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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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' 

FI LED 

United Stares Court of Appeals 

Tenth Cirrni.r 

UNITED STATES COURT OF APPEALS JUL l 6 1990 

FOR THE TENTH CIRCUIT ROBERT L. HOECKER 

Clerk 

DAVID SYVERSON, 

Plaintiff-Appellant, 

v . 

) 

) 

) 

) 

) No. 89-2101 

) (D.C. No. 88-686-JC) 

FARMERS INSURANCE COMPANY OF ARIZONA, 

Defendant-Appellee. 

) (D. N.M.) 

) 

) 

ORDER AND JUDGMENT* 

Before ANDERSON, BARRETT, and BALDOCK, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a): 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

Plaintiff-appellant appeals the district court's order of 

March 29, 1989, dismissing his case with prejudice. Plaintiff 

instituted the underlying diversity action against 

defendant-appellee for alleged breach of contract, insurance bad 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 1 
., 

faith, and violation of the New Mexico Unfair Trade Practices Act, 

N.M. Stat. Ann. §§ 59A-16-l to 59A-16-30 (1978). 

On or about August 23, 1987, plaintiff's house in 

Albuquerque, New Mexico, allegedly was burglarized. A number of 

tools and a television set were stolen, and a door was damaged. 

Plaintiff had in effect at that time a homeowner's insurance 

policy issued by defendant which provided coverage for loss due to 

theft up to $46,200 and for loss due to damage up to $66,000. The 

policy provided that after a loss, the insured had a duty "as 

often as we reasonably require • [to] submit to examination 

under oath upon our request." The policy further stated: "We may 

not be sued unless there has been full compliance with all the 

terms of this policy. Suit on or arisihg out of this policy must 

be brought within one year after the loss." 

Defendant filed a motion to dismiss plaintiff's complaint 

pursuant to "Federal Rules of Civil Procedure 9(C), 12(B)(l), (6), 

(7) and 12(C)," with supporting affidavits, on the grounds that 

"Plaintiff has failed to submit to an examination under oath, 

refused to cooperate in Defendant's investigation of the loss and 

filed this action without satisfying the conditions precedent to 

suit." In response to defendant's motion, plaintiff filed a brief 

with supporting affidavits and other documents, the thrust of 

which was that the policy only required plaintiff to submit to an 

examination under oath when reasonably requested, and, under the 

circumstances of the case, defendant's request for an examination 

under oath was not reasonable. Plaintiff also asserted that he 

otherwise cooperated in defendant's investigation of the loss. 

2 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 2 
Pursuant to New Mexico law, a complaint which does not allege 

either the performance of all conditions precedent or a legal 

excuse for their nonperformance, does not state a claim for 

relief. See McCoy v. Torrance County Sav. Bank, 144 P. 283, 284 

(N.M. 1914); see also Mccasland v. Prather, 585 P.2d 336, 338 

(N.M. Ct. App. 1978)("Generally, a complaint on breach of contract 

must allege ••. a general averment of the performance of any 

condition precedent .... "). Plaintiff did not allege either 

compliance with the conditions precedent to suit contained in the 

insurance policy, or a legal excuse for his noncompliance. 

Therefore, the district court could have dismissed plaintiff's 

complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a 

claim for relief. Instead, the district court accepted and 

considered the affidavits and other documentary evidence submitted 

by the parties in support of their respective positions, thereby 

converting defendant's motion to dismiss into a motion for summary 

judgment under Rule 56. See Fed. R. Civ. P. 12(b); Nichols v. 

United States, 796 F.2d 361, 364 (10th Cir. 1986). 

We review a district court's ruling on summary judgment de 

novo, applying the same standard as the district court under Rule 

56(c). Abercrombie v. City of Catoosa, 896 F.2d 1228, 1230 (10th 

Cir. 1990). Rule 56(c) provides that summary judgment shall be 

granted if "there is no genuine issue as to any material fact and 

... the moving party is entitled to judgment as a matter of 

law." "When applying this standard, we are to examine the factual 

record and reasonable inferences therefrom in the light most 

favorable to the party opposing summary judgment." Abercrombie, 

3 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 3 
896 F.2d at 1230. The relevant inquiry is "whether the evidence 

presents a sufficient disagreement to require submission to a jury 

or whether it is so one-sided that one party must prevail as a 

matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 

251-52 (1986). 

