Examinations Under Oath Are Different Than Depositions

Examinations under oath, "EUO's", serve a purpose different from a deposition.  An insurance company is regularly asked to make a decision about payment or denial of a loss involving a sizeable sum of money without any ability to subpoena witnesses to testify.  Most policies provide for the taking of sworn testimony. 

Like Attorney Parks Chastain, whom I have never met, "I cannot count the number of times I have had an insured's lawyer misunderstand the difference between the two proceedings."  EUO

As Parks correctly points out:

"[c]ases recognize that 'depositions and examinations under oath serve different purposes.'  Nationwide Ins. Co. v. Nilsen, 745 So. 2d 264, 268 (Ala. 1999); accord Goldman v. State Farm Fire Gen. Ins. Co., 660 So. 2d 300, 305 (Fla. 4th DCA 1995).  The Supreme Court of Alabama explained:

[A]n examination under oath is a part of the claims investigation process. In contrast, a deposition is not part of the claims investigation process; it is designed to facilitate the gathering of information once an insured has denied the insured’s claim.

Nationwide Ins. Co., 745 So. 2d 269; accord Goldman, 660 So. 2d 305 (listing numerous distinctions between EUO’s and depositions, one of which explains that “examinations under oath are taken before litigation to augment the insurer’s investigation of the claim while a deposition is not part of the claim process”); see also Archie v. State Farm Fire & Cas. Co., 813 F. Supp. 1208, 1213 (S.D. Miss. 1992) (holding that depositions are different from examinations under oath); Craft v. Western Mut. Ins. Co., No. E030318, 2002 WL 225947, at *3 (Cal. Ct. App. Feb. 14, 2002) (“A deposition is not the examination under oath which the policy required.”)

Policyholders who refuse to appear for a scheduled examination can end up with their claim being denied.  Some courts have held that an insured's failure to submit to an EUO is a material breach of the policy conditions which can result in denial according to attorney Robert Reynolds who practices in Coral Gables, Florida.  Reynolds cited a sample of cases from various jurisdictions with their conclusions including courts that have upheld denial.

Oklahoma's Statute Of Limitations For Contracts

The statute of limitation under 12 O.S. § 95 requires that a lawsuit for breach of contract must be brought within five years if the claim arises from a written contract and within three years if the dispute comes from a contract not reduced to writing.  The time in which to file the lawsuit starts at the completion of the contract.  In the case of Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65, the contract for installation of a new sewage pipeline was completed in 1996.  The homeowner did not file his breach of contract suit until eleven years later in 2007.  The statute of limitations had clearly expired and Oklahoma declined to apply the "discovery rule" to suits based upon breach of contract in construction cases. 

One reason for the court's refusal to extend the "discovery rule" to construction cases is that to do so would defeat the intention of the legislature with the statute of repose.  The court, in upholding the intention of the legislature, has determined there should be some outside limit on when a lawsuit can be brought regardless of the circumstances.

What Is A Statute Of Repose?

A statute of repose as well as a statute of limitation is a legislative means of ending or terminating the time in which a lawsuit may be brought.  "In practical terms, a statute of repose marks the outer time boundary for judicial enforcement of a substantive right whereas a statute of limitation interposes itself only procedurally to bar solely the remedy after a substantive right has vested and a claim accrued."  Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65.

Many people are more familiar with statutes of limitation which bar a person from bringing a lawsuit after a certain period of time has expired.  Typically, statutes of limitation are more commonly thought about in situations in which there is a car accident or other negligent act committed.  The time in which to file the suit starts upon learning about the damages resulting from the negligent act.  The damaged party has a certain period in which to file a lawsuit or forever lose the right to do so.

In contrast, a statute of repose marks the absolute end of any available lawsuit.  The courts have allowed statutes of limitation to be tolled or extended because of the "discovery rule".  The discovery rule is simply the device used to trigger the time in which to file a lawsuit after learning about the damage.  Once a person learns about the damage, the lawsuit must be timely filed or the right to judicial relief is surrendered.  With a statute of repose, it doesn't matter if a person learns about the damage after the deadline or not.  The statute of repose bars the lawsuit simply because of the passage of time.

There are some other technical distinctions.  The statute of limitation does not bar the filing of the lawsuit but rather terminates the remedy available or the relief the court may allow.  The statute of repose blocks the entire lawsuit and prohibits it from going forward.

Plumber Saved By Statute Of Repose

A homeowner hired a plumber to install a new sewer pipeline to his property in 1996.  Many years passed until 2007 when a backup of raw sewage was allowed to seep into the home and damage the property.  The homeowner filed a lawsuit against the plumber for breach of contract and the negligent work performed installing the new sewage line. 

The Oklahoma Supreme Court ruled the replacement of a sewer pipeline constitutes an "improvement to real property" within the meaning of the statute of repose found in 12 O.S. § 109.

The Supreme Court determined the Oklahoma legislature intended there to be a limit on how long lawsuits could be brought that was absolute.  As such, the defective installation of the sewer pipeline was no longer actionable.  Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65.

Appraisal Process As A Substitute For Trial

If the goal of both the insurer and the insured is to obtain a prompt resolution of a property damage dispute, appraisal is sometimes an appropriate means to end the discussion and allow everyone to move forward.  I have seen appraisal used in $1,000,000.00 disputes and $5,000.00 disagreements.

The Supreme Court in Oklahoma has ruled the party requesting the appraisal is bound by the decision while the non-requesting party is not.  The rule makes sense from the perspective of both the insurance industry as well as the individuals or companies having purchased the coverage in the sense that neither side can be forced into a binding appraisal award.  The right to jury trial is a constitutionally protected right in Oklahoma. 

