Hunton Insurance Recovery Blog

Examinations under oath (EUOs) are a common coverage condition in property and other first-party insurance policies that can make or break an insurance claim.  In theory, EUOs are straightforward:  they’re an investigative tool for insurers to gather information about a claim.[1]  But in practice, insurers often use them to poke holes in the policyholder’s story, identify grounds to challenge coverage, and even set up fraud claims. 

These issues recently came to head in a $400 million art insurance case when the artwork’s billionaire owner and several other individuals were examined under oath.  The case originated from a 2018 fire at the billionaire’s Hamptons house, where many valuable artworks were stored and subsequently damaged in the fire.  Though insurers paid claims related to many of the damaged works, they refused to cover five particular pieces, including two Warhols.  So, the policyholder sued to obtain payment.  As part of the claim process, the owner and others underwent EUOs, which the insurers later used as grounds to deny coverage for those works on the basis of alleged fraud (among other defenses). 

This case, which is awaiting the judge’s decision after a mid-summer bench trial, raises interesting questions about EUO requirements in insurance policies, including what insurers can require from policyholders and whether statements made in EUOs are binding on the policyholder.

(1) What is a reasonable EUO request and what can the insurers require?

Nearly every insurance policy requires the policyholder to “cooperate” with the insurer’s investigation.  They often impose a broad duty to cooperate “with the [insurer] in all matters pertaining to the investigation, settlement or handling of any claim.”  They may also list specific kinds of expected cooperation:  sitting for EUOs, allowing the insurer to examine books and records, etc. 

Sometimes the details of the EUO requirement are written into the contract, like who the insurer can examine and when.  Some policies contain extremely broad EUO provisions that allow the insurer to examine “all other persons interested in the property and members of the household and employees.”  Others limit the insurer to “any insured” or the insured and family members.  Under any of these clauses, the insurer could insist on EUOs of potentially dozens of people.  Similarly, many policies provide that the insurer can require EUOs “as often as the [insurer] reasonably requires,” opening the door for the insurer to insist on multiple EUOs if it doesn’t get the answers it wants the first time.  In the art insurance case, for example, the insurers took 10 EUOs, not only of the billionaire policyholder but of the staff who managed his art collection.

There are limits on the duty to cooperate, though.  Most insurance policies provide that the insurer’s requests for the policyholder to cooperate must be “reasonable.”  It may be unreasonable, for example, to require every cousin of an insured to sit for an EUO, or to insist that the policyholder endure several back-to-back EUOs. 

Whether a request for an individual to sit for an EUO and the details of that request are “reasonable” will depend on the circumstances and may be subject to considerable dispute.

(2) Are statements made at EUOs binding?  How do EUOs intersect with deposition and trial testimony?

What happens when the policyholder’s deposition or trial testimony does not match up with what the policyholder said at the EUO?  Policyholders often sit for EUOs early in the life of an insurance claim.  If the insurer refuses to pay the claim, the policyholder may sue and, as part of the lawsuit, be required to undergo examination in a deposition or at trial. 

This issue arose in the art insurance case.  In his EUO, the policyholder made statements about damage to the artworks (he testified they had lost their “oomph,” “lyster,” and “lyricisims”) and whether they were offered for sale.  In his deposition (and later at trial), he testified about those same subjects.  The insurers claimed that his deposition testimony differed from what he said at his EUO, thus allegedly demonstrating that the policyholder had lied at his EUO and allowing the insurers to void coverage. 

Whether statements made at EUOs versus under oath in a litigation should be treated similarly is a thorny question.  EUOs, by definition, are under oath, meaning that the examined party must make statements under penalty of perjury (legal punishment).  Depositions and trial testimony are also under oath.  Further, caselaw often holds that litigation testimony about the facts of the case is binding, meaning that policyholders cannot later dispute its accuracy. 

But EUOs and litigation testimony serve different purposes and give rise to different incentives.  As noted above, EUOs are cooperative and, in theory, voluntary:  both sides are working together to resolve a claim.  EUOs are supposed to encourage the policyholder to be as forthcoming and accurate as possible, even if the testimony may hurt the claim.  They’re not subject to rules of civil procedure, and the policyholder is usually not represented by counsel.  But litigation testimony is adversarial and required by court.  It protects the legal rights of the examining party, who is entitled to confront the witnesses against it.  And litigation testimony is taken at a time in the claim when the parties have different incentives:  to be conservative and sparing (the witness), to be exacting and meticulous (the examining party), and to provide or elicit testimony supportive of their position (both). 

Given these different purposes and incentives, it may be no surprise that testimony at an EUO can differ from testimony at a deposition or at trial.  But an insurer may seize on any discrepancies to claim that the policyholder is lying and thus coverage is void.  Whether the insurer is successful in doing so will depend on the circumstances and jurisdiction’s caselaw, as well as the ability of the policyholder’s lawyer to educate the court on these different purposes and incentives.

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These EUO-related issues will continue to arise in future cases, especially for contentious, high-dollar cases like the art insurance case discussed here.  That case is AGP Holdings Two LLP, et al. v. Certain Underwriters at Lloyd’s of London, et al., No. 654742/2020 (N.Y. Supr. Ct., N.Y. Cnty.). 
 

[1] For more on the basics of EUOs, check out “The ABCs of EUOs.”