Why the Tail Policy Didn’t Cover the Doctor’s Tail

Dr. Steven Svabek may have set a record for the number of reasons why his tail policy didn’t cover the medical malpractice claims against him.

According to a memorandum decision issued last week by the Indiana Court of Appeals, on Dec. 7, 2012, Dr. Svabek purchased a tail policy from Lancet Indemnity, effective that day, with occurrence coverage going back two years for claims first made within one year after the effective date. A mere three days later a patient filed a malpractice claim for care and treatment alleged to have begun the day after the start date of the two-year period. Eight days after that, two other patients filed a complaint for incidents that also allegedly occurred in part during the two-year window. Less than two months later yet another patient filed for incidents allegedly occurring in the window.

Was Dr. Svabek the luckiest doctor in the world for securing coverage just days before the tsunami of lawsuits hit? Was Lancet the unluckiest insurer in the world for issuing a policy and then getting hit with three lawsuits before the ink was dry on the policy?

The answer to both questions is an unequivocal no, according to an Indiana trial court that granted summary judgment in Lancet’s favor.  The trial court’s explanation was that Dr. Svabek falsely declared on his Lancet application that (a) he knew of no potential or anticipated claims and (b) no other insurer had declined or refused coverage.

In fact, just three days before he completed the application, another insurer had denied coverage for one of the three claims, which had been filed with the Ind. Dept. of Insurance three and a half months earlier, because the policy had lapsed. And eight days before Svabek purchased his policy, another one of the three claims had been the subject of a complaint filed with the DOI.

Lancet sued for declaratory judgment that it owed no coverage. The trial court awarded Lancet summary judgment, ruling that it was entitled to rescind on the basis of the doctor’s false representations, whether intentional or not, “because innocent misrepresentations are ‘just as injurious as intentional fraud ….’” The court went on to rule that even if Lancet couldn’t rescind the entire policy, it was entitled to avoid coverage of the three claims for two additional reasons: “several unambiguous exclusions apply” and “Svabek failed to timely make deductible payments.”

On appeal, the Court of Appeals found no material issue as to Svabek’s misrepresentation regarding the prior denial of coverage. Because that misrepresentation was sufficient to warrant summary judgment that Lancet was entitled to rescission, the court ended its analysis there, affirming the trial court judgment.

The memorandum decision cautions that it “shall not be regarded as precedent.” But surely it provides a lesson on how not to fill out an insurance application.

 

The case is Svabek v. Lancet Indemnity, Case No. 41A05-1610-PL-2271 (Ind. App., May 11, 2017).

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