Double G.G. Leasing, LLC v. Underwriters at Lloyd’s:
Further Confirmation of an Insured’s Duty to Cooperate in First Party Claims
By: Steven B. Ryan and Susan M. Kirkeby
Occam's Razor Insurance Law Update,
In Double G.G. Leasing, LLC v. Underwriters at Lloyd's, 116 Conn. App. 417 (2009), the Connecticut Appellate Court affirmed the trial court's granting of summary judgment in favor of the defendant carrier Underwriters at Lloyd's London ("Lloyd's"). In Double G.G. Leasing, Carl Glatzel, Jr. ("Glatzel") was the sole member of the plaintiff company who purchased a vacant two-family residential structure. The property was insured by Lloyd's with a policy limit of $360,000 on a replacement cost basis. Less than five weeks after the inception of the policy period, the building was destroyed by a fire of incendiary origin that was ignited at two separate locations at the rear of the building using a flammable liquid accelerant. Subsequently, Lloyd's requested Glatzel, on behalf of the insured, to attend an examination under oath and produce documents at that examination. Plaintiff's counsel requested three continuances of the examination. Thereafter, Glatzel appeared for his examination under oath but failed to produce many of the requested documents at that time. He admitted in his testimony that he had filed personal income tax returns, but never produced them. The claim was denied.
As a result, the plaintiff filed suit alleging that the loss was approximately $350,419.99 and that the plaintiff had "substantially and materially fulfilled all of the terms, conditions and requirements of the policy but that the defendant had not paid the loss and damages in accordance with the terms and conditions of the policy in breach of the insurance contract." Id. at 420. The plaintiff further alleged that Lloyd's issued excessive requests for records and documents during the course of the investigation of the fire for the purposes of unfairly impeding the plaintiff's right to receive benefits and therefore had breached the implied covenant of good faith and fair dealing.
Lloyd's moved for summary judgment arguing that the plaintiff failed to comply with the conditions of the contract by failing to produce documents and records relating to the claim investigation.1 During the examination under oath, Lloyd's counsel requested the additional information and documentation from the plaintiff. Glatzel provided copies of certain documents but did not produce copies of the federal or state income tax returns that had been requested. In an affidavit in support of their objection to Lloyd's motion for summary judgment, Glatzel stated that he had produced everything and that there were no IRS documents. The plaintiff claimed that the trial court improperly concluded that Glatzel had filed federal and state income tax returns and that he failed to provide these returns to the defendant.
Lloyd's request for financial and tax records was based on the findings by investigators that the fire was suspicious in nature. The Court noted that to establish a case of arson, for purposes of denying coverage under an insurance policy, the insurer must establish that the fire was incendiary and that the insured, its agents or officers, had an opportunity to cause the fire. The Court went on to note that "[a]rson is a difficult crime to prove. It can only be established by circumstantial evidence and by inquiries into motive. Financial records of the insured are, as the cases say, patently relevant to the insurance company's rightful scope of the investigation." Id. at 428.2 The trial court found that, although the insurance policy did not impose obligations on Glatzel to disclose purely personal information or personal tax returns, he was nevertheless required to disclose the information because he and the plaintiff were one and the same, and, therefore, the court should disregard the corporate structure and pierce the corporate veil. As a result, the Court held that the trial court properly determined that the plaintiff had failed to produce its tax returns.
The plaintiff's second claim for relief was that the trial court failed to apply the "substantial compliance" standard when evaluating the plaintiff's cooperation with the examination under oath. The Court noted that "[g]enerally, in the absence of a reasonable excuse, when an insured fails to comply with the insurance policy provisions requiring an examination under oath and the production of documents, the breach generally results in the forfeiture of coverage, thereby relieving the insurer of its liability to pay, and provides the insurer an absolute defense to an action on the policy . . . [i]n the absence of estoppel, waiver or other excuse, cooperation by the insured in accordance with the provisions of the policy is a condition the breach of which puts an end to the insurer's obligation . . . [t]he lack of cooperation, however, must be substantial or material." Id. at 432. (internal citations omitted). In Connecticut, once an insurer raises the violation of the cooperation clause as a defense, the burden shifts to the plaintiff to prove cooperation. The trial court found that the plaintiff breached the cooperation provision by failing to provide the requested tax returns and that the plaintiff failed to demonstrate that the insurer had not been prejudiced by this breach. Accordingly, the Court affirmed the judgment of the trial court in favor of Lloyd's.
The Appellate Court's holding in Double G.G. Leasing simply reaffirms longstanding principles and case law, both in Connecticut and other jurisdictions, that the insured's refusal to comply with the carrier's request for records and documents that are relevant and material to the investigation precludes coverage under the respective policy. See, e.g., Taricani v. Nationwide Mut. Ins. Co., 77 Conn. App. 139 (2003) (concluding that the plaintiffs' failure to appear at their examination under oath was a material breach of the conditions in their commercial insurance policy); Wright v. State Farm Mut. Auto. Ins. Co., 1997 Conn. Super. LEXIS 3122 (Conn. Super. Ct., J.D. of Hartford-New Britain at Hartford, Nov. 18, 1997) (Aurigemma, J.) (same); McCarthy v. Travelers Indem.Co., 2000 Conn. Super. LEXIS 823 (Conn. Super. Ct., J.D. of Fairfield at Bridgeport, Mar. 29, 2000) (Melville, J.) (holding that although the insured attended an examination under oath, he failed to produce relevant documents and, therefore, is in breach of the insurance policy); Priority Finishing Corp. v. Hartford Steam Boiler Inspection & Ins. Co., 1998 Conn. Super. LEXIS 2815 (Conn. Super. Ct., J.D. of Hartford-New Britain at Hartford, Oct. 6, 1998) (Satter, J.) (recognizing the rule that an insurer is entitled to require of the insured sufficient records to substantiate the validity of the loss); Bergen v. The Standard Fire Ins. Co., 1997 Conn. Super. LEXIS 3494, at *24 (Conn. Super. Ct., J.D. of Milford-Ansonia at Milford, Dec. 31, 1997) (Corradino, J.) (holding that financial records of the insured are patently relevant to the company's rightful scope of an investigation, and "[r]equests for income records are certainly material inquiries . . . and, if that is so, demands for bank statements and information about various bank accounts would also seem to be so."); Capello v. Aetna Life & Casualty Co., 1993 Conn. Super. LEXIS 817 (Conn. Super. Ct., J.D. of Hartford-New Britain at Hartford, Apr. 12, 1993) (Aurigemma, J.) (holding that the Fifth Amendment does not excuse an insured's cooperation under a policy). The Double G.G. Leasing case further confirms that a carrier is entitled to documents and information that are relevant and material to the investigation of the claim, whether suspicious or not. This rule allows the carrier to make an informed coverage decision and to protect itself from false claims.
1 These requests included but were not limited to state and federal income tax returns, individual, joint, several, corporate partnership or business filed by the plaintiff or on his behalf or on behalf of any entity or business which employed Glatzel or in which he owned any ownership interest. The requests also included all financial statements, general ledgers or other financial documents prepared or created by Glatzel or any other person or entity which pertained to his financial condition.
2 The Double G.G. court noted that the Namerow case did not require motive to be proven as a separate element of a civil arson offense "but that motive is still relevant to such a defense" and that "its role is best served by bolstering cases in which direct evidence of arson is lacking." Id. at 428 n.5.