QBE Seguros v. Morales-Vazquez

Filing 111

OPINION AND ORDER denying 35 motion to strike/dismiss. The parties are strongly urged to explore settlement in this case. Signed by US Magistrate Judge Bruce J. McGiverin on February 27, 2017.(McGiverin, Bruce)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

QBE SEGUROS,
Plaintiff,
Civil No. 15-2091 (BJM)

v.
CARLOS MORALES-VAZQUEZ,
Defendant.

OPINION AND ORDER
QBE Seguros (“QBE”) brought this action under the court’s admiralty jurisdiction
against Carlos Morales-Vazquez (“Morales”), seeking a declaratory judgment voiding
Morales’s marine insurance policy. Docket No. 14 (“Am. Compl.”). Morales
counterclaimed and moved to dismiss the amended complaint, arguing that QBE
improperly obtained his statements during an examination under oath (“EUO”) because
that examination did not abide by Federal Rule of Civil Procedure 27. Docket No. 35. QBE
opposed. Docket No. 37. The case is before me on consent of the parties. Docket No. 47.
For the reasons set forth below, the motion to dismiss is DENIED.
BACKGROUND
QBE is a Puerto Rico corporation authorized by the Puerto Rico Insurance
Commissioner’s Office to sell ocean marine insurance. Am. Compl. ¶ 4. In March 2014,
Morales applied to have QBE insure his 48’ yacht. Id. ¶¶ 6, 7. The application form states
that the “answers provided [in the application] are warranted by [the applicant] to be true
and correct.” Id. ¶ 26. Based on the information contained in the application, QBE issued
a marine insurance policy that ran from March 2014 to March 2015. Id. ¶¶ 6–9. The marine
insurance policy states that the “information provided in the Application is warranted by
[the insured] to be true and correct in all respects.” Id. ¶ 25. The policy adds that it “shall
be void and without effect” if the insured made a false statement or representation with

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respect to the insurance, or concealed or misrepresented any material fact or circumstance
relating to the insurance. Id. ¶ 25.
In October 2014, the 48’ yacht sustained damage as a result of a fire. Id. ¶¶ 10–12.
Morales informed QBE of the damage, and QBE immediately began investigating the
claim. Id. Morales’s insurance policy provides that in the event of any loss covered by the
policy, he must cooperate with QBE in the investigation, defense, or settlement of any loss,
as well as “agree to be examined under oath if” QBE so requests. Docket No. 14-1 at 15 ¶
3. Another clause in the policy similarly provides that Morales must “[s]ubmit to an
Examination Under Oath if” QBE so requests. Id. at 15 ¶ 9. And the policy cautions that
failure to submit to the examination under oath “will result in the denial of” the insurance
claim. Id. After Morales reported the loss of the 48’ yacht, QBE asked Morales to
participate in an examination under oath that took place in August 2015. Am. Compl. ¶ 17.
During the EUO, Morales allegedly made statements which indicated that he had not been
completely forthcoming in the application to insure his 48’ yacht. Id. ¶¶ 17–23.
DISCUSSION
Morales complains that the examination under oath did not comply with the
requirements for taking a deposition pursuant to Federal Rule of Civil Procedure 27, that
any statements obtained during the EUO should thus be stricken from the amended
complaint, and that, without those alleged statements, the amended complaint fails to state
a claim. Docket No. 35. QBE counters that Morales’s argument flows from a defective
premise because an examination under oath need not comply with the Federal Rules of
Civil Procedure. Docket No. 37.
Federal Rule of Civil Procedure 27 is meant “to apply to situations where, for one
reason or another, testimony might be lost to a prospective litigant unless taken
immediately, without waiting until after a suit or other legal proceeding is commenced.”
Petition of Ferkauf, 3 F.R.D. 89, 91 (S.D.N.Y. 1943). A district court may authorize a
deposition under this Rule “where: (1) the anticipated action is within federal jurisdiction;

