131_C113

Insured's Failure To Cooperate Relieved Carrier Of Its Obligation To Pay Claim

Commercial Property	Material Breach Of A Condition Precedent
Examination Under Oath	Theft

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 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 the trial court erred by failing to declare 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 which 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