NJ Supreme Court Sides With Hill Wallack Attorneys in Reversing Appellate Division
Client AlertWritten by: Gerard H. Hanson and Todd J. Leon
On December 1, 2015, the Supreme Court of New Jersey handed down its decision in the matter of DeMarco v. Stoddard, in which Hill Wallack LLP attorneys Todd J. Leon and Gerard H. Hanson represented the petitioner – the Medical Malpractice Joint Underwriting Association of Rhode Island (“RI JUA”). By way of a 5-2 majority, the Supreme Court reversed the decision of the Appellate Division, and held that the RI JUA is entitled to the full rescission of a podiatric malpractice policy that it issued to a doctor (Stoddard) based upon his material misrepresentation when applying for insurance that more than 51% of his practice was generated in Rhode Island. Click here to see the Court’s Opinion.
DeMarco involves a claim of podiatric malpractice against Stoddard, who was insured by the RI JUA at the time he rendered professional services to the plaintiff. In order to obtain coverage from the RI JUA, Stoddard, among other information, misrepresented that he generated over 51% of his practice in Rhode Island, which is a requirement for obtaining a policy through the RI JUA. That statement, which Stoddard repeated on subsequent renewal applications, was at all times false.
All of the courts to consider the issue of whether the RI JUA was entitled to rescind the policy based upon the fraudulent misrepresentation by Stoddard held that the misrepresentation was material. However, both the Law Division and Appellate Division held that, despite the doctor’s admitted fraud in the application, the RI JUA was not entitled to any relief. Rather, as the Appellate Division held, even though the policy was procured via fraud, the remedy available to the RI JUA was to reform the limits to the statutorily-mandated amount of coverage for physicians in New Jersey – $1,000,000, which was also the policy’s stated limit.
The Supreme Court of New Jersey granted certification, and heard argument on the appeal on April 27, 2015. In today’s Opinion, the Supreme Court reversed the Appellate Division’s decision, holding that the RI JUA was entitled to a full rescission of the policy due to Stoddard’s material misrepresentations in his applications. In so holding, the Court aligned physician and podiatric malpractice policies with those issued to other professionals, including attorneys. The Court also rejected the Appellate Division’s reliance upon cases involving automobile insurance coverage, based upon the distinction between the “web of interrelated provisions” that exist in the context of the automobile insurance statutes but not in the physician malpractice laws.
With DeMarco now decided, the law in New Jersey is clear – material fraud in the application in the context of insurance policies (other than automobile liability policies, which are limited to the statutory minimums) will result in the voiding, ab initio, of the entirety of the coverage that was purported to be provided. The Supreme Court has thus signaled its intolerance for fraud, despite the potential impact that voiding coverage might have on “innocent” third-parties.