Property and casualty insurance policies impose obligations on thee insureds making claiming covered losses. In some cases, breach of these post loss duties may have harsh consequences, as in the following cautionary tale.
I once had a homeowner call me about problems he was having with his insurance company. The caller, who I will call “Bob,” described that his roof had been damaged in a windstorm to the extent that rain now got in his house. Bob then described that he reported the loss to his insurance carrier, which then dispatched an adjuster. The adjuster noted that the roof was not keeping out the rain and mentioned that the homeowner had an obligation to make temporary repairs to prevent further damage. Bob mentioned that he challenged the adjuster on whether he or the insurance company was responsible for paying for temporary repairs.
A day or so after the inspection, Bob received a letter requesting that he submit a certification that the repairs had been made and requesting his expenses in making the repairs to the insurance company. Bob said that he called the adjuster and left a voicemail indicating that he wasn’t going to make the repairs. After all, for what purpose had he been paying his premiums all of these years without a claim?
Some time not long after leaving the voicemail, Bob got another letter from the adjuster. This letter quoted the policy language that mandated the insured made temporary repairs. It pointed out that the insurance company would reimburse Bob for the cost of the repairs and requested that he submit his receipts.
Bob then got a certified letter from a lawyer indicating that the insurance company intended that Bob submit to an examination under oath (EUO). The letter went on to request that Bob tender a proof-of-loss on the claim. Bob’s voice shook with indignation in describing the contents of the letter.
“Now they’ve told me that there is no coverage on the claim,” Bob said.
“On what date did the loss occur?” I asked.
He responded, “Six months ago.”
“Did you make the temporary repairs?” I asked.
“Hell no I didn’t make the repairs, the insurance company hasn’t paid me,” he replied.
“Is rain still getting in?”
“Yes, and it has ruined the carpet in there now. There’s mold everywhere.”
“Did you sit for the EUO?”
“Hell no,” he snorted.
“How long since they asked for the proof-of-loss?”
“Two or three months,” he said angrily.
“Bob,” I asked, “Are you familiar with the phrase, “Seven ways to Sunday?”
“Hell no,” Bob replied, and hung up.
Duties Imposed on Insureds
All property and casualty policies contain a section setting out the insured’s duties after loss. The obligations imposed are conditions of coverage. That is, the insurer is not obligated to pay a loss that would otherwise be covered if the insured fails to perform these post loss duties. A general list of post-loss duties is set out below. While some version of these is found in most property policies, you should always read and understand the terms of your own policy.
- Give prompt notice of a loss to the insurer or its agent.
- Report losses involving theft and dishonesty to the relevant authorities and companies.
- Protect the property from further damage. Make necessary repairs and keep an accurate record of your expenses.
- Co-operate with the insurer in investigating a claim.
- Prepare an inventory of damaged personal property.
- As often as the insurer requests, show the damaged property and provide it with records and documents it requests
- Send to the insurer, within either 30 or 60 days of its request, a signed, sworn proof of loss that sets forth relevant details about the loss.
Following a loss, an insurer has an obligation to investigate its insured’s claim and make payment if there is coverage under the policy. The purpose of post-loss duties is to allow the insurance company to form an opinion about coverage, to afford it an opportunity to investigate the loss, and to prevent fraudulent claims. Under Alabama law, the insurance company may withhold payment of benefits until the insured complies with the post-loss duties. Complete non-compliance with any of the duties constitutes a breach of the policy. When one party breaches a contract (like an insurance policy) the other party is relieved from performing its obligations. In the case of an insurance claim, breach of a post-loss duty may result in the carrier refusing to pay the loss.
But, rather than being a yes/no question, the real issue is, “Has the insurer been prejudiced by the insured’s failure to perform a condition?” In the case of Bob above, his refusal to sit for an examination under oath and to make repairs would likely prejudice the insurer and relieve it of the obligation to pay his claim.
An examination-under-oath (EUO) resembles a deposition in a civil case. The insurance company’s lawyer interrogates the insured under oath, with a court reporter present. An insurance company requires an EUO when it requires the insured’s sworn testimony about the circumstances surrounding a loss. In many cases, an insurer will examine its insured under oath when there are suspicious or unusual circumstances. In Bob’s case, the insurer was aware that he was flagrantly thumbing his nose at the company’s requirement that he perform post-loss duties. It seems likely the company wanted him to say vocalize that sentiment on the record to save on legal bills if he sued it.
The insurer would be prejudiced by the failure to make temporary repairs because the damage would likely be worse than if the temporary repairs had been made. In Bob’s case, he could have tarped the damage roof and perhaps avoided ruining the carpet. Understand too, Bob was not required to get up on his roof and actually make temporary repairs, he could have hired a roofer to do it for him. Bob’s objection was that he was required to pay for the temporary repairs, even though the policy required the company to reimburse him. As unfair as it seems, neither the law nor the insurance company care if the insured can afford to make temporary repairs. Happily, following large scale, nationally declared disasters, FEMA assists property owners in making temporary repairs.
Post-loss duties can be a trap for the unwary homeowner. Be vigilant and call a qualified insurance claims attorney if you need help.