Conditions

Adapted from Zalma on Insurance Claims Part 102 Second Edition: A Comprehensive Review of the law and Practicalities of Property, Casualty and Liability Insurance Claims now available at https://www.amazon.com/Zalma-Insurance-Claims-Part-Second/dp/1082225517/ref=sr_1_2?keywords=zalma+on+insurance&qid=1567428645&s=gateway&sr=8-2 

When used in contract law, the word condition refers to an event, the occurrence or non-concurrence of which alters the previously existing relations of the parties by creating or extinguishing a legal duty. A condition is different from a promise or warranty. When used in an insurance policy the condition imposes duties on the insured (the promisor) and gives a corresponding right to the insurer (the promisee). Breach of a condition gives the insurer legal justification for refusing to perform its obligations under the policy.

There are two types of conditions:

• conditions precedent; and
• conditions subsequent.

The distinction is significant in the resolution of insurance disputes because it determines the allocation of the burden of proof. The insured has the burden of proving the fulfillment of a condition precedent. The insurer has the burden of proving that a condition subsequent has not been fulfilled in order to avoid liability.

A condition precedent is an event, not certain to occur, which must occur, unless its non-performance is excused, before performance under a contract becomes due. [Restatement (Second) of Contracts § 224 (Am. Law Inst. 1981); accord IDT Corp. v. Tyco Grp., 13 N.Y.3d 209, 214 (2009); Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1995).] While no particular words are necessary to create a condition, the words “if” or “provided,” as well as the phrases “provided that,” “on condition that,” “in the event that” usually connote an intent for a condition rather than a promise. [13 Samuel Williston & Richard A. Lord, Williston on Contracts § 38:16 (4th ed. 1990, updated 2019); accord MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009)].

The violation of a condition precedent precludes recovery. [Gordon v. St. Paul Fire & Marine Ins. Co., 163 N.W. 956, 957 (Mich. 1917); Yeo v. State Farm Ins. Co., 555 N.W.2d 893, 895 (Mich. Ct. App. 1996).” Durasevic v. Grange Ins. Co. of Mich. (6th Cir., 2019)]

In Starling v. Allstate Floridian Ins. Co., 956 So.2d 511, 32 Fla. L. Weekly D1100 (2007) a Florida court of appeal found there was “no genuine issue of fact and Allstate was entitled to judgment as a matter of law. Plaintiff failed to comply with the policy conditions precedent to institution of suit. The provisions are clear and unambiguous. It is not necessary for the insurance company to prove prejudice where the insured fails to comply with a policy condition precedent to suit. Where the insured has failed to provide sworn proof-of-loss in accordance with the policy contract, the insured is barred from filing suit against the insurer for the policy proceeds see Ferrer v. Fidelity and Guaranty Ins. Co., 10 F.Supp.2d 1324 (S.D.Fla.1998).

Failure to appear for a properly noticed EUO constitutes a breach of a condition precedent, vitiating coverage under the no-fault policy if timely and properly requested (Ace Am. Ins. Co. v. Dr. Watson Chiropractic, P.C., 2018 NY Slip Op 30867[U] [Sup Ct, NY County 2018]. Country-Wide Ins. Co. v. St. Michelle, 2019 NY Slip Op 31923(U) (N.Y. Sup. Ct., 2019)]

When the policy language at issue is clear and unambiguous, certain information is required in a written notice as a condition precedent to coverage. The Notice is perfunctory. “It did not, as required, provide any indication of the actual or alleged breach of any professional duty; it does not, as required, provide a description of the professional services rendered which may result in a claim. The notice does not, as required, provide a description of the injury or damage that has or may result in a claim. Indeed, the entire description of the Claim is that “’his project is experiencing problems and delays in its early stages.’ This statement is entirely non-specific – it is merely a placeholder. It does not identify an alleged act, error, or omission or any professional services provided to a potential claimant for a fee. It could mean just about anything. The Policy requires that the insured provide more than a simple statement conveying that there is ‘trouble brewing at Pittsburgh.’ That requirement is enforceable and will be enforced.”

“Under these standard no-fault policy terms, an injured person’s failure to appear ‘constitutes a breach of a condition precedent vitiating coverage.’ (Hereford Ins. Co. v Lida’s Med. Supply, Inc., 161 AD3d 442, 442 [1st Dept 2018].) …” [Am. Transit Ins. Co. v. Middleton, 2019 NY Slip Op 31950(U) (N.Y. Sup. Ct., 2019)]

First party property insurance policies require as a condition precedent that the insured appear for and testify at an examination under oath when the insurer finds an examination necessary When an insured claimed that the giving of recorded statements or the taking of depositions with both sides fulfills the condition, the Florida Court of appeal found that those actions do not constitute substantial compliance with the policy condition.[6]

In Brizuela v. Calfarm Insurance Co.,116 Cal.App.4th 578, 10 Cal.Rptr.3d 661 (Cal.App. Dist.2 03/03/2004) and in California Fair Plan Association v. Superior Court Of Los Angeles County, 115 Cal.App.4th 158 (Cal.App. Dist.2, 01/23/2004) the California Court of Appeal concluded that, “as a matter of law,” the insured “violated the requirement of the insurance policy that he submit to an EUO; that the insurer could on that basis deny his claim without a showing of prejudice; that the availability of a deposition in litigation does not excuse his breach of the EUO requirement; that he had no valid bad faith claim; and that the court properly dismissed his action.”