If you want to insist upon forcing the other side through the appraisal process, then you have to agree to be bound by the decision of the appraisers and/or umpire.  On the other hand, if you are forced to go through the appraisal process, you will not be bound by the decision. 

Does the appraisal process always work?  No.  Just like the jury system and any other dispute resolution device created by man, it is imperfect.  On the other hand, when a dispute needs to be resolved without years of litigation, expert witnesses, depositions, appeals, and legal maneuvering, the appraisal process offers an alternative to people.

While care should be given to the choice of both the appraisers and the umpire, I have witnessed situations in which there was so much maneuvering by the participants the parties ended up in litigation.  Both sides clearly want their own appraiser to be competent and knowledgeable, but it is also important to have one that is reasonable and fair-minded.  If both sides merely hire their own advocate to serve solely as their "fighter in the ring" it creates more disputes for resolution by the umpire.  Locating an umpire who has some experience can be extremely beneficial.  Since the umpire's job is strictly intended to resolve disagreements between the appraisers, prior experience in how appraissals function is helpful.  More important is willingness to listen, fairly look at the circumstances, and make a rational decision.

Having personally served as an umpire at the request of attorneys representing insureds as well as insurance companies, there is a keen responsibility that you feel as an umpire to try to do the right thing.  In particular, I recall one situation in which the appraisers with me acting as the umpire essentially reached a conclusion unanimously as to the amount.  The determination was exactly the midpoint between the polarized positions of the parties.  I recall thinking before the award was entered that we would probably hear grumbling that we simply "split the baby" and divided everything down the middle.  I personally disdain the practice of some umpires submitting a decision in the middle to avoid the appearance of showing favoritism.  The practice of "splitting the baby" is not the purpose of appraisal.  The job of the umpire is to make the right decision.  He should not be concerned with future work from the parties or making either side unhappy.

At the end of the day, lawyers, adjusters, and insureds owe a duty to try to reach results that are fair and appropriate for the situation. 

Code And Ordinance Upgrades: An Exclusion Of Coverage Under Property Insurance

Code compliance or ordinance and law exclusions in property insurance policies are intended by insurers to prevent damage claims turning into windfalls for policyholders.  These cases are often hotly debated by both sides.  From the perspective of the policyholder, the insured wants coverage to return the house or building to the same or similar use as before the catastrophe that occurred. 

Insurance companies on the other hand do not want to pay for expensive upgrades to the property as a result of changes in building codes and ordinances that have been implemented over numerous years from the time the structure was originally built.  The debate was blogged about recently in the property insurance coverage law blog.  Oklahoma addressed the question about five years ago.

In Spears v. Shelter Mutual Ins. Co., 2003 OK 66, 73 P.3d 865, lightning struck the Plaintiffs' home and caused damage to part of the electrical wiring.  The home and its wiring were about 60 years old, the entire house had to be rewired to meet the current code construction adopted by municipal ordinances.  Shelter Insurance paid $1,700.00 to repair the portion of the wiring directly damages by the lightning, but refused to pay the additional $4,280.00 to rewire the entire home.  The Oklahoma Supreme Court stated:

¶4 Oklahoma law governing insurance coverage disputes is well-established. The foremost principle is that an insurance policy is a contract. Cranfill v. Aetna Life Ins. Co., 2002 OK 26, ¶5, 49 P.3d 703, 706. "Parties are at liberty to contract for insurance to cover such risks as they see fit and they are bound by the terms of the contract. It necessarily follows that courts are not at liberty to rewrite the terms of an insurance contract." Id.

In concluding its decision, the Oklahoma Supreme Court declared the ordinance or law exclusion was not ambiguous.  Neither was the exclusion hidden in the policy's provisions or masked by technical or obscure language.  The court determined the plain and ordinary meaning of the words used in the exclusion required Shelter's limit of liability to be $1,700.00 (the cost to repair the section of wiring directly damaged by the lightning).

Many companies actually sell additional coverage as an option for policyholders in which supplemental coverage is provided for necessary upgrades.  Although it increases the cost of the premium, it is usually fairly insignificant as compared to the risk of the expense for the upgrades if many years have passed from the time of construction. 

At the end of the day, it is an economic or marketplace decision between the seller of the insurance and the purchaser of the coverage.  If the property owner wants to spend less money on insurance coverage by not purchasing the additional coverage for code upgrades, it is an economic decision.  Likewise, if an insurance company chooses to structure its product so as to make coverage available at an increased cost, it is an open and free marketplace.

Property Damage From A Continuous And Ongoing Event

Property damage that results from a continuous and ongoing process over an extended period of time rather than from a defined, identifiable event such as a tornado or hail damage creates disagreements and disputes as to when property damage "occurred."  Coverage under most insurance policies is triggered by an "occurrence."  As Dana Ferestien commented, insurers and insureds continue to litigate over whether or not particular damages are an occurrence under a particular insurance policy. 

These coverage disputes become even more complicated when there are multiple insurers during the period of time in which the damages occur.  Not only is there disagreement over the time period in which the damage occurred, the policies may have different policy language resulting in different outcomes.  The "occurrence" issue arises in homeowners' policies as well as commercial properties.  Since the damages often go unnoticed for long periods of time, the damages often turn out to be significant in terms of the dollar amount for repair/replacement.  The questions over the cause for the damage often results in both sides hiring experts who have differing opinions. 

I agree with Ferestien the "occurrence" litigation will likely continue as policyholders and insurers assert their competing and opposing positions.  In Oklahoma, attorneys familiar with insurance litigation over coverage routinely defend claims asserting there was no "occurrence" under the terms of the insurance policy and will likely continue to do so.