The record, reviewed in the light most favorable t o the 

plaintiff, reveals the following. Upon discovery of the burglary 

on August 24, 1987, plaintiff notified the police and his 

insurance agent. At the request of his agent, plaintiff prepared 

a list of the stolen property which was seventeen pages long and 

contained a description of each tool stolen, the manufacturer 

thereof, the price, and in most instances either the place of 

purchase or the manufacturer's code number. 

During the first few weeks after the loss, plaintiff provided 

defendant with at least two recorded statements concerning the 

burglary, as well as the list of stolen property described above 

and all the receipts he had for the stolen items. Plaintiff 

contacted defendant several times during this period and inquired 

whether defendant needed any additional information to adjust his 

claim. Plaintiff was told that additional information was not 

needed and that his claim would be adjusted in several weeks. 

More than six weeks after the loss, however, when plaintiff called 

defendant to inquire about the delay in adjusting his claim, 

defendant said that plaintiff had to fill out more forms before 

the loss could be adjusted. Plaintiff filled out the forms and 

returned them to defendant promptly. 

4 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 4 
Approximately two weeks later, when plaintiff inquired again 

about the delay, defendant offered to settle plaintiff's $20,000 

claim for only $3,400. Plaintiff refused the offer. A month 

after plaintiff refused the settlement offer, defendant demanded 

for the first time that plaintiff submit to an examination under 

oath. Defendant subsequently threatened to file criminal charges 

against plaintiff if he did not settle his claim for $850.00. 

Plaintiff instituted the underlying action on June 10, 1988, 

before the expiration of the one-year statute of limitations in 

the policy, without having submitted to the requested examination 

under oath. 

Plaintiff argued before the district court that under the 

circumstances of this case, defendant's request for an examination 

under oath was not reasonable and, therefore, plaintiff did not 

violate the cooperation clause of his policy by refusing to submit 

to the examination. Plaintiff relied not only on the events 

described above, but on the affidavit of his expert witness, who 

opined that defendant's actions in investigating and adjusting 

plaintiff's claim violated industry standards and the New Mexico 

Unfair Trade Practices Act. 

Defendant argued in its brief before the district court that 

its request for an examination of plaintiff under oath was 

reasonable because "insufficient documentary evidence in support 

of the claimed loss was submitted by Mr. and Mrs. Syverson and, as 

a result of the investigation, other questions were raised 

regarding the validity and amount of the insureds' claimed loss." 

R. Vol. I, Doc. 5 at 4. At oral argument, counsel for defendant 

5 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 5 
presented more specific arguments for the examination. Counsel 

contended that the circumstances of plaintiff's claimed loss were 

suspicious. He pointed out that during the first week of August, 

1987, plaintiff, an auto mechanic at Frontier Ford, suffered brain 

damage from carbon monoxide poisoning and was unable to work; he 

left Frontier Ford, taking his tools home with him. Approximately 

three weeks later, plaintiff's house and garage allegedly were 

burglarized and approximately $20,000 worth of tools were stolen. 

A week or two later, plaintiff moved from New Mexico to 

Washington. 1 Counsel said that defendant had other evidence of 

fraud that it was not willing to disclose, except in camera. 

Counsel told the court that defendant questioned whether the 

tools stolen were used in business and, therefore, were subject to 

a $200.00 limit under the policy, and whether the receipts 

plaintiff provided were authentic. Furthermore, he said that the 

proof of loss plaintiff submitted contained the name of "Mai Lee 

Syverson," whom defendant believed to be plaintiff's wife. 

Defendant had questions as to who Mai Lee was, the extent of her 

insured interest, and why she was not named as a plaintiff in the 

case. 

An insured's alleged violation of the cooperation clause in 

an insurance policy is an affirmative defense upon which the 

insurer bears the burden of proof, even though satisfaction of the 

clause may be a condition precedent to suit by the insured. See 

State Farm Mut. Auto. Ins. Co. v. Koval, 146 F.2d 118, 120 (10th 

1 Counsel actually represented to the court that plaintiff's 

injury, burglary, and move to Washington occurred in three 

successive weeks. 

