In its recent decision titled Zurich American Ins. Co. v. Diamond Title of Sarasota, Inc., 2011 U.S. Dist. LEXIS 52831 (M.D.Fla. May 17, 2011), the United States District Court for the Middle District of Florida had occasion to consider the duties imposed on an insured pursuant to a policy’s cooperation clause. Specifically, the court addressed whether the insured’s refusal to provide testimony at an examination under oath (“EUO”), and its failure to provide to the insurer’s requests for information, vitiated its right to coverage.
The policy at issue in Diamond Title was a professional liability policy issued to a title agency. The insured, Diamond Title, was sued for having improperly released funds from a client escrow account. Its principal, Lisa Rotolo, was later named as a defendant in a criminal complaint for alleged criminal conduct, including the conduct alleged in the underlying civil suit. Zurich agreed to provide Diamond Title with a defense in civil suit under a reservation of rights. When yet another claim was made against Diamond Title, however, Zurich exercised its right under the policy to conduct an EUO of Ms. Rotolo. Ms. Rotolo appeared for the EUO, but refused to give any relevant testimony, asserting her rights under the Fifth Amendment. Ms. Rotolo and Diamond Title also refused to provide any documents responsive to Zurich’s requests for information. Zurich commenced a declaratory judgment action against Diamond Title, seeking a declaration of noncoverage based on several grounds, including the insured’s breach of its duty to cooperate.
The court explained that under Florida law, an insured’s failure to cooperate will vitiate its right to coverage only when the failure is material, when the failure causes substantial prejudice to the insurer, and when the insurer exercised good faith and due diligence in attempting to secure the insured’s cooperation. Zurich argued that it was prejudiced as a result of Diamond Title’s refusal to answer questions at the EUO and its failure to provide responsive documents. Specifically, Zurich argued that Diamond Title’s conduct frustrated its ability to complete its investigation into whether additional facts existed that would warrant a denial of coverage. The court held, however, that Zurich’s assertion was not sufficient, under a summary judgment standard, to show prejudice. Fatal to Zurich’s argument was the court’s finding that “there may have been other means by which Zurich could obtain the necessary information. And there is no evidence that Zurich has attempted any other means of procuring information related to these claims.”