Dolan v. Kemper Independence Ins. Co.

Panel: Graeff, Nazarian, Arthur, JJ. Arthur, J. ⁶¹³ This appeal stems from a declaratory judgment action in which appellee Kemper Independence Insurance Co. sought to establish that it had no duty to pay underinsured motorist (UIM) benefits to appellant Gary Dolan. In support of its position, Kemper cited Mr. Dolan's unwillingness to participate in an examination under oath (EUO). Kemper argued that, by refusing to submit to an EUO, Mr. Dolan had breached the insurance contract.

Kemper also argued that, under its policy, submission to an EUO was a condition precedent to Mr. Dolan's ability to file suit against Kemper for breach of contract. The Circuit Court for Anne Arundel County declared that Mr. Dolan was not entitled to UIM benefits under the policy. Mr. Dolan appealed. We affirm.

FACTUAL AND PROCEDURAL HISTORY The parties stipulated to the relevant facts: On October 27, 2010, Mr. Dolan was a passenger in a vehicle operated by Windy Marie Dolan. The vehicle was involved in an accident. Mr. Dolan sustained injuries as a result of the accident. Mr. Dolan's parents had an automobile insurance policy with Kemper.

Mr. Dolan claimed UIM benefits as a "family member" under his parents' policy. 1 Section III, Part E, of the policy that Kemper issued to Mr. Dolan's parents states, in pertinent part, as follows: We have no duty to provide coverage under this policy unless there has been full compliance with the following duties: * * * B. A person seeking any coverage must: ⁶¹⁴ 1. Cooperate with us in the investigation, settlement or defense of any claim or suit. * * * 3. Submit, as often as we reasonably require: * * * b. To examination under oath and subscribe the same.

Under Section II, Part F, of the Kemper policy, "No legal action may be brought against [Kemper] until there has been full compliance with all the terms of this policy." Sometime in late 2010 or early 2011, Kemper became aware of the accident in which Mr. Dolan was injured. Anticipating that Mr. Dolan might make a claim for UIM benefits, Kemper requested that he give a recorded statement. Mr. Dolan's counsel denied the request. On March 10, 2011, Kemper sent a formal request for a recorded statement via a letter to Mr. Dolan's counsel.

Counsel denied that request as well. ⁷⁴⁴ On April 12, 2011, Kemper, through counsel, sent a written request for an EUO to Mr. Dolan's counsel. Two days later, Mr. Dolan's counsel responded by email, stating that Kemper was not entitled to an EUO until Mr. Dolan made a formal claim for UIM benefits. On August 8, 2011, Kemper received a letter from Mr. Dolan's counsel. The letter represented that Ms. Dolan's insurer, Nationwide Mutual Insurance Co., had tendered its policy limits of $50,000 in settlement of Mr. Dolan's claims against her.

Under Md. Code (1996, 2006 Repl. Vol.), § 19-511 of the Insurance Article, as it read in 2011, Kemper had 60 days from August 8, 2011, to decide whether to consent to the settlement. If Kemper consented to the settlement, it would waive its right to "contest the issues of tort liability" in Mr. Dolan's action to recover on the policy. Maurer v. Pennsylvania Nat'l Mut.

Cas. Ins. Co. , 404 Md. 60 , 75, 945 A.2d 629 (2007) ; Morse v. Erie Ins. Exch. , 217 Md. App. 1 , 21, 90 A.3d 512 (2014), aff'd sub nom. ⁶¹⁵ Woznicki v. GEICO Gen.

Ins. Co. , 443 Md. 93 , 115 A.3d 152 (2015). If, however, Kemper refused to consent to the settlement, it was required to pay the amount of the settlement offer to Mr. Dolan in order to preserve its defenses in a UIM claim. 2 On September 22, 2011, Kemper notified Mr. Dolan, in writing, that it would not consent to Nationwide's settlement offer. On the same day, Kemper advanced the $50,000 that it was required to pay to preserve its right to contest issues of tort liability.

