Application mistake? Better correct it
Answers to your questions
Q: Years ago, I'd been named in a shotgun malpractice suit. My role was so minor that I was soon dismissed from the case, and I haven't thought about it for years. When my agent recently filled out an application for new insurance, we forgot to mention this case. Friends tell me that if the insurer finds out, it may not cover me if I'm sued. Can that be right?
A: Technically, Yes. Although most companies won't decline coverage on account of an unintentional omission like the one you describe, there's no guarantee. If the insurer decides to play hardball, it's on solid legal ground, and you could find yourself bare. Most policies contain a clause stating that factual misstatements or efforts to intentionally conceal requested information in the application could render the policy void.
When a physician is sued, one of the first things an insurer does is determine whether it has to cover the claim. Among the things that may let the insurer off the hook: If the claim involves general liability (a patient falls in the office) rather than professional liability. If the incident occurred outside the coverage period of the policy. If the physician missed a deadline to pay his premium. If the alleged act was intentional or criminal. If the allegation is sexual misconduct. Or if the physician fraudulently misstated his prior claims history on the insurance application.
Physician-owned carriers may be more likely than commercial carriers to rule in a doctor's favor for an inadvertent error. That's especially true in a "soft" market, where the insurer wants to keep and attract doctors. But we're in a "hard" market these days. Underwriters scrutinize applications and claims very carefully, and insurers are only too happy to divest themselves of risks considered unfavorable. The wording of the policy is important. If a misstatement could void coverage, then the language of the policy must be clear and incontrovertible.
That was the issue in a recent malpractice case involving two doctors in Ohio. The doctors' insurance carrier denied coverage because of misstatements on the doctors' policy application. The application had asked whether the physicians had knowledge of any pending claims or potential claims, and whether any similar insurance had ever been declined, canceled, or nonrenewed. They answered No to both questions. In fact, there had been a claim pending against one of the doctors, and another insurer had previously declined to continue covering the physicians. The policy clearly stated that a misstatement on the application would void the coverage.
The doctors argued that they'd conveyed accurate information to the insurance agent who filled out the application for them, and that their failure to correct the untrue statements when they signed the application didn't constitute intentional misrepresentation. An appeals court found that the doctors knew or should have known about the falsehoods on the application, and the omission was deemed intentional.
The moral of this story is that you can't rely on an agent or broker to fill out an application accurately. Nor can you farm out insurance applications to a clearinghouse or complete them mechanically by attaching a pre-printed sheet of information. Insurance applications should never be submitted before you've read them thoroughly.
What if you discoverbelatedlythat there's a mistake on an application you already submitted? It's wise to inform the insurer as soon as possible. Prior claims are reported and stored at the National Practitioner Data Bank. Since insurers, hospitals, and state licensure agencies are mandated to query the databank, omission of prior claims on any such applications is foolhardy. The secret won't stay secret for long.
The author, who can be contacted at 2402 Regent Drive, Mount Kisco, NY 10549, or at firstname.lastname@example.org, is a health care attorney who specializes in risk management issues. This department answers common professional-liability questions. It isn't intended to provide specific legal advice. If you have a question, please submit it to Malpractice Consult, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742. You may also fax your question to 201-722-2688 or send it via e-mail to email@example.com.
Lee Johnson. Malpractice Consult. Medical Economics 2002;21:108.