6 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 6 
Cir. 1944); MacClure v. Accident & Casualty Ins. Co., 49 S.E.2d 

742, 747 (N.C. 1948); Ausch v. St. Paul Fire & Marine Ins. Co., 

511 N.Y.S.2d 919, 922 (N.Y. App. Div.), appeal denied, 516 N.E.2d 

1223 (N.Y. 1987). Furthermore, whether an insured has violated 

the cooperation clause usually is a question of fact for the jury 

to decide. See Commercial Standard Ins. Co. v. Readnour, 241 F.2d 

14, 17 (10th Cir. 1956); Koval, 146 F.2d at 120. If the evidence 

is so one-sided that reasonable minds could not differ, however, 

an issue of fact may be determined as an issue of law on summary 

judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 

251-52. 

In its ruling from the bench, which subsequently was reduced 

to a brief written order and judgment, the court concluded "as a 

matter of law that no reasonable juror would find that 

[defendant] could not ask for [an examination under oath]." R. 

Vol. II, Trans. at 52-53. As a basis for its conclusion, the 

court noted that defendant reasonably could question whether 

plaintiff in fact had all the tools listed on the seventeen pages 

submitted by plaintiff, and that defendant would be reasonable in 

examining plaintiff to see if the information he had furnished 

defendant was correct in light of plaintiff's brain damage and 

consequent memory loss. Id. at 28, 42-43. The court also 

commented that plaintiff's reason for not being able to submit to 

examination in Albuquerque was "a little far fetched on its face," 

and noted that plaintiff filed his lawsuit "out of the blue 

without any discussions with the insurance company" just a few 

7 

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• 

days before the date on which he was to be examined in Washington. 

Id. at 37, 41. 

Based upon our review of the record on appeal, we agree with 

the district court that reasonable minds could not differ as to 

the reasonableness of defendant's request to examine plaintiff 

under oath. Therefore, the district court properly ruled on the 

reasonableness issue as a matter of law. 

Plaintiff contends that even if defendant's request for an 

examination under oath was reasonable, defendant must demonstrate 

that plaintiff's refusal to submit to the examination prejudiced 

it . See Foundation Reserve Ins. Co. v. Esquibel, 607 P.2d 1150, 

1152 (N.M. 1980). 

An insurance company may be liable to its insured for acting 

in bad faith if it refuses to pay a claim without a reasonable 

basis for its refusal. See Suggs v. State Farm Fire & Casualty 

Co., 833 F.2d 883, 890-91 (10th Cir. 1987), cert. denied, 486 U.S. 

1007 (1988). Therefore, an insurance company must be permitted to 

conduct a reasonable investigation of a claim to determine whether 

to deny or to pay the claim. By instituting suit against 

defendant without submitting to a reasonably requested examination 

under oath, plaintiff cut off defendant's investigation before 

defendant could determine whether a reasonable basis existed for 

denying plaintiff's claim. Plaintiff's offer to submit to a 

deposition under the Federal Rules of Civil Procedure after the 

suit was commenced did not cure the prejudice created by his 

refusal to be examined prior to the commencement of the suit. See 

Dyno-Bite, Inc. v. Travelers Cos., 439 N.Y.S.2d 558, 560-61 (N.Y. 

8 

Appellate Case: 89-2101 Document: 010110038389 Date Filed: 07/16/1990 Page: 8 
App. Div. 1981}; Lentini Bros. Moving & Storage Co. v. New York 

Property Ins. Underwriting Assoc., 428 N.Y.S.2d 684, 687 (N.Y. 

App. Div. 1980), aff'd, 422 N.E.2d 819 (N.Y. 1981). 

Furthermore, as defendant argued to the district court, the 

insurance policy at issue provided that if defendant and plaintiff 

failed to agree on the amount of the loss suffered, either could 

obtain an independent appraisal which would establish the amount 

of the loss. By filing suit before defendant could examine 

plaintiff and complete its investigation, plaintiff effectively 

eliminated defendant's right to an appraisal. 

Based on the foregoing, we conclude that defendant's request 

for an examination of plaintiff under oath was reasonable as a 

matter of law and that defendant adequately demonstrated that 

plaintiff's refusal to submit to the requested examination before 

filing the present action prejudiced defendant. Since we affirm 

the district court's judgment against plaintiff we need not 

consider whether the district court properly stayed discovery by 

plaintiff pending resolution of the motion for summary judgment. 

Therefore, the district court correctly entered summary 

judgment against plaintiff. The judgment of the United States 

District Court for the District of New Mexico is AFFIRMED. 

ENTERED FOR THE COURT 

PER CURIAM 

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