Mr. Dolan accepted Kemper's check, thereby triggering his UIM claim against the Kemper policy. 3 At some point after the claim was triggered, Kemper requested an EUO. The record does not reflect what response, if any, Kemper received. On October 28, 2011, Mr. Dolan's counsel wrote to Kemper's counsel. The letter transmitted information about Mr. Dolan's injuries, requested information about the dollar amount of UIM coverage under the Kemper policy, and asked whether Kemper would tender the policy limits.

The letter confirms that by that date Mr. Dolan had made a formal claim for UIM benefits. On November 7, 2011, Kemper's counsel wrote to Mr. Dolan's counsel. In that letter, Kemper's counsel confirmed an agreement with Mr. Dolan's counsel that Kemper was entitled to an EUO. Kemper's counsel requested dates for the EUO.

On November 13, 2011, Kemper's counsel sent a follow-up email to Mr. Dolan's counsel, offering proposed dates for an EUO. Mr. Dolan's counsel did not respond to the email. ⁶¹⁶ Instead, on November 23, 2011, Mr. Dolan filed a complaint with the Circuit Court for Anne Arundel County. The complaint alleged a negligence claim against Windy Marie Dolan, the driver of the car in which Mr. Dolan was injured. The complaint also alleged a breach of contract claim against Kemper for failing to pay UIM benefits.

On December 5, 2011, counsel for Kemper spoke to counsel for Mr. Dolan to follow up on the scheduling of an EUO. Mr. Dolan's counsel said that an assistant at the firm would secure a date for the ⁷⁴⁵ EUO. Kemper's counsel confirmed the discussion in a letter of the same date. On December 9, 2011, Mr. Dolan's counsel called Kemper's counsel to inform him that Mr. Dolan had filed suit.

Mr. Dolan's counsel asserted that Mr. Dolan would submit to a deposition, but would not appear for an EUO. In a conversation with Kemper's counsel on February 14, 2012, counsel for Mr. Dolan confirmed that his client would not submit to an EUO and that a deposition would give Kemper everything that it was entitled to receive. Kemper confirmed Mr. Dolan's refusal to submit to an EUO in a letter dated February 15, 2012. On the following day, Kemper formally denied Mr. Dolan's claim for UIM benefits.

At some point thereafter, Mr. Dolan was found to be incompetent to stand trial against criminal charges in an apparently unrelated case. As a result of that finding, the circuit court stayed Mr. Dolan's lawsuit against Ms. Dolan (the driver) and Kemper. Even after Mr. Dolan was later found to have regained his competence, the court continued the stay, so that Kemper could file a complaint for declaratory relief. On May 11, 2016, Kemper filed its complaint.

In brief, Kemper asked the court to declare that the policy required Mr. Dolan to submit to an EUO as a prerequisite to receiving UIM coverage and that Mr. Dolan had breached the contract with Kemper by refusing to submit to an EUO. Pending the adjudication of Kemper's complaint for declaratory relief, the circuit court continued the stay of Mr. Dolan's tort claim ⁶¹⁷ against the driver and his breach of contract claim against Kemper. Although the circuit court initially denied Kemper's motion for summary judgment, Kemper and Mr. Dolan eventually agreed upon a set of stipulations concerning the universe of relevant facts. The parties submitted the stipulations to the circuit court, along with legal argument on their respective positions.

On March 20, 2017, the circuit court conducted what was nominally a bench trial, but was really more in the nature of a hearing on a summary judgment motion, because no facts were in dispute. 4 After the hearing, the court issued a written declaratory judgment, in which it concluded: that submitting to an EUO administered by Plaintiff Kemper was a condition precedent to him receiving UIM benefits under the insurance policy issued by Plaintiff Kemper, that Defendant Gary Dolan's failure to do so amounted to a material breach of the insurance contract, and that Defendant Gary Dolan is not entitled to receive UIM benefits under the insurance policy issued by Plaintiff Kemper. Mr. Dolan noted a timely appeal. QUESTION PRESENTED Mr. Dolan presents one question for our review: Did the trial [c]ourt err by finding that Appellant had breached his contract with Appellee by filing a law suit against Appellee before submitting to an Examination Under Oath? Mr. Dolan's question misstates the circuit court's conclusion, as well as Kemper's coverage position.

