Appeals Court holds that insured's failure to cooperate with examination under oath discharges insurer's obligations

Mike Tracy at Rudolph Friedmann LLP brought to my attention a ruling handed down by the Massachusetts Appeals Court on Friday. In Hanover Ins. Co. v. Cape Cod Custom House Theater, Inc., the Appeals Court held that an insurer's failure to cooperate with an examination under oath excuses an insurer from its obligations under the policy, even if the insurer was not prejudiced by the lack of cooperation.

In Hanover the insured sought coverage under a business owner's policy for a break-in at the insured's place of business. After an investigation the insurer reasonably suspected that the break-in might be an inside job, and requested that the insured submit to an examination under oath.

The insured did not appear at the first scheduled examination, and on the advice of counsel refused to answer material questions at the next two examinations.

The trial judge ruled that the insured had materially breached the insurance contract, and that such breach had prejudiced the insurer. However, the trial court declined to relieve the insurer of its obligations under the policy, stating that the prejudice could be cured by an order requiring the insured to pay the attorney's fees of the insurer.

The Appeals Court reversed. The Appeals Court held that an insured's wilful, unexcused refusal to comply with a reasonable request for an examination under oath consititutes a material breach of a condition precedent to the insurance contract and discharges the insurer's obligations under the contract. The Appeals Court stated that this holding is an exception to the general rule that the insurer must show that it was prejudiced by the insured's breach of contract before it is excused from its obligations under the policy.