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Can An Insured's Execution of An Authorization for Release of Information Satisfy A Insured's Duties Following A Loss?

October 18, 2016 BY Karen Karabinos

Under Georgia law, “[a]n insurer is entitled to require its insured to abide by the policy terms, and the insured is required to cooperate with the insurer in investigation and resolution of the claim.” Diamonds & Denims, Inc. v. First of Georgia Ins. Co., 203 Ga.App. 681, 683, 417 S.E.2d 440 (1992).  To what extent an insured has cooperated, and therefore, fulfilled his duties following a loss has long been debated by the courts in Georgia. The Eleventh Circuit recently held that, under certain circumstances, an insured providing the insurance company an authorization to obtain the insured’s records from a third party does not necessarily satisfy the insured’s duty to cooperate. Hsu v. Safeco Ins. Co. of Indiana, Case No: 1:14-cv-02460-TWT (11th Cir. July 5, 2016).

In Hsu, the insureds filed a claim with Safeco seeking coverage for a theft claim that reportedly occurred at their home.  Drew, Eckl & Farnham assisted Safeco in its investigation and took the examinations under oath of the insureds.  In the demand for the insureds’ examinations, Safeco specifically requested the insureds produce copies of their income tax returns from 2009 to the present at their examination.  The insureds failed to produce the requested returns, and instead represented that their tax information was stolen by a former accountant.  The insureds did execute written authorizations in order for Safeco to obtain the tax returns directly from the IRS.  In response to Safeco’s request to the IRS for copies of the returns, the IRS did not provide copies to Safeco, but instead mailed the returns directly to the insureds.  Safeco advised the insureds of the error by the IRS, and requested the insureds provide the copies to Safeco.  Despite multiple requests for the returns, the insureds failed to respond and subsequently filed suit.

The district court granted Safeco’s motion for summary judgment finding the insureds failed to cooperate because they failed to produce the income tax returns as requested by Safeco.  On appeal, the insureds did not challenge that they had a duty to produce the records or that the compliance with that duty was a condition precedent to filing suit. Rather, the insureds argued the district court erred in granting Safeco summary judgment because there was a genuine issue of material fact as to whether they acted in good faith in producing the documents in their possession and executing the authorization for Safeco to obtain the tax returns.  The insureds’ good faith argument was primarily based on the Georgia Court of Appeals’ holding in Diamonds & Denim, 203 Ga. App. 681, 417 S.E.2d 440 (1992).  That case articulates the concept of “substantial compliance,” which is a common principle of contract law. The Eleventh Circuit, however, held that that concept was not satisfied by the insureds in this case.

In Diamonds and Denim, the insurer requesting the insureds merely “produce all books and records proving the loss.”   203 Ga. App. at 441.  As pointed out by the Court of Appeals,  “The record is devoid of any evidence that [the insurer] provided appellant with detailed lists of the specific documents it sought other than to reiterate in general language the policy requirement for production of ‘books and records.’"  Id. at 442.   In response, the insureds in Diamonds and Denim identified their bank accounts and federal tax identification, and offered to provide that information, explaining that their other records had been destroyed in the fire which was the subject of the claim.  Id. at 441.  The Court of Appeals found the insurer never followed up on its generalized statements with specific requests or sought releases from the insured to obtain the information from third parties following the insured’s offer.  It was based upon these critical facts that the Georgia Court of Appeals concluded that there had been substantial compliance. 

The Eleventh Circuit found that Diamonds and Denim “was readily distinguishable” and the facts of the present case were closer to the Georgia Court of Appeals’ holding in Allstate Insurance Company v. Hamler, 247 Ga.App. 574, 545 S.E. 2d 12 (2001).The insured in Hamler allegedly suffered a theft of several items, including large pieces of furniture, from her home.  She submitted a claim to Allstate for approximately $26,000 under her homeowner’s policy.  Following the insured’s recorded statement, Allstate requested that the insured bring certain documents to her examination under oath.  While the insured produced copies of canceled checks for the purchase of the items allegedly stolen, she specifically refused to produce any documentation, such as her federal and state tax returns, which would show her income and debts at the time of the loss.  She also refused to produce her telephone bills, utility bills or entire credit card statements, except to the extent the statements reflected the purchases of the items involved in the loss. The Court in Hamler, found the insured breached the policy by refusing to provide relevant information “despite numerous, clear requests by Allstate’s counsel, along with explanations by Allstate’s counsel as to the relevancy of the requested documents.”  247 Ga. App. at 577.

The Eleventh Circuit noted that as in “Hamler and unlike Diamonds and Denim, Safeco had requested specific documents, and diligently pursed efforts to obtain the documents from the IRS as well as the insureds, who offered no excuse or explanation regarding their failure to respond to Safeco’s request.  As a result, the Eleventh Circuit agreed with the district court that there was no “genuine of issue of material fact as to whether Plaintiffs breached the contract of insurance.”

In light of the Eleventh Circuit’s holding in Hsu, insurers in Georgia should document their claim file with clear and specific requests for material documents for the insureds to produce and with all of the details of the insurers’ efforts to obtain the documents from either the insured or third parties.  Such documentation will assist in establishing for a court that the insurer diligently pursued the relevant information regarding the pending claim, and that the insured failed to cooperate by refusing to produce the requested information.

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley
(Editor-in-chief)