Kemper did not deny coverage because Mr. Dolan had filed suit before submitting ⁷⁴⁶ to an EUO. Although the express language of the Kemper policy prohibits legal action against ⁶¹⁸ Kemper unless the insured has complied with all of the policy terms (including the term requiring the insured to submit to an EUO), Kemper attempted to persuade Mr. Dolan to submit to an EUO even after he had filed suit. Kemper denied coverage because of Mr. Dolan's continued refusal to submit to an EUO, not because he had filed suit before submitting to an EUO. Similarly, the circuit court did not conclude that Mr. Dolan breached the contract by filing suit against Kemper before he had submitted to an EUO.

To the contrary, in remarks in open court, the circuit court recognized that even after he had filed suit, Mr. Dolan could have complied with the request for an EUO by dismissing the case without prejudice (which he could safely do, as the statute of limitations would not run for almost two years), submitting to the EUO, and then refiling. The circuit court's conclusions, accurately characterized, were (1) that submitting to an EUO was a condition precedent to receiving UIM benefits under the policy and (2) that Mr. Dolan materially breached the policy by refusing to submit to an EUO-whether before or after he filed suit. Consequently, we shall rephrase the question presented to accurately reflect the court's conclusions: Did the circuit court err in concluding that, by failing to submit to an EUO, Mr. Dolan failed to satisfy a condition precedent to receiving benefits under the Kemper policy and materially breached the insurance contract? For the reasons set forth below, we answer that question in the negative and affirm.

STANDARD OF REVIEW Maryland Rule 8-131(c) governs "[o]ur review of a trial court's declaratory judgment regarding the scope of coverage under an automobile insurance policy[.]" Agency Ins. Co. v. State Farm Mut. Auto. Ins.

Co. , 193 Md. App. 666 , 671, 998 A.2d 936 (2010) (citing Mundey v. Erie Ins. Grp. , 167 Md. App. 444 , 450-51, 893 A.2d 645 (2006), aff'd , 396 Md. 656 , 914 A.2d 1167 (2007) ). Rule 8-131(c) states: ⁶¹⁹ When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.

Because the parties stipulated to the relevant facts, the court made no factual findings. The sole issue before us is the correctness of the conclusions of law. We conduct a de novo review of those conclusions. Bartlett v. Portfolio Recovery Assocs., LLC , 438 Md. 255 , 272, 91 A.3d 1127 (2014) ("[i]t is well established that pure conclusions of law are reviewed de novo"); Agency Ins.

Co. v. State Farm Mut. Auto. Ins. Co. , 193 Md. App. at 672 , 998 A.2d 936 .

DISCUSSION Automobile insurance policies commonly contain a provision requiring an insured to submit to an EUO. "Generally, during an EUO, an insurer is 'entitled to conduct a searching examination, though all questions should be confined to matters relevant and material to the loss.' " Phillips v. Allstate Indemn. Co. , 156 Md. App. 729 , 743, 848 A.2d 681 (2004) (quoting 13 COUCH ON INSURANCE § 196:11, at 196-20 (3d ed. 2003) ). The purpose of an EUO is to assist in the evaluation of a claim, so that the insurer can decide whether to pay ⁷⁴⁷ it without the necessity of litigation.

See Goldman v. State Farm Fire Gen. Ins. Co. , 660 So.2d 300 , 305 (Fla. Dist.

Ct. App. 1995) ; Brizuela v. CalFarm Ins. Co. , 116 Cal.App.4th 578 , 10 Cal.Rptr.3d 661 , 671-72 (2004). An EUO may also assist in protecting an insurer against false claims. Fineberg v. State Farm Fire & Cas.