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(2) the petitioner is presently unable to bring or cause to be brought the underlying action;
and (3) there is a reason or need to perpetuate the testimony sought.” Petition of State of
N.C., 68 F.R.D. 410, 412 (S.D.N.Y. 1975). The aim of an examination under oath, on the
other hand, is not the same––the “purpose of an examination under oath is to obtain
information as part of the insurer’s investigation of the insured’s claim rather than for
litigation.” Zavakos Enterprises, Inc. v. St. Paul Surplus Lines Ins. Co., No. 3:04-CV-381,
2006 WL 83502, at *6 (S.D. Ohio Jan. 12, 2006); Sarkisyants v. State Farm Mut. Auto. Ins.
Co., No. C 04-03299 JSW, 2005 WL 3097735, at *3 (N.D. Cal. Nov. 14, 2005) (same),
aff'd, 256 F. App’x 52 (9th Cir. 2007).
The source of the right to an examination under oath, as well as the procedures that
govern such an examination, are also distinct. As the Eleventh Circuit explained, “the right
to obtain sworn statements” during an examination under oath “arises from the policy
provisions,” and the right is thus “contractual in nature.” United States Fid. & Guar. Co. v.
Welch, 854 F.2d 459, 461 & 461 n.1 (11th Cir. 1988) (“the District Court did not ignore”
the “distinction” between a deposition and an examination under oath). For this reason, the
right to conduct such an examination “is not to be confused with procedures authorized by
statute for taking depositions.” Id.; see also Royal Bahamian Ass’n, Inc. v. QBE Ins. Corp.,
No. 10-21511-GOODMAN, 2010 WL 4123989, at *2 (S.D. Fla. Oct. 20, 2010) (“generally
an examination under oath is not the same as a deposition,” and “during an examination
the examinee may lack certain ‘safeguards’ available to deponents (e.g., the formal
applicability of the Federal Rules of Civil Procedure)”); Thomas J. Schoenbaum, 2
Admiralty & Mar. Law § 19-20 (5th ed.) (“in marine insurance as well as in other categories
of insurance,” all “conditions precedent to coverage and payment should be met,” including
an “examination under oath of the insured,” if the policy so provides).
National Athletic Sportswear, Inc. v. Westfield Insurance Co., 528 F.3d 508 (7th Cir.
2008), aptly illustrates that the Federal Rules of Civil Procedure do not apply to an
examination under oath permitted by an insurance contract. In that case, the insurance

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contract expressly permitted an examination under oath of the insured. Id. at 513. After the
insured submitted a claim, the insurance company asked plaintiff’s employee to participate
in an examination under oath. Id. at 514. That examination “lasted about seven or eight
hours,” and the insured refused to allow further examinations under oath. Id. at 521. In
contending that it was unreasonable to ask the insured to submit to an additional EUO, the
insured relied upon “the Federal Rules of Civil Procedure.” Id. The district court––and the
Seventh Circuit––held that “the Federal Rules of Civil Procedure are not authoritative or
dispositive regarding the contractual obligations at issue here.” Id. Instead, the contractual
provisions governed the examination under oath, and the “Federal Rules in this context are
at best only persuasive or analogous.” Id.; see also Zavakos Enterprises, 2006 WL 83502,
at *6 (the “procedures” governing the EUO “are . . . different particularly because an
examination under oath is not subject to the rules of procedure or evidence”).
In this case, it is uncontested that Morales’s marine insurance policy has at least
two unambiguous clauses that require him to submit to an examination under oath.
Accordingly, QBE had a right––arising under the marine insurance contract––to ask
Morales that he participate in the August 2015 EUO. Morales now complains that this
examination should have complied with the Federal Rules of Civil Procedure. But as in
National Athletic Sportswear, where the Seventh Circuit rejected the insured’s argument
that the Federal Rules of Civil Procedure mandated the procedures governing the EUO,
Morales’s argument that QBE had to abide by Federal Rule of Civil Procedure 27 prior to
conducting the EUO is similarly misplaced. See National Athletic Sportswear, 528 F.3d at
521; see also Shelter Ins. Cos. v. Spence, 656 S.W.2d 36, 38 (Tenn. Ct. App. 1983) (“the
taking of a statement under the cooperation clause in an insurance policy does not rise to
the dignity of taking a deposition under” Tennessee Rule of Civil Procedure 27––a state
analog to Federal Rule of Civil Procedure 27). Thus, because Morales’s argument lacks
merit, and because this court has previously determined that the amended complaint states
a plausible claim for relief, the motion to dismiss is denied. See Docket No. 80.

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CONCLUSION
For the foregoing reasons, Morales’s motion to dismiss is DENIED. The parties
are strongly encouraged to continue exploring the possibility of settlement.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 27th day of February 2017.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge