Commercial Property |
Examination Under Oath |
Material Breach Of A
Condition Precedent |
Cape Cod Custom Home
Theater, Inc. (Cape Cod) sold and installed high-end home theater audio and
video equipment. It filed a claim for a substantial amount with Hanover
Insurance Company (Hanover) under a business owner's policy for a loss due to a
reported break-in at its premises on July 17, 2002. Hanover investigated the
claim promptly and, suspecting that the break in may have been an "inside
job" because of a number of suspicious factors, requested that Cape Cod
produce certain financial documents and agree to be examined under oath. Cape
Cod did not appear at the first scheduled examination, did not explain why, and
was not responsive in providing the requested material at two subsequent
scheduled examinations. It did not produce the requested financial records
until Hanover filed this action on January 13, 2003, seeking a judgment
declaring that it was relieved of its obligation to Cape Cod for the claimed
loss due to its failure to cooperate.
The trial court determined
that Cape Cod had committed a material breach of its obligations and doing so
prejudiced Hanover. However, it also determined that such prejudice could be
resolved by an order that required Cape Cod to pay Hanover's costs and attorney
fees and refused Hanover's request for declaratory relief. It stated that, while
Cape Cod violated provisions that required its cooperation to Hanover's
prejudice, the prejudice could be and was ordered resolved, resulting in the
breaches not warranting Hanover's denial of coverage. It also stated that
Hanover did not prove that coverage did not apply because of concealment,
misrepresentation or fraud. Hanover appealed, maintaining that the trial court
erred by failing to declare that Cape Cod's material breach of a condition
precedent precluded its recovery.
The appellate court did not
find a serious question that Cape Cod's conduct constituted a material breach
of the policy. The only question it had was whether the breach admitted any
remedy short of precluding Cape Cod's recovery under the circumstances.
Previous case law on this subject indicated that an insurance company's
reasonable request for an examination under oath is strictly construed as a
condition precedent to its liability, especially to weed out fraud. It
determined that Cape Cod's willful, unexcused refusal to comply with a
reasonable request for an examination under oath constituted a material breach
of a condition precedent in the insurance policy and discharged Hanover's
obligations without it showing prejudice under the circumstances. It affirmed
the part of the judgment that declared that Cape Cod committed a violation and
material breach and vacated the trial court's judgment that declared that
Hanover was contractually obligated to provide coverage.
Appeals Court of
Massachusetts, Barnstable. Hanover Insurance Company v. Cape Cod Custom Home
Theater, Inc. No. 07-P-188. Argued Jan 18, 2008. Decided Aug 8, 2008. 72
Mass.App.Ct.331, 891 N.E.2d 703