Claim Investigation: When the Insured Raises the Fifth Amendment Privilege

November 3, 2008

In rare cases an insured may face criminal exposure from a third-party liability producing event or because of a fraudulent claim submission in the first party property context. The latter typically arises with respect to arson claims.

Courts universally found the insured cannot use the Fifth Amendment to avoid the contractual obligation to cooperate with the insurance company in its investigation, and compel the insurance company to provide coverage. The insured’s assertion of the Fifth Amendment privilege typically arises after the claim presentation and the insurance company’s request for an Examination Under Oath (EUO).

Almost universally, the Fifth Amendment privilege does not circumvent the insurance company’s right to an EUO. Indeed, some courts have held the insured’s invocation of the Fifth Amendment privilege at the EUO constitutes a breach of the cooperation clause as a matter of law. However, some jurisdictions require the insurance company to demonstrate prejudice from the insured’s invocation of the privilege.

The insurance adjuster needs a basic understanding of how to process a claim when the insured has asserted the Fifth Amendment privilege. Central is the requirement that the insurance company be able to demonstrate it has made a substantial effort to obtain the insured’s cooperation in providing the necessary factual information regarding the claim. This can be accomplished by sending repeated requests for cooperation throughout the claim process.

Correspondence alone might not be enough. The insurance company should request a meeting with the insured, personally, or request an EUO.

An EUO is neither a “proceeding” nor an “action” as contemplated by the Fifth Amendment privilege against self-incrimination because an EUO does not involve state action. One court noted the freedom from compulsion and testifying secured by the Constitution is “a compulsion exercised by a state in a sovereign capacity in some manner known to the law … To bring a case within the constitutional immunity, it must appear that compulsion was sought under public process of some kind.” State Farm Indemnity Co. v. Warrington, 350 N.J.Super.

Providing information through an EUO regarding how the claim occurred is at the heart of the insured’s duty to cooperate, particularly when that information was peculiarly within the insured’s knowledge. MetLife Auto & Home v. Cunningham, 59 Mass.App.Ct.

The court in Cunningham made a relevant observation in finding the Fifth Amendment privilege did not afford the insured a sanctuary from obligation to cooperate. “It is not by the Commonwealth or by [MetLife] that [Cunningham] ‘is compelled to … furnish evidence against himself,’ but by his own contractual undertaking,” said the court. Oftentimes the insured’s personal statement on how the claim occurred is the sine qua non of any rational effort by the insurance company to assess its rights and obligations under the policy.

It is important for the claim representative to create a record of the insured’s assertion of the Fifth Amendment privilege. Therefore, in situations where the insured advises the insurance company the privilege has been invoked, it is important to lock down the fact of whether the insured will answer any questions regarding the claim. If the insured invokes the privilege and refuses to answer questions regarding the claim, the position should be documented in the claim file.

The insured’s invocation should also be confirmed in correspondence to the insured providing the insured with an opportunity to confirm or deny that the privilege has been invoked with such a broad sweep that no questions will be allowed.

On the other hand, if the insured does not assert a blanket invocation of the privilege, the claim representative should schedule the EUO so that areas covered by the privilege can be identified throughout the questioning. The insured can then commit, on record, to the parameters of the privilege invocation. If this is not done, the insurance company will be exposed to the argument that it did not adequately pursue the EUO to determine the scope of the privilege invocation as well as the fact of the privilege invocation.

In the first party context, the claim representative should document the file in a manner demonstrating reasonable attempts to process the claim in spite of the Fifth Amendment privilege against self-incrimination.

Document the file by identifying the reason for the invocation of the privilege. Is there a pending criminal proceeding? Is there the potential for an indictment or criminal proceeding to occur? Is the insured currently represented by counsel?

If so, direct all communication to the insured’s counsel regarding the claim investigation. If criminal proceedings have begun, it is important to determine when those criminal proceedings will come to a conclusion. An assessment should be made as to whether the claim can be stayed or suspended until the criminal proceedings have resolved. Oftentimes the insured will agree to a stay or suspension of the claim submission. Will the delay, however, prejudice the insurance company?

The claim representative should formally request an EUO. If the insured refuses, a letter should be sent to the insured setting forth the policy provisions which require the EUO as a matter of cooperation.

If the insured is not represented by counsel, the cooperation letter to the insured should be followed up with personal contact and the file documented accordingly. It is critical to document each attempt to contact the insured and the substance of any voicemail messages left in those instances where the insured was not reachable.

The voicemail message should indicate that the call was being placed in order to secure the insured’s cooperation in providing an EUO. At appropriate frequencies, letters should be sent to the insured advised the insured of the attempts that have been made to contact the insured regarding the issue of an EUO. Documentation in the form of external correspondence and claim file notes should be sufficient to overcome any due diligence challenge.

Where possible, the claim representative should explore with the insured whether the insured will permit some questions about the claim presentation even though other questions may be barred by the insured’s privilege invocation. If the insured permits limited questioning, then the examiner at the EUO should define the scope of the privilege by requiring the insured to assert the privilege on the record.

The examiner should not assume any specific question is off the table unless the insured specifically says so with the invocation of the privilege. It is possible, however, to categorize questions so that a statement by the insured asserting the privilege can cover any questions regarding that topic.

This should be specifically addressed with the insured, i.e., if I asked you any questions about blank, is it fair to say you will assert the privilege against self-incrimination? Do I need to ask each of the questions anyway or will you just simply agree that no further questioning is necessary in this topical area because of your assertion of the privilege to all questions in that area?

This approach should be sufficient to protect the claim file and record against any finding by a court that there was a lack of diligence on the part of the insurance company.

Steven Plitt is a national legal expert on insurance law and insurance agent issues. He is the author of the current national treatise, Couch on Insurance 3D.

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