1st Circuit Reverses Denial of Claim Based on Policyholder’s Lack of Cooperation

A policyholder whose representative was unable to answer all of an insurer’s questions and whose lawyer argued that the company’s continued requests for information were unreasonable did not provide an insurer with a basis for denying its claim, a panel of the 1st Circuit Court of Appeal ruled Thursday.

The federal appellate panel vacated a US District Court judge’s ruling that BAS Holding Co. had refused to participate in an examination under oath as required by the terms of a policy written by Tokio Marine Group’s Philadelphia Indemnity Insurance Co.

The appellate panel said that it was not persuaded that denial was appropriate based on several Massachusetts cases that the insurer cited where claim denials were upheld because of uncooperative behavior by the policyholders.

“BAS’s conduct bears no resemblance to the behavior of the insureds in these cases,” the panel’s opinion says. “BAS attended the requested EUO, did not refuse to answer questions at the EUO, never missed an EUO, never delayed an EUO, and never refused to produce Carney for an EUO.”

BAS owned the State Building, a rough replica of the famous Massachusetts State House in Boston located on the fairgrounds in Brockton, Massachusetts. The 12,292 square-foot structure, built in 1932, was destroyed by a fire set by an arsonist in March 2021.

BAS gave prompt notice to Philadelphia and asked for coverage under its commercial property policy. The insurer responded with a reservation of rights letter that stated coverage would be limited if the building was vacant at the time of the fire, and that the building may not be covered at all.

Philadelphia made multiple documents requests to BAS and the business responded with some 700 documents. In June 2021, the insurer asked BAS to submit to an examination under oath. Philadelphia asked BAS to designate someone who could answer questions about eight enumerated topics.

BAS sent Susan Rodrigues, operations coordinator for the Brockton Fair. She was also employed by companies owned by BAS President George Carney and handled insurance matters for his company.

Rodrigues answered several questions during the examination, but was unable to answer all of them to Philadelphia’s satisfaction. She told the examiner that Carney and five maintenance workers employed by him might be able to provide additional information.

Philadelphia asked BAS’ counsel to make the six people available for an EOU. The attorney replied that asking for six additional examinations was unreasonable, especially considering that the insurer had not provided a factual basis for its reservation of rights.

The insurer responded that it was not required to provide a factual basis. Three days later, before BAS responded, Philadelphia denied BAS’ claim.

The insurer filed a lawsuit in September 2021 asking the US District Court to declare that it had properly denied the claim. Judge William G. Young said during a hearing that he was “troubled” by Carney’s refusal to cooperate with the insurer and granted Philadelphia’s motion for summary judgment. BAS appealed.

The 1st Circuit panel said nothing in the record supported Young’s findingthat Carney was so uncooperative that the insurer could deny the claim. The record shows that Rodrigues did answer several of the carrier’s questions and promised to do some research so she could answer other questions once she gathered the information, according to the opinion.

“In short, given the sequence and content of the emails at issue, as well as Rodrigues’s responsive and non-evasive EUO testimony, it is impossible to find on this record that BAS willfully and without excuse refused to present Carney for an EUO,” the appellate panel concluded.

In June 2022, a Brockton Superior Court grand jury indicted 29-year-old Brian Leite for allegedly setting the fairgrounds fire and several other fires in Brockton to cover up illegal break-ins, according to local news reports. Leite was ordered to undergo a psychiatric examination.

Top photo: The screen shot taken from a video posted on YouTube shows the replica State House at the Brockton Fairgrounds engulfed in flames.