Insurers are entitled to make decisions as to the professionals they will insure and the terms of the relationship. To that end, insurers expend considerable energy evaluating risks and assessing the likelihood of a potential claim. The scope of underwriting and the key metrics may vary from carrier to carrier but without exception each insurer relies upon some form of insurance application. Insurers are entitled to rely upon the representations of their applicants and, when faced with a misrepresentation in an insurance application, have the right to deny coverage. Accordingly, we’ve cited previous examples of applicants caught in a lie in their insurance applications. Don’t do it. Consider another recent example.
In DeMarco v. Stoddard, a doctor had a medical malpractice policy with an insurer based in Rhode Island from 2007 through 2011. A doctor who practiced outside of Rhode Island could still obtain a policy with Insurer if at least 51% of the practice was generated in Rhode Island. On his insurance application the doctor responded “yes” to the question of whether at least 51% percent of his practice was generated in Rhode Island.
The doctor performed a surgery in 2010, which resulted in complications and an ultimate malpractice suit that was initiated in 2011 in the state of New Jersey. After finding out that the doctor had virtually no Rhode Island practice and had lied on his application, the insurer refused to provide insurance coverage for the claim. A Rhode Island state court allowed the carrier to rescind the policy based on the misrepresentation.
The plaintiff subsequently amended his complaint to add the insurer as a defendant, and sought to have it defend and indemnify the doctor. The trial and appellate courts required the carrier to provide coverage to the doctor up to $1 million — the amount of medical malpractice liability insurance that a physician licensed to practice medicine and performing medical services in New Jersey is required to maintain.
The state Supreme Court, however, overturned the decision. The court relied on well-established case-law that the carrier owes no duty to defend or indemnify for any pending or accrued claims at the time of rescission. As a result, the doctor was left without malpractice coverage and on the hook.