...determine whether the insured had a motive for committing fraud. 48
A “material” breach of the EUO requirement can be a bar to suit and/or recovery. 49 While some courts apply a “strict compliance” standard, most courts, including Illinois courts, apply a “substantial compliance” standard in determining whether a breach of the EUO requirement was material. Substantial compliance depends on (a) whether an insured cooperated or engaged in a pattern of non-compliance and (b) whether an insured provides a reasonable justification, explanation, or excuse for non-compliance. 50 An insured’s reliance on the advice of counsel in refusing to answer questions at an EUO is not a reasonable excuse for failing to comply with the EUO requirement; 51 but, death, physical or mental disability, and deportation are reasonable excuses. 52 Under a substantial compliance standard, the non-compliance may be cured, either by abating or staying litigation, or by a deposition, provided the insurer was not substantially prejudiced. 53 An insured who believes it has a reasonable basis for refusing to comply with the insurer’s demand for an EUO should promptly file a declaratory judgment action seeking a determination of its rights and obligations under the policy. 54
An insured’s breach of the EUO requirement can be imputed to an innocent co-insured (another insured who complied with the EUO requirement such as a spouse) if (a) the obligation to submit to an EUO is a “joint” as opposed to a “severable” or “independent” obligation among multiple insureds 55 and (b) the joint obligation provision is consistent with any mandatory minimum level of protection afforded by statute, such as the Standard Fire Policy. 56
Property insurance policies invariably contain a provision traditionally referred to in the insurance industry as the “fraud and false swearing” clause, which operates to void coverage if an insured intentionally conceals or misrepresents a material fact concerning (a) the coverage, (b) the covered property, (c) the insured’s interest in the covered property, or (d) a claim under the coverage. 57
To work a forfeiture and to void coverage under a “fraud and false swearing” clause, the concealment or misrepresentation must be made by the insured knowingly and willfully regarding a material matter with the intent to deceive and to defraud the insurer. 58 An innocent mistake or mere inadvertence, however, cannot sustain a charge of fraud or false swearing. 59 Also, it does not follow that an insured is guilty of fraud or false swearing simply because there is a difference of opinion on the value of insured property, though an insured cannot inflate or exaggerate the value to gain a bargaining advantage in the settlement of the claim. 60
Materiality of a false statement is not determined by whether the false answer relates to a matter or subject that proves to be decisive or significant in the ultimate disposition of the claim. A false statement is material if it might have affected the attitude and the action of the insurer. 61 It also is material if it may be said to have been calculated either to discourage, mislead, or deflect the insurer’s investigation in any...