Co. , 113 N.C.App. 545 , 438 S.E.2d 754 , 755 (1994). While no Maryland case has discussed the precise contours of an EUO, courts from other states have observed that an EUO is not subject to the rules of civil procedure. See, e.g. , Brizuela v. CalFarm Ins. Co. , 10 Cal.Rptr.3d at 672 .

Thus, for example, the insured's attorney has no right to examine the insured at an EUO. Id. ⁶²⁰ It is beyond any dispute that an insured breaches the insurance contract when he or she refuses to submit to an EUO. In Phillips v. Allstate Indemn. Co. , 156 Md. App. at 743 , 848 A.2d 681 , this Court held that an insured breached the contract when he appeared at an EUO, but refused "to answer relevant, material questions." We reasoned that the failure to answer "questions that are relevant and material to an insurer's liability for a loss and the extent of that loss" "constitutes a failure to comply with a policy requirement to submit to an EUO." Id. at 745 , 848 A.2d 681 .

Furthermore, we concluded that the breach entitles the insurer to disclaim coverage even in the absence of a showing of actual prejudice. Id. at 746-47 , 848 A.2d 681 . 5 If a party commits a material breach of an insurance contract by appearing at an EUO but failing to answer some relevant and material questions, then the total failure to submit to an EUO at all must certainly constitute a material breach as well. Indeed, numerous courts from other states have held that the unexcused failure to appear at an EUO constitutes a material breach that permits an insurer to disclaim coverage. Laine v. Allstate Ins.

Co. , 355 F.Supp.2d 1303 , 1306 (N.D. Fla. 2005) ; Wiles v. Capitol Indem. Corp. , 215 F.Supp.2d 1029 , 1031 (E.D. Mo. 2001) ; Wingates, LLC v. Commonwealth Ins. Co. of Am. , 21 F.Supp.3d 206 , 218 (E.D.N.Y. 2014), aff'd , 626 F. App'x 316 (2d Cir. 2015) ; ⁶²¹ Standard Mut. Ins.

Co. v. Boyd , 452 N.E.2d 1074 , 1079 (Ind. Ct. App. 1983) ; Mello v. Hingham Mut. Fire Ins. Co. , 421 Mass. 333 , 656 N.E.2d 1247 , 1250 n.5 (1995) ; see also U.S. Fid. & Guar.

Co. v. Wigginton , 964 F.2d 487 , 490 (5th Cir. 1992) ("the failure to submit to examination voids the policy as a matter of law") (applying Mississippi law); Archie v. State Farm Fire & Cas. Co. , 813 F.Supp. 1208 , 1212 (S.D. Miss. 1992) (stating that "an insured's refusal to submit to an examination under oath in violation of the express provisions of the insurance policy renders the policy void"); ⁷⁴⁸ Lorenzo-Martinez v. Safety Ins. Co. , 58 Mass.App.Ct. 359 , 790 N.E.2d 692 , 695-96 (2003) (stating that "a wilful, unexcused refusal to submit to an examination under oath, without proof of actual prejudice to the insurer's interests resulting from the refusal, constitutes a material breach of the insurance contract discharging the insurer's liability under the contract"); Azeem v. Colonial Assur. Co. , 96 A.D.2d 123 , 124, 468 N.Y.S.2d 248 (N.Y. App. Div. 1983) ("Plaintiff's failure to comply with the terms of the policy provision requiring submission to an examination under oath constitutes a material breach of the insurance contract and is an absolute defense to suit on the policy"), aff'd , 62 N.Y.2d 951 , 479 N.Y.S.2d 216 , 468 N.E.2d 54 (1984). 6 It is also beyond any dispute that an insured cannot pursue a claim against an insurer if he or she has failed to satisfy a condition precedent to coverage.

For example, in Huntt v. State Farm Mut. Auto. Ins. Co. , 72 Md. App. 189 , 198, 527 A.2d 1333 (1987), this Court affirmed the entry of summary judgment against an insured who had failed to comply with a contractual condition precedent that required her to submit to a physical examination that would allow the ⁶²² insurer to