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Attorneys, insurers, and insureds alike often fail to make critical distinctions between an Examination Under Oath (“EUO”) and a deposition. Both are questions and answer sessions—usually in a conference room—where a witness swears an oath and is questioned in the presence of a court reporter. Aside from that, as the Maryland Court of Special Appeals recently observed in Dolan v. Kemper Independence Ins. Co., No. 0084, ___ Md. App. ___, 2018 Md. App. LEXIS 627 (June 28, 2018), the two investigative mechanisms serve vastly different purposes, and are governed by different sets of rules.
In Dolan, an insured was pursuing underinsured motorist (“UIM”) benefits from his insurance company following an accident that allegedly exceeded the tortfeasor’s policy limits. Prior to litigation, the insurer requested to take the insured’s EUO on at least seven occasions. The insured consistently refused to submit to an EUO until the insured eventually filed a lawsuit against the insurer. Thereafter, the insured argued that because the insurer was able to take a deposition in the lawsuit, he would not submit to an examination under oath. The insurer, then, filed a declaratory judgment action asserting that it had no duty to indemnify its insured for the failure to comply with policy conditions.
An EUO, at any stage in the adjustment of a claim, is an invaluable tool available to insurers in the investigation of claims. In Dolan, the Court recognized that the EUO constitutes a contracted-for departure from the legal procedures required in a deposition. For example, in a deposition, all parties are permitted to be present, but in an EUO an insurer often has the right to question insureds alone. Likewise, the rules relating to the notice and location of an EUO are more flexible than those regarding a deposition. The scope of questioning in an EUO is arguably more expansive than a deposition. Also, the EUO often results in more efficient resolution of claims when the insurer can learn the facts of a claim prior to litigation. Simply put, the EUO exists to assist an insurer in the investigation of a claim regardless of any pending litigation whereas the deposition exists in the necessarily adversarial construct of litigation.
As the Court of Special Appeals observed, an insurer’s right to take an EUO is “beyond dispute.” Accordingly, the Court agreed with the insurer and held that the failure of an insured to submit to an examination under oath is a breach of policy conditions that would justify the denial of a claim. Importantly, not only did the Court reaffirm an insurer’s right conduct an EUO, but the Court went on to juxtapose a policy’s EUO authorization with the condition that an insured comply with policy conditions before filing suit. In the Court’s words “no legal action may be brought against [the insurer] until an insured has submitted to an EUO, if one has been requested,” and “the breach entitled the insurer to disclaim coverage even in the absence of a showing of actual prejudice.” Accordingly, per the Court’s analysis, when an insured files a lawsuit after refusing an EUO, the insured commits two breaches of the policy: 1) a breach of the obligation to submit to an EUO; and 2) a breach of the obligation not to file a lawsuit unless the insured has complied with the conditions of the policy.
The Court’s holding in Dolan, then, separates an insured’s obligations to comply with the terms of their policy from the insured’s obligations to comply with the applicable rules of civil procedure, and holds that an insured is obligated to comply with both simultaneously. The Court’s decision, then, suggests that in addition to the one deposition a party can generally conduct in litigation, an insurer can also conduct one or more EUOs. Similarly, an insurer may be permitted to exceed the number of document requests permitted under civil procedure rules. Likewise, gone are the days when an insured pursing a first-party claim will prematurely file suit for less than $15,000—knowing that the discovery mechanisms of the Maryland District Court do not permit depositions—in an effort to avoid an EUO.
This, of course, is not to suggest that there are no rules in an EUO. Indeed, the terms of a policy generally impose a reasonableness limitation on an insured’s investigative requests. Similarly, an insurer always acts with the implicit threat of extra-contractual liability—such as an unfair claims settlement practice or lack of good faith claim—looming in the background. Nevertheless, the Court’s holding in Dolan strongly affirms the idea that if insurers desire more expansive investigative tools than those available in litigation, parties are free to bargain for that in consideration for the coverages afforded under the policy.
Craig Roswell is a Litigation Partner with Niles, Barton & Wilmer, LLP whose practice includes commercial disputes and insurance litigation, as well as property insurance law, first-party and third-party insurance coverage matters and the defense of complex general liability claims. Bryant Green is a Litigation Associate concentrating his practice in general commercial litigation, appellate law, insurance coverage matters and insurance law in Maryland and the District of Columbia.see all Commercial Litigation articles »
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