In its recent decision in Johnson v. GeoVera Specialty Ins. Co., No. 15-30803, 2016 U.S. App. LEXIS 17530 (5th Cir. September 27, 2016), the United States Court of Appeals for the Fifth Circuit explored whether or not certain alleged breaches of a policy’s “cooperation clauses” precluded policy coverage.
GeoVera insured Johnson under a homeowner’s insurance policy. Johnson’s house sustained windstorm damage in a hurricane. Johnson’s house sustained fire damage in a separate event nearly two years later. Johnson sought coverage for both losses.
GeoVera, alleging that Johnson violated the policy’s “cooperation” clauses, denied coverage. GeoVera’s policy imposed the following duties of cooperation on Johnson: (1) “cooperate with GeoVera in the investigation of a claim,” (2) “prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss,” (3) “attach all bills, receipts and related documents that justify the figures in the inventory,” (4) “show the damaged property as often as GeoVera reasonably required,” (5) “provide GeoVera with requested records and documents,” and (6) “submit to examination under oath.” The policy provided that GeoVera would owe no coverage if Johnson’s breach of any cooperation duty prejudiced GeoVera.
The Court found Johnson in violation of numerous cooperation duties. Johnson invoked her contractual appraisal right under GeoVera’s policy, but demolished and remodeled a significant portion of the house before GeoVera could conduct its appraisal. Johnson “almost completely gutted the interior, performed extensive framing repairs, and then terminated the appraisal process.” GeoVera, after invoking its own contractual appraisal right, subsequently requested that Johnson produce “several videos and thousands of photos of the fire damage” known to be in Johnson’s possession. Johnson refused to provide the requested videos and photographs until well after the coverage litigation had commenced. Johnson refused to testify under oath regarding the incident until over a year following the loss. Johnson further refused to provide documentation justifying the figures in her proof-of-loss list. The Court concluded that Johnson had clearly not complied with Johnson’s cooperation duties under GeoVera’s policy.
The Court further held that Johnson’s non-compliance had prejudiced GeoVera. The Court held that noncompliance prejudices an insurer when an insured’s noncompliance frustrates two basic purposes of a policy’s cooperation clause: (1) “to enable the insurer to obtain relevant information concerning the loss while the information is fresh,” and (2) “to protect the insurer against fraud, by permitting it to probe into the circumstances of the loss.”
The Court identified several manifestations of prejudice against GeoVera. Johnson, in “significantly altering the state of [her] house before GeoVera’s agent could appraise it,” precluded GeoVera from accurately assessing the economic magnitude of the claimed fire damage. Johnson, by significantly delaying submission of probative videos and photographs depicting the claimed damage, forced GeoVera to “engage in an unorthodox, more expensive inspection process.” Johnson also prejudiced GeoVera by initially refusing to submit to examination under oath, because Johnson’s significant delay “caused Johnson to forget information vital to protect GeoVera from fraud during the claims process.”
The Court concluded that Johnson failed to comply with her duty to cooperate under GeoVera’s policy, and that Johnson’s noncompliance had prejudiced GeoVera. The Court accordingly denied coverage.