Limitation On Medical Malpractice Insurers’ Ability to Cancel Coverage

by John Zen Jackson

In a precedential opinion filed on January 22, 2014 in DeMarco v. Stoddard, the intermediate appellate court of the New Jersey Superior Court ruled that a malpractice insurer could not deny coverage for an insured who had made material misrepresentations in obtaining his insurance policy.  This is the first published opinion in New Jersey addressing broadly the implications of the mandatory nature of medical malpractice insurance in the state.

While physicians have long obtained professional liability insurance coverage as a matter of prudent financial planning, such coverage was not required in New Jersey until 1998 when the Legislature enacted a statutory requirement that a physician with an office in the state and having patient care responsibilities was to be covered by malpractice insurance or a posted letter of credit.  See N.J.S.A. 45:9-19-17.  In 2004 N.J.S.A 45:9-19-17 was amended to require a specific amount of malpractice insurance as a minimum – $1 million – to be maintained by a physician with patient responsibilities.

In DeMarco the court dealt with a malpractice claim that was brought by a patient against a podiatrist.  The defendant podiatrist had obtained insurance coverage through the Medical Malpractice Joint Underwriting Association of Rhode Island encompassing the period of 2007 through 2011.   Dr. Stoddard was licensed in both Rhode Island and New Jersey.  He had a Rhode Island office address that was included in his application.  He also indicated that “at least 51%” of his practice was generated in Rhode Island.  That statement was false.  The false statement was repeated in renewal applications.

In September 2010 Dr. Stoddard performed surgery on the patient DeMarco in New Jersey.  The patient had difficulties and his condition worsened.  He came under the treatment of another provider and eventually filed suit in October 2011.  Dr. Stoddard forwarded notice of the suit to the Rhode Island JUA for defense.  It responded that it would not provide a defense if more than half his practice were in New Jersey and considered the policy void because of the misrepresentations.  The patient’s attorney sought a declaratory judgment as to the JUA’s obligation to defend and indemnify Dr. Stoddard.  This was granted in the patient’s favor by the trial judge.

The Appellate Division affirmed. The court viewed the statutory requirement for medical malpractice insurance as the equivalent to the financial responsibility provisions of mandatory automobile insurance in New Jersey. The court noted that New Jersey requires that doctors carry malpractice insurance of at least $1 million coverage per occurrence, or if insurance coverage is not available, doctors must demonstrate their financial responsibility with a letter of credit of at least $500,000.   There is a similar requirement for podiatrists found in N.J.S.A. 45:5-5.3(a).  It quoted the legislative history that these laws were enacted to “ensure the citizens of the State that they will have some recourse for adequate compensation in the event that a physician or podiatrist is found responsible for acts of malpractice.”