, 631 P.2d 947 (1981); Boeing v. Aetna, 113 Wn.2d 869, 784 P.2d 507 (1990). Aetna Casualty v. M&S Industries, 64 Wn. App. 916, 827 P.2d 321 (1992). Exclusionary clauses are to be "most strictly" construed against the insurer in view of the fact that the purpose of insurance is to insure, and the contract should be construed so as to make it operative rather than inoperative. Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wn.2d 65, 68, 659 P.2d 509 (1983), modified on reconsideration, 101 Wn.2d 830, 683 P.2d 186 (1984). Given these principles, does it make sense to imply an insurer's right to take an examination under oath?

Most auto carriers also write property policies. These policies all contain clauses which give the carrier the right to take EUOs. If a carrier wants that right, why not just say so in the policy? As the Court said in Boeing v. Aetna, 113 Wn.2d 869, 887, 784 P.2d 507 (1990), "The industry knows how to protect itself and it knows how to write exclusions and conditions." Absent a policy provision allowing it, no insurer may force its insured to be examined under oath.

C. The UIM and PIP Statutes: In the UIM context, the policy is governed in large part by RCW 48.22.030. Our courts have long held that the provisions of the UIM statute are an expression of public policy. Therefore, exclusions and limitations not authorized by the UIM statute are void.

Limits on UIM coverage are valid only upon two conditions: (1) the exclusion does not conflict with the express language of the UIM statute and, (2) the exclusion is not contrary to the statute's declared public policy. Miller v. Aetna Life & Cas. Co., 80 Wn. App. 55, 906 P.2d 372 (1995); Rau v. Liberty Mut.Ins. Co., 21 Wn. App. 326, 585 P.2d 157 (1978). An insurer cannot avoid the statutorily mandated coverage by a policy provision which has not been authorized by the legislature. Hamilton v. Farmers Ins. Co., 107 Wn.2d 721, 733 P.2d 213 (1987); Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 494 P.2d 479 (1972). RCW 48.22.030, which contains limitations for accidents caused by phantom vehicles, did not apply to a policy which provided broader coverage by not incorporating the statutory limitations. Liljestrand v. State Farm Mut. Auto Ins. Co., 47 Wn. App. 283, 734 P.2d 945 (1987), review denied, 108 Wn.2d 1017 (1989).

Thus, the insured should get whichever coverage is broader – that set out in the policy, or the provisions of RCW 48.22.030. If neither authorizes examination under oath, why should the insurer have a right to take one? Does this analysis apply to a policy condition? If the policy contains an EOU clause but the statute does not, does the statute control? This issue is unresolved in Washington, but the precedents developed under the UIM statute suggest the statute controls.

RCW 48.22.085 requires Personal Injury Protection (PIP) coverage be offered to insureds. The courts have not thoroughly addressed the similarities and differences between the PIP and UIM statutes. In one case, the court held that a policy that required an insured to submit to reasonable requests to be examined by a physician of the company's choosing was not invalid as a violation of public policy. Albee v. Farmers Ins. Co., 92 Wn. App. 866, 967 P.2d 1 (1998). The court found little guidance concerning just what public policy the statute expressed.

Whether an insurer can take an exam under oath in a PIP or UIM dispute is a key question. Once you answer it in an individual case, many questions remain. For example, what limits does the carrier work under when it examines its insured?

2. Extent of the Right to Examine the Insured

We all know the rules of discovery depositions. The rules for EUOs are much less understood. They don't neatly appear in court rules or statutes. If a policy has an EUO clause, it will simply say the insured must submit to examination under oath, as often as the carrier reasonably requests. Some policies insist that multiple insureds submit separately, or that the insured obtain the cooperation of others whom the carrier wants to examine. At least in the property insurance context, these additional requests may be invalid.

Washington, like most states, requires carriers to use the 1943 New York Standard Fire Policy as the basis for all property insurance policies. In the 1960's, package and multi-peril policies began to appear, and some carriers began marketing plain language policies. These states often allowed policies which were different from the Standard Fire Policy, as long as they were no less favorable to consumers. Washington has followed that trend. RCW 48.18.120 authorizes the Insurance Commissioner to adopt rules promoting uniformity in property insurance. Pursuant to that authority, the Commissioner promulgated the following rule:

(3) Except for the provisions of the next succeeding three paragraphs, no company shall issue any basic contract of fire insurance covering property or interest therein in this state other than on the form known as the 1943 New York Standard Fire Insurance Policy, herein referred to as the 'standard fire policy':
. . . .

(c) As an alternative form, a form written in clear, understandable language, which provides terms, conditions and coverages not less favorable to the insured than the 'standard fire policy,' may be used.

WAC 284-20-010(3). Since the Standard policy simply required the insured to submit to and sign an examination under oath, any further conditions may be invalid, at least in the property insurance arena.
In Washington, however, the courts have nurtured the carrier's right to take examinations under oath.

