The Limits Of An Insured’s Obligations To Cooperate

(Note: This is part of a series on post-loss duties).

These days it is hard to find a topic on property insurance law that has not been previously discussed in some way on this blog. However, many new people join our blog each day, so I feel it is important to bring up previous posts in order to learn and build on what has been said before. In a previous blog, (Cooperation Clause Does Not Require Policyholder’s Slavish Obedience), Chip discussed the growing trend of insurers’ threatening letters to policyholders stating that a failure to comply with every single request could void coverage under the cooperation clause.

While it is true that a policyholder’s failure to cooperate with the investigation of a claim can result in a denial of coverage, it is important to note that the cooperation clause was not intended to enslave the policyholder and leave them at the mercy of a carrier’s overly burdensome and unreasonable requests.

As the previous post states, in Florida, carriers have a very high burden in order to void coverage with a cooperation clause defense. The carrier must show a number of things in order to prevail on this defense. While the Coconut Key Homeowners Ass’n v. Lexington Ins. Co., case required the insurer to show that there had been a material breach of the clause and that it had been substantially prejudiced as a result of the breach, previous Florida decisions have broken this test down into a four point test.

In Phila. Indem. Ins. Co. v. Kohne, 181 Fed.Appx. 888 (11th Cir. 2006), the court stated:

Under Florida law, an insurer is excused from its obligations under the cooperation clause if the insurer demonstrates: (1) the insured failed to cooperate; (2) the lack of cooperation was material; (3) the insurer suffered substantial prejudice as a result of the insured’s failure to cooperate; and (4) the insurer exercised diligence and good faith in trying to bring about the insured’s cooperation.

While this is essentially the same test stated in Coconut Key, it breaks the analysis down a few steps further and even ratifies that an insurer has an obligation to act in good faith to try and get the insured to cooperate. This prevents an insurer from being able to sit on its hands and wait for an insured to commit a perceived breach of the cooperation clause to deny coverage.

Other states have similar decisions and requirements. In Louisiana, the courts have held that an insured’s failure to submit an inventory and proof of loss on a fire claim, as well as an insured’s failure to submit to an examination under oath were material breaches of the cooperation clause and could therefore void coverage. Brantley v. State Farm Ins. Co., 865 So.2d 265 (La. App. 2nd Cir. 2004).

While failing to submit a proof of loss or inventory, as well as failing to sit for an EUO are possibly more likely to constitute a material breach, it is important to weigh each request a carrier makes. Guessing wrong may have a significant effect on the outcome of the claim, so it is always important to seek guidance from a professional source before refusing an insurers request. This way you can make sure that you have all the facts and the best guidance before making this type of important decision.