Blanket Fifth Amendment Claim by Insured Who is a Grand Jury Target Does Not Allow Insured to Avoid Examination Under Oath
September, 2002
In State Farm Indemnity Co. v. Warrington, 795 A.2d 324 (N.J. App 2002), the New Jersey Appellate Division reversed and remanded a trial court decision which allowed an insured to refuse to answer any questions at an examination under oath (“EUO”). The appellate court held that an insurer conducting a fraud investigation can rely upon the contractual duty of the insured to appear for an EUO and to answer questions despite the fact that the claim had already been paid and the insured has received notice that he is a target of a state grand jury investigation.
Facts
The insured was injured in an automobile accident in 1997 and received almost $23,000.00 in Personal Injury Protection benefits under his automobile policy. Defendant obtained medical treatment from a corporation for which he served as a member of its board of directors. In January 2001, his insurer noticed an EUO pursuant to defendant’s contractual obligation to cooperate. The corporation was being investigated by a state grand jury for insurance fraud and the insured had been served with a grand jury subpoena. The suspected fraud involved the corporation’s chiropractic office, which had inappropriate inside access to police accident reports which led to efforts to recruit accident victims for medical treatment at the corporation’s offices. The insured had received a notice from the deputy attorney general that he was a target of the grand jury investigation. The insured refused to appear for the EUO and convinced a county judge to enter an order permitting him to refuse to answer any questions during an EUO.
Analysis
The court noted that there was an insufficient factual connection between the state grand jury investigation and the insurer’s investigation into possible fraud in the receipt of PIP benefits by the insured. Yet, in this writer’s view, even if the grand jury and the insurer were investigating an identical transaction, the court would rule no differently than it did. In other words, this is a factual distinction making no material difference.
The defendant’s claim of a right not to answer any questions based upon the Fifth Amendment had insufficient legal support. The court acknowledged the general proposition that the Fifth Amendment entitles one to refuse to testify at a criminal trial and refuse to answer official questions put in any other proceeding, civil or criminal, formal or informal, where the answers might incriminate one in future criminal proceedings. However, the court made an important distinction. First, there are “other proceedings” which are the result of state statutes or other state rules which compel testimony by providing that the alternative is loss of employment position or of ability to qualify to contract with the government. Secondly, the facts in this case concern an EUO which involves no state action compelling testimony and is more of a private proceeding. In this regard, the court criticized an older Kansas decision which characterized an insurer conducting itself pursuant to an Arson Reporting Immunity Act as the equivalent of a state agent for Fifth Amendment purposes.
The court emphasized that the status of this case was too immature to allow a court to rule properly upon a Fifth Amendment claim, since the EUO desired by the insurer could include questions not interfering with the Fifth Amendment privilege. Also, any court must address the materiality of each specific question before ruling whether it was proper, or was objectionable on Fifth Amendment grounds. The court mentioned the option of staying the EUO until resolution of the criminal proceedings, unless the insurer can establish some overriding urgency in its investigation. The most frequent outcome in these situations is that the insured can pursue either its insurance claims or its Fifth Amendment claims, but not both.
Learning Point:
Even where an insured is identified as a target of a grand jury investigation, and the insurer paid the claim long ago, an insurer can still compel an insured to appear for an EUO to answer questions as a result of the continuing contractual duty of the insured to cooperate with the insurer. That duty does not expire with the payment of the claim. Mentioned only in passing by the court, but implicit in its opinion, is the right of the insurer to recover any prior payment induced by fraud.
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