Since the EUO is an essential weapon in the insurer’s arsenal of tools to defeat insurance fraud these decisions are exceedingly important to every SIU insurance fraud investigator and insurance fraud counsel. The facts that supported the conclusion of the Court of Appeal in Brizuela were as follows:

• On April 23, 1999, Brizuela’s adjuster faxed CalFarm 33 pages of documents, including alarm company information, checks and checking account statements, and documents related to the purchase of the business.
• On May 27, 1999, CalFarm’s counsel sent a letter to Brizuela’s adjuster advising him that CalFarm had scheduled examinations under oath for Brizuela and Brizuela’s wife on June 16, 1999 at that counsel’s offices in Marina del Rey, California.
• The insurance policy CalFarm issued to Brizuela included a provision allowing CalFarm to “examine any insured under oath” in the event of a claim.
• In the May 27, 1999 letter, CalFarm’s counsel asked that Brizuela produce certain documents by June10, 1999 and confirm the examination date by June 11, 1999.
• Brizuela’s adjuster responded by requesting copies of recorded statements that Brizuela and his wife had given to CalFarm shortly after reporting the claim. CalFarm’s counsel denied this request.
• On June 14, 1999, CalFarm’s counsel offered to reschedule the examination and extend the time to produce documents. Brizuela’s adjuster responded by reiterating the request for copies of the recorded statements, and CalFarm’s counsel again denied the request.

Brizuela sued CalFarm for breach of contract and for tortious bad faith breach of an insurance contract. Explaining the reason for its decision that the Insured breached the contract the court recited the history of the condition in California case law as follows:

An insured’s compliance with a policy requirement to submit to an EUO is a prerequisite to the right to receive benefits under the policy. (Hickman v. London Assurance Corp. (1920) 184 cal. 524, 534 (Hickman).) in Hickman, an insurer investigating a loss under a fire policy demanded that the claimant attend an EUO is required by the claimant’s policy. the claimant attended the examination, but refused to answer the insurer’s questions, invoking his fifth amendment right against self-incrimination because of pending criminal charges against him for arson. at the examination, the claimant offered to comply with the demand for an EUO after the arson charge was dismissed, or at any time if the insurer would cause the charge to be dismissed. the court held that the claimant’s refusal to submit to an examination was not justified and that by refusing to submit to an examination, the claimant forfeited the right to benefits under the policy: “`if the insured cannot bring himself within the terms and conditions of the policy he cannot recover. the terms of the policy constitute the measure of the insurer’s liability. if it appears that the contract has been violated, and thus terminated by the assured, he cannot recover. he seeks to recover by reason of a contract, and he must show that he has complied with such contract on his part.’” (Hickman, supra, 184 cal. at p. 534; see also California FAIR Plan Association v. Superior Court (2004) 115 cal.app.4th 158; Globe Indemnity Co. v. Superior Court (1992) 6 cal.app.4th 725; Robinson v. National Auto, etc. Ins. Co. (1955) 132 Cal.App.2d 709; West v. State Farm Fire & Casualty Co. (9th cir. 1988) 868 f.2d 348.)

After Brizuela failed to comply with CalFarm’s initial demand for an EUO, the Insured was obligated to take affirmative action to fulfill the requirement of being examined “by offering to submit to such an examination at a later time.” (Bergeron v. Employers’ Fire Ins. Co. (1931) 115 Cal.App. 672, 676.) Brizuela did not submit or agree to submit to an EUO on any specific date after June 16, 1999. CalFarm “had done all that it was required to do to set in motion the policy provisions for an examination of the insured under oath.” Although CalFarm reiterated its demand numerous times thereafter by asking Brizuela to provide dates for the examination, Brizuela failed to do so.

Brizuela’s failure, six months after CalFarm’s initial request for the EUO, to propose any dates for an examination, to respond in a timely manner to CalFarm’s proposed dates, and to submit to an examination legally constituted a refusal to submit to EUO. For example, note Rosenthal v Prudential Property & Casualty Co. (2d Cir. 1991) 928 F.2d 493 [applying New York law and granting summary judgment in favor of insurer after concluding that purported scheduling conflicts did not justify the 13-month delay of EUO that included six adjournments]; Gould Investors, L.P. v. General Ins. Co. (S.D.N.Y. 1990) 737 F.Supp. 812 [applying New York law, insured’s unexcused failure to attend EUO was material breach of policy; upon insured’s unilateral cancellation of a scheduled examination, burden is on insured to offer alternative future date for the examination]; Home Ins. Co. v. Olmstead (Miss. 1978) 355 So.2d 310 the insured’s refusal to submit to EUO as scheduled, and subsequent failure to offer to submit to examination for 16 months caused insured to forfeit rights under policy.

One of the most important findings of the court with regard to the failure and refusal of the insured to appear at EUO is its finding that there is no requirement that the insurer prove it was prejudiced as a result of the failure of the insured to appear.

An insured’s failure to comply with the policy requirement for EUO deprives the insurer of a means for obtaining information necessary to process the claim. The inability to obtain such information is, by definition, prejudicial, absent extraordinary circumstances.

Concluding that the insured’s breach made it impossible for him to collect indemnity under the policy there was no possibility for the insured to maintain a bad faith case and that the entire suit was properly dismissed.

ZALMA OPINION

Conditions in an insurance policy are promises made by the insured to convince the insurer to take on the risks of loss that the insured wishes to protect. It allows, for example, in the case of the EUO for the insurer to cross-examine the proof of loss submitted by the insured. There are other conditions precedent in every policy of insurance.  A full analysis of conditions is available in my newest book, Zalma on Insurance Claims Part 102 Second Edition available from Amazon.com as a Kindle book or a paperback.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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