The West Virginia Supreme Court of Appeals has reinstated a lawsuit seeking to rescind a doctor’s professional liability policy on the grounds that the insured made material misrepresentations in applying for the policy. Admiral Ins. Co. v. Fisher, 2018 WL 2688182 (W. Va. June 6, 2018). In reversing the trial court, the Supreme Court of Appeals noted that the insured omitted information concerning several patient overdose deaths in response to questions on the application for the policy.
In December 2010, federal law enforcement officers executed a search warrant on a doctor specializing in pain management. The warrant specified that the doctor was being investigated in connection with deaths related to drug overdoses. In January 2011, a state licensing panel began to investigate alleged misconduct by the doctor, including conduct relating to overdose deaths, sexual relationships with patients, and unlawful drug possession for his personal use. In June 2011, the doctor submitted an application for an E&O policy to an insurer. In the application, the doctor affirmed that he was unaware of “any act, error, omission, fact, circumstance, or records request from any attorney which may result in a malpractice claim or suit.” However, the doctor answered “yes” to a question asking whether he was being “investigated by any licensing or regulatory agency on a complaint of any nature, including but not limited to unprofessional or unethical conduct.” In the application, the doctor provided some additional information concerning only the state licensing investigation. The doctor stated that the investigation involved “treating former girlfriends and pre-signed prescription pads,” but omitted information concerning overdose deaths. The insurer issued the E&O policy to the doctor.
During the period of the E&O policy, the doctor was sued for wrongful death relating to drug overdoses. In the suit, the claimants brought a direct action against the insurer. The insurer agreed to defend the claim against the doctor but filed a crossclaim seeking a declaration that the policy was void ab initio for material misrepresentations. The claimants ultimately settled with the doctor. The trial court granted summary judgment to the insured on the rescission claim, holding that the insurer “improperly engaged in post-claim underwriting when it denied coverage despite having the relevant information at its disposal at the time of application.”
On appeal, the Supreme Court of Appeals reversed, holding that disputed issues of material fact remained that should have precluded a grant of summary judgment. The court noted that the doctor was “was far less than candid during the application process,” noting that he stated that he was aware of no facts or circumstances “which may result in a malpractice claim or suit” and that he disclosed only limited facts concerning the state investigation. The court noted that at the time of the application, the doctor was aware of several patient overdose deaths, including that of a patient with whom he had a sexual relationship. The court therefore reversed the grant of summary judgment in favor of the insured. However, the court directed the trial court to consider on remand whether the insurer waived its right to challenge the misrepresentations based on a failure to conduct a reasonable inquiry in response to the insured’s answers on the application.