Issues of Fact Halt Insurer’s Attempt to Rescind Malpractice Policy

The United States District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, has held that an insurer was not entitled to summary judgment voiding a medical malpractice liability policy, finding that triable issues of fact remained about whether an insured could have anticipated litigation stemming from past medical procedures at the time it completed its policy application.  MDAdvantage Ins. Co. of N.J. v. Hasiuk, 2020 WL 1531817 (E.D. Pa. Mar. 31, 2020).

In 2015, a physician completed an application for a claims-made professional liability insurance policy.  Around the same time, the physician completed a supplemental application with the same insurer for ‘prior acts’ coverage, which sought retroactive coverage for the physician’s practice for acts dating back to 2004.  In the initial application, the physician answered “no” when asked:  “Are you aware of any medical incidents, adverse outcomes or other circumstances that you expect to give rise to a claim in the future?”  Similarly, in the supplemental application, the physician answered the following question in the negative, “Do you know of any pending claims, incidents or activities, including any request for patient records that might give rise to any claim in the future?”

After the policies were in effect, two patients sued the physician in separate lawsuits for alleged malpractice due to complications stemming from medical procedures.  The physician sought coverage for both suits, and the insurer commenced a coverage action through which it sought a declaration that the policies were void based on misrepresentations made in the policy applications.

In its motion for summary judgment, the insurer argued that the physician must have known of the coming lawsuits because, before filing suit, each patient issued requests for medical records, which indicated that the requests were for “legal purposes or litigation.”  The court disagreed, stating that, while the insurer could show that the physician received records requests from these patients, “it ha[d] not established that the receipt of those requests caused [the physician] to ‘expect’ a claim to be filed.”

The court also rejected the insurer’s argument that a comment made by the physician during his deposition regarding the expectation of litigation was sufficient to support rescission as a matter of law, concluding instead that the comment was “too slim a reed to lean a summary judgment ruling upon.”  Finally, the court rejected the insurer’s claim that the nature of injuries sustained by the plaintiffs should have led the physician to anticipate litigation.

The court ultimately concluded that, because the physician’s testimony suggested that he did not anticipate the underlying lawsuits, the insurer had not met its burden of demonstrating that the physician’s answers to the application questions were “knowingly false.”  The court therefore denied the insurer’s motion for summary judgment, allowing the case to proceed.