3. Key Cases Uphold the Carrier's Right to Examine the Insured

Several recent cases in the property insurance arena support the carrier's right to an exam, and reject a variety of defenses interposed by uncooperative insureds. In Downie v. State Farm Fire & Casualty, 84 Wn. App. 577, 929 P.2d 484 (1997), the insured failed to appear for an EUO in a property insurance claim. The court upheld dismissal of his claims because the policy said that fulfillment of policy requirements was a prerequisite to filing suit. He had given a recorded statement, but the court said that was insufficient.

In Pilgrim v. State Farm Fire & Cas., 89 Wn. App. 712, 950 P.2d 479 (1997), the policy required:

2. Your Duties After Loss. After a loss to which this insurance may apply, you shall see that the following duties are performed:
. . . c. prepare an inventory of damages or stolen personal property.
Show in detail the quantity, description, actual cash value and amount of loss. Attach to the inventory all bills, receipts and related documents that substantiate the figures in the inventory;
d. as often as we reasonably require: (1) exhibit the damages [sic] property; (2) provide us with records and documents we request and permit us to make copies;
(3) submit to and subscribe, while not in the presence of any other insured:
(a) statements; and (b) examinations under oath;

Pilgrim failed to provide relevant financial documents. The court found that he forfeited his coverage as a result:

The Pilgrims promised to cooperate with State Farm's investigation by producing "records and documents" as often as State Farm "reasonably require[s]." The issue is whether, as a matter of law, they breached their promise. No evidence is disputed. That evidence demonstrates that the Pilgrims at least partially complied with the cooperation duty. For example, during Keith's and Renae's interviews, both answered questions about financial accounts they maintained, to whom and how much money they owed, the status of their taxes, the absence of judgments, liens, and outstanding credit card balances. /42 Nevertheless, no reasonable juror could conclude that the Pilgrims substantially cooperated in the production of relevant, reasonable, requested financial documents. With the exception of their W-2's, they produced nothing. And they refused to authorize third parties to disclose relevant financial information to State Farm. Their substantial failure to cooperate constitutes a breach of the cooperation clause as a matter of law.

89 Wn. App. at 722-723.

In Tran v. State Farm Fire & Cas. Co., 136 Wn.2d 214, 961 P.2d 358 (1998), the insured failed to provide business and tax records. The Supreme Court agreed with State Farm that the carrier could not properly investigate without the records, and Tran lost his coverage. The Court said:

Insureds may forfeit their right to recover under an insurance policy if they fail to abide by provisions in the policy requiring them to cooperate with the insurer's investigation of their claim. Georgian House of Interiors, Inc. v. Glens Falls Ins. Co., 21 Wn.2d 470, 495, 151 P.2d 598 (1944); McLanahan v. Farmers, 66 Wn. App. 36, 40, 831 P.2d 160, review denied, 120 Wn.2d 1006, 838 P.2d 1142 (1992). The only limitation on the requirement that insureds cooperate with the insurer's investigation is that the insurer's requests for information must be material to the circumstances giving rise to liability on its part. Pilgrim v. State Farm Fire & Cas. Ins. Co., 89 Wn. App. 712, 950 P.2d 479, 483 (1997). Information is material when it "concerns a subject relevant and germane to the insurer's investigation as it was then proceeding" at the time the inquiry was made. Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir. 1984).

136 Wn.2d  214 at 224. It seems the courts are supporting insurers, and allowing insurers to decide what is relevant and material to a claim. This is a very dangerous road to walk, as insurers will test the limits of materiality and relevance.

For now, the insured is nearly defenseless. If an EUO can be taken, the limits to the carrier's range of demands are unknown. The careful practitioner must read Downie, Pilgrim, and Tran carefully, without guessing a court would require of the insured.

4. The Insurer Must be Prejudiced by the Insured's Failure to Comply.

What happens when the insured makes an untrue or inaccurate statement in the EUO?  Carriers argue that a misstatement of fact by an insured voids coverage. That view is far too harsh, and ignores the requirement that a breach of condition by the insured must cause prejudice to the insurer.

An insured's breach of a cooperation clause releases the insurer from its responsibilities if the insurer was actually prejudiced by the insured's breach. Public Util. Dist. No. 1 v. International Ins. Co., 124 Wn.2d 789, 803, 881 P.2d 1020 (1994). Interference with the insurer's ability to evaluate and investigate a claim may cause actual prejudice. Canron, Inc. v. Federal Ins. Co., 82 Wn. App. 480, 491, 918 P.2d 937 (1996), review denied, 131 Wn.2d 1002, 932 P.2d 643 (1997); Felice v. St. Paul Fire & Marine Ins. Co., 42 Wn. App. 352, 360, 711 P.2d 1066 (1985), review denied, 105 Wn.2d 1014 (1986). However, prejudice is an issue of fact and will seldom be established as a matter of law. Canron, 82 Wn. App. at 491; Public Util. Dist., 124 Wn.2d at 804-05; Felice, 42 Wn. App. at 359; Pulse v. Northwest Farm Bureau Ins. Co., 18 Wn. App. 59, 62, 566 P.2d 577, review denied, 89 Wn.2d 1011 (1977).

