Eleventh Circuits Affirms Summary Judgment in Favor of Insurer Based on Homeowners Failure to Cooperate with the Insurer’s Investigation and Resolution of the Claims

by Traub Lieberman Straus & Shrewsberry LLP

In Hsu v. Safeco Ins. Co. of Ind., 2016 U.S. Dist. LEXIS 12407 (11th Cir. 2016), the Eleventh Circuit affirmed summary judgment in favor of Safeco Insurance Company of Indiana (“Safeco”), finding that the homeowner breached the contract of insurance. Safeco insured the plaintiffs under a homeowner’s policy, which included a Valuable Articles Schedule that listed six items of jewelry. Several months after Safeco issued the policy, there was a reported burglary at the insureds’ home and, as a result, several items went missing. The homeowners reported the claim to Safeco, asserting that nearly $295,000 in jewelry and $13,000 in personal property had been damaged or stolen. Safeco investigated the claim and sought production of various documents from the homeowners regarding their financial condition.

While Safeco’s investigation was pending, the homeowners filed suit, seeking to recover under policy. Safeco sought summary judgment on the grounds that the homeowners ignored repeated requests for the production of additional material information concerning their financial condition and, therefore, violated the terms of the policy which required them to comply with all terms and conditions before filing suit. The District Court for the Northern District of Georgia agreed, finding that the homeowners were barred from recovery because they failed to cooperate with their insurer in its investigation and resolution of the claim, as required by the policy, due to their failure to produce certain federal income tax returns.

On appeal, the homeowners argued that the district court erred in entering summary judgment because there was a genuine issue as to whether they acted in good faith in producing certain tax returns in their possession and authorizing Safeco to obtain tax returns directly from the IRS. The homeowners also argued that Safeco failed to act with diligence and in good faith by failing to procure the requested documents. The Eleventh Circuit affirmed the district court’s order. Applying Georgia law, the Court explained that “an insurer may require its insured to abide by the terms of his policy and cooperate with the insurer’s investigation as a precondition to recovery[]” … and “an insured’s failure to provide any material information called for under the policy constitutes a breach of the contract.” Id. at *3 (quotations and citations omitted). Where documents are unavailable, the insured has a duty to cooperate with the insurer to obtain or reconstruct the information from other available sources. Id.

The Eleventh Circuit explained that Safeco diligently sought to obtain the requested documents, yet the homeowners failed to cooperate. Specifically, during its investigation, Safeco requested the insureds’ income tax records, including all worksheets and scheduled. The insureds failed to provide the requested documentation and, instead, provided Safeco with a written authorization to permit Safeco to retrieve the documents directly from the IRS. Safeco attempted to retrieve the tax returns from the IRS, but the records were sent to the homeowners, instead of Safeco. Safeco sent several letters to the homeowners, asking them to forward copies of the tax records; however, its requests went unanswered. The homeowners offered no explanation for their failure to respond. Relying on Allstate Insurance Company v. Hamler, 247 Ga. App. 574 (Ga. Ct. App. 2001), the Eleventh Circuit agreed with the district court, finding that the homeowners breached their insurance contract as a matter of law due to their failure to produce the requested income tax returns and otherwise cooperate with Safeco in its investigation and resolution of the claim.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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