First Circuit holds that policyholder did not breach cooperation clause when time insurer gave it to respond had not run out when insurer disclaimed coverage

 

Following an arson fire in 2021 that destroyed a building owned by BAS Holding Corporation on the Brockton Fairgrounds, Philadelphia Insurance Company undertook an investigation that focused on whether the building was vacant, which would limit coverage.  

As part of its investigation Philadelphia issued multiple document requests to BAS.  BAS cooperated fully and responded with over 700 documents.

On June 16, 2021, Philadelphia sought to take an Examination Under Oath, or EUO, of BAS.  Rather than naming a particular witness, it asked BAS to designate someone who could answer questions about eight enumerated topics.  

On August 3, 2021, BAS presented Susan Rodrigues as its designee to testify at the EUO.  She answered most questions, and if she did not know an answer to a question she agreed to research the issue and provide an answer at a later date.

During her testimony Rodrigues identified six people who might be able to provide additional information, including five maintenance workers and George Carney, the president and owner of BAS, who Rodrigues indicated might be knowledgeable about the sale of the building to BAS in 1999 and what the building had been used for other than storage since it was built in 1931.  

The day after Rodrigues testified, Philadelphia requested EUOs of the six people she had identified, and specifically noticed the EUO of Carney for August 19, 2021.  BAS replied the same day with an email stating that it would respond to Philadelphia's request in a separate correspondence. Philadelphia claims that reply was a refusal to produce Carney for an EUO.

A few days later, BAS responded more fully, asserting that the request for six additional EUOs was improper and stating that it would consider the request if Philadelphia set forth a factual basis for it.  Philadelphia asserted this communication was a second refusal to produce Carney for an EUO.  

On August 10, Philadelphia responded that it had no obligation to provide BAS with an explanation of why a further EUO was reasonably necessary.  It stated that it was permitted to take the EUO of Carney because he owns and manages BAS.  It asked that BAS confirm within the next two weeks that Carney would appear at the EUO scheduled for August 19, and to contact Philadelphia if that date would not work in order to arrange for a new date.  

Three days later, on August 13, well before the two weeks given by Philadelphia to BAS to respond,  Philadelphia denied BAS's claim for refusing its request for EUOs.  

Philadelphia then filed suit in federal court, seeking a declaration that the building was not covered under the policy, that its loss was excluded by the policy's vacancy provision, and that BAS breached the requirement that it cooperate with the EUO.

The United States District Court for the District of Massachusetts granted summary judgment to Philadelphia on the ground that BAS failed to cooperate by not providing Carney for the EUO.  BAS appealed to the United States Court of Appeals for the First Circuit.  The United States Court of Appeals for the First Circuit reversed, as the evidence "unequivocally" showed that BAS never willfully and inexcusably refused to submit to an EUO.  

The First Circuit noted that under Massachusetts law attendance at reasonably requested EUOs is a condition precedent for insurance coverage.  An insurer may disclaim coverage when faced with a "willful, unexcused refusal to submit to an examination under oath, without proof of actual prejudice."  

The court held that "there is no way" to read as a willful refusal the August 4 email in which BAS's attorney stated that he would respond at a later date to the request for the six additional EUO's. 

The court held that the next email, objecting to Philadelphia's request for the EUOs and stating that BAS would consider the request if Philadelphia would identify why they were reasonably required to do so, also could not be held as a willful and unexcused refusal.  

In the August 10 email from Philadelphia, the insurer provided additional information to BAS and asked for a response within the next two weeks.  Less than 72 hours later, Philadelphia denied the claim in part on the ground that BAS had refused to appear for the additional EUOs. 

Philadelphia also complained that Rodrigues had appeared for the first EUO.  The court held that she was a not unreasonable choice to testify on the topics listed by Philadelphia.  She handled all of the insurance for BAS, and was the operations coordinator for the Brockton Fair.  As part of that role she oversaw the use and maintenance of the fair and buildings throughout the year.  Her testimony showed that she was knowledgeable on most of the issues raised by Philadelphia.  

The court held that given the sequence and content of the email communications and Rodrigues's testimony, it is "impossible" to find that BAS willfully and without excuse refused to present Carney for an EUO.  The First Circuit distinguished those facts from cases where coverage was disclaimed after multiple failed attempts to schedule an EUO, after an EUO was missed, or weeks after an unproduction EUO was completed.  The court held that BAS's conduct bore no resemblance to the behavior of the insureds in those cases.  

Massachusetts Lawyers Weekly quoted me in an article about this case here.