The Massachusetts Appeals Court recently ruled that an Insured's willful, unexcused refusal to submit to an examination under oath violated the cooperation clause in its policy resulting in a material breach on the part of the Insured. See Hanover Ins. Co. v. Cape Cod Custom Home Theater, Inc., No. 07-P-188, 2008 WL 3115354 (Mass. App. Ct. Aug. 8, 2008) (a copy of the decision is available here). The Appeals Court further ruled that compliance with a reasonable request for an examination under oath was a condition precedent to coverage under the policy, the insurer did not need to show prejudice before denying coverage, the insured could not cure the breach, and, therefore, no coverage was available under the policy.

The case involved a claim filed under the insured's business owner insurance policy following a reported break-in at the insured's store. After an initial investigation, however, the insurer determined that there was reasonable cause to suspect that the break-in may have been an "inside job." To complete its investigation, therefore, the insurer requested that the insured produce certain financial records and participate in an examination under oath. In making those requests, the insurer relied on the policy's cooperation clause which required that the insured "'[c]ooperate with [the insurer] in the investigation or settlement of [any] claim' made under the policy, ... permit the insurer to examine its books and records, and . . . submit to examination under oath 'about any matter relating to [the] insurance or [a] claim brought under the policy.'"

The insured, however, failed to show up at the first scheduled examination, refused to answer "legitimate" and "reasonable" questions asked at the next two meetings and refused to produce any financial records until forced to do so by the trial court. In the underlying order, the trial court found that the insured had breached its obligations under the cooperation clause by acting unreasonably in refusing to answer legitimate questions and in failing to provide the requested financial documents. The trial court also ruled that this breach prejudiced the insurer, but found that such prejudice could be cured by requiring that the insured pay the insurer's costs and attorney's fees.

The Appeals Court disagreed. The Appeals Court declined to rule on whether the insured's failure to produce the requested financial documents could be cured. However, it ruled that the willful, unexcused refusal to comply with a reasonable request for an examination under oath provided a limited exception to the general rule that insurer must show that he had been prejudiced by an insured's breach of the duty to cooperate before denying coverage. According to the Appeals Court, therefore, the insured's failure to submit to an examination under oath was a material breach of a condition precedent to coverage under the policy and could not be cured. As a result, no coverage existed under the policy.