The insurer has the burden of proving that it has suffered prejudice from its insured's breach. Oregon Auto Ins. Co. v. Salzberg, 85 Wn.2d 372, 376, 535 P.2d 816 (1975). Claims of actual prejudice require "affirmative proof of an advantage lost or disadvantage suffered as a result of the [breach], which has an identifiable detrimental effect on the insurer's ability to evaluate or present its defenses to coverage or liability." Canron, 82 Wn. App. at 491-92. Tran v. State Farm Fire & Cas. Co., 136 Wn.2d 214, 228, 229, 961 P.2d 358 (1998). In the context of a false statement case, this means that the statement must be material and substantial. See the following from the opinion in Tran:

See also 8 John Alan Appleman and Jean Appleman, Insurance Law and Practice SS 4772, at p. 215-19 (1981) ("A breach of the cooperation clause by the insured will operate to relieve the insurer of liability under the policy. But a lack of cooperation in an insubstantial or immaterial matter would not have such an effect." (footnotes omitted)

fn. 11, 136 Wn.2d at 239. Once again, however, read Downie, Pilgrim, and Tran carefully. The court will find prejudice as a matter of law for an outright failure to attend an EUO or to produce documents.

5. Where and When to Appear

A carrier cannot casually ask for an exam. The demand must be clear and unequivocal. Nicolai v. Transcont'ntal Ins. Co., 61 Wn.2d 295, 378 P.2d 287 (1963).

The insured also has no duty to appear for an exam in Seattle, when another county is the site of loss. Demand for examination under oath elsewhere may be invalid. Pierce v. Globe & Rutgers Fire Ins. Co., 107 Wash. 501, 182 Pac. 586 (1919).

An insurer's right to examine its insured is a privilege which may be waived by the insurer. For example, a waiver of the right to examine the insured may occur by the insurer accepting or denying liability for a claim prior to demanding an EUO. Thus, rights under the policy may be lost by waiver or estoppel.

The authorities are unanimous that an insurer which breaches the policy by denying the claim, cannot later demand that its insured comply with the terms of the policy. As a leading author points out:

It is a basic principle of contract law, that once one party to a contract breaches the agreement, the other party is not longer obligated to continue performing his or her own contractual obligation. As a result, once the carrier has denied coverage, an insured is no longer bound by the insurance policy's provisions governing cooperation, proof of loss statement, ... access to books and records, and submission to examination.

Windt, Insurance Claims and Disputes, 139-140. Windt cites dozens of cases for the last example, examination under oath. He also points out that the denial of coverage need not be explicit – an insurer's silence or delay in accepting or rejecting coverage can constitute the equivalent of a denial. Id. at 142.

6. The Recorded Statement

We know that a recorded statement is no substitute for an exam under oath. Where the insured gave a statement, however, must the carrier provide a copy prior to the exam? Some are refusing to do so.
The statement of a party or a non party to litigation is obtainable without any showing of necessity, hardship, or any showing at all. The courts seem to see such statements as the property of the maker. CR 26(b)(4) provides:

A party may obtain without the required showing a statement concerning the action or its subject matter previously made by that party. Upon request, a person not a party may obtain without the required showing a statement concerning the action or its subject matter previously made by that person.

In Farm Bureau Ins. v. Leyendekker, 17 Wn. App. 304, 562 P.2d 285 (1977), the court said, "...once the demand by a nonparty witness is made, a copy of that statement must be delivered to that witness ... Any person giving a statement is entitled to a copy of that statement, and once received, is entitled to do with it as he desires. Id., at 17 Wn. App 307. The problem, of course, is that the claim is seldom in litigation when the issue arises. The letter of the court rules does not apply, but the spirit certainly does.

The carrier may argue that it meets that requirement by offering copies after the EUO was concluded. This argument was rejected in Tury v. Superior Court, 505 P.2d 1060, 19 Ariz. App. 169 (1973), where plaintiffs in a dogbite case asked for statements they had given the defendant's insurer. Defendant offered to give them the statements, only after they were deposed. Defendant noted the depositions, and plaintiffs refused to appear. The court cited 8 Wright & Miller, Federal Practice and Procedure, 2027 (1970) to support its view that parties have an absolute right to a copy of any statements made by the party prior to the retention of counsel. This "absolute right" cannot be defeated by withholding the statements, or delaying their production. See also, Watts v. Superior Court, 347 P.2d 565 (1959).

7. Conclusion