The United States District Court for the Southern District of Indiana, applying Indiana law, denied an insurer’s motion for summary judgment based on rescission, holding that there was a question of material fact where the insurer did not provide evidence of the amount of claims paid or premiums received for the policies to be rescinded.  Proassurance Indemn. Co., Inc. v. Wagoner, 2017 WL 3421983 (S.D. Ind. August 9, 2017).  The court also held that there was an issue of material fact regarding when the insurer knew about the insured’s alleged breach of the policy that may entitle the insurer to rescind the policies.

The insurer issued numerous medical professional liability policies to the defendants.  The defendants pled guilty over a number of years where policies were in place to felonies for knowingly prescribing controlled substances outside of the usual course of professional practice.  The insurer filed a declaratory judgment action seeking to rescind the policies on the ground that the defendants had made material omissions in their applications for issuing the policies and for renewing the policies.  The parties filed cross-motions for summary judgment.

The court denied summary judgment to all parties with a limited exception.  First, the court observed that Indiana courts have established procedural requirements for rescission, including that the insurer must return or offer to return the premiums received within a reasonable time after acquiring knowledge of the fraud.  The court also noted that there is an exception where the insurer has paid a claim which is greater than the amount of the premiums paid.  The insurer argued that it offered to return the premiums in one of its filings in the declaratory judgment action and that it has paid claims greater than the premiums received.  The insured disputed the amount of premiums paid and argued that the insurer had waited too long to offer to return the premiums.  The court held that there was a genuine issue of material fact regarding the amount of the claims paid and premiums received that precluded summary judgment.  The court also held that there was an issue of fact regarding when the insurer became aware of its right to rescind.

The court granted summary judgment for the insurer on the limited issue of whether the defendants could claim that they pled guilty because of an expectation of coverage from the insurer.  The court reasoned that motivations of the guilty pleas were not relevant to the disputes at hand.