Washington Supreme Court Articulates New Analysis of EUO Conditions

By Robert A. Meyers, Sedgwick Seattle

In an effort to protect insurers against fraudulent claims, many insurance policies include a condition that requires a policyholder to submit to an examination under oath (“EUO”) at the insurer’s request. In Staples v. Allstate Ins. Co., No. 86413 (Wash. January 24, 2013), an 8-1 majority of the Washington Supreme Court articulated a new analysis of insurers’ and policyholders’ respective rights and obligations under EUO conditions.

First, the Court held that an insurer may only demand an EUO if the EUO is “material to the investigation or handling of a claim.”  By so ruling, the Court expressly disapproved of the Washington Court of Appeals’ decision in Downie v. State Farm Fire & Cas. Co., 84 Wn. App. 577, 582-83, 929 P.2d 484 (1997), in which the Court of Appeals had declared that insurers have an “absolute right to at least one EUO.”

Second, the Court held that an EUO condition is a form of “cooperation clause.” As such, the Court held that a policyholder need only “substantially comply” with an EUO condition, and an insurer must demonstrate that it was actually prejudiced by any breach of an EUO condition. By so ruling, the Court again disapproved of the Washington Court of Appeals’ ruling in Downie, in which the Court of Appeals had declared that an insurer need not demonstrate that it was prejudiced by a breach of an EUO condition.

Turning to the facts of the case, the Court then reversed an order granting summary judgment in favor of Allstate under Allstate’s EUO condition. Although Allstate’s policyholder had failed to submit to an EUO after repeated requests spanning four months, the Court held that there were genuine issues of material fact with respect to whether (1) an EUO was material to Allstate’s investigation, (2) the policyholder substantially complied with Allstate’s requests for an EUO, and (3) Allstate was prejudiced by any breach of the policy’s EUO condition. Therefore, the Court held that a jury must resolve the issues.

In view of the Court’s ruling, it likely will be more difficult for an insurer to obtain relief via summary judgment because of a Washington policyholder’s breach of an EUO condition.  Indeed, in Staples, the dissenting justice even gloomily opined, “Today’s decision invites insureds to put minimal effort into complying with the terms of their insurance policies, expecting the company to pay.”

The Court’s majority and dissenting opinions can be found here and here, respectively.

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