CERTAIN UNDERWRITERS AT LLOYD’S, LONDON v. COHEN, NO. 14-1227

Decided: May 5, 2015

The Fourth Circuit reversed the grant of summary judgment to the Underwriters and remanded the case to the district court to determine whether the answers Dr. Cohen supplied on the policy applications were material misrepresentations.   

This appeal stemmed from a magistrate judge granting summary judgment to the Underwriters due to Dr. Cohen’s material misrepresentations on his policy applications and denying Dr. Cohen’s motion in limine to exclude all references to the Consent Order. Cohen, on April 1, 2011, submitted initial applications for disability insurance. Each of the insurance applications contained questions that were pertinent to the applicant’s personal, financial, and medical information. Three of Cohen’s responses were at issue. Cohen checked the “Yes” box when asked “Are you actively at work?” In response to the question “Are you aware of any fact that could change your occupation or financial stability?,” Cohen checked the “No” box. Finally, when asked “Are you party to any legal proceeding at this time?,” Cohen checked the “No” box. Cohen signed final applications with these responses on August 8, 2011.

Notably, on April 12, 2011, after submission of his initial application and before submission of his final applications, Cohen signed a Consent Order with the Maryland State Board of Physicians, which suspended his license to practice. Cohen’s suspension would begin on August 2, 2011 and would last for three months. Further, the Consent Order stated that if Cohen returned to active practice after his suspension, he would be on probation for five years. On September 8, 2011, Cohen sought medical treatments for injuries to his thumb and leg. The Underwriters retained Disability Management Services, Inc. to investigate and adjust the potential claim. This investigation uncovered the Consent Order, and the Underwriters notified Cohen that they intended to rescind the policy. Under the policy’s grievance procedures and informal review, the rescission was upheld. Later, the magistrate judge concluded that the Underwriters validly rescinded the insurance policies due to the material misrepresentations made by Cohen in his applications.

Under Maryland law, a material misrepresentation on an insurance policy application allows for the recession on an insurance policy issued on the basis of that application. Applying the principles of contracts, the Fourth Circuit could only conclude that each of the questions to which Cohen allegedly gave false answers for is subject to more than one reasonable interpretation. Being “actively at work” was considered by the Underwriters to include surgery, from which he was banned. “Actively at work” was considered by Cohen to include the administrative duties of running his practice. The court determined that neither of these interpretations was unreasonable.  Each of the general questions contains undefined terms susceptible to more than one reasonable interpretation, “making them ill-suited to elicit the specific type of information the Underwriters claim to have requested.” On remand, the court may consider whether extrinsic or parol evidence can be used to cure the ambiguity. The Fourth Circuit noted that it is of course within the court’s discretion, on remand, to conduct any further proceedings that it finds appropriate, including further consideration of summary judgment.  

Further, Cohen contends that the admissibility of the Consent Order was contrary to Maryland law, which requires express consent of all parties before such an Order can be admitted in a civil proceeding. The plain language of Health Occupations § 14-410 bars the “admission of ‘any order’ of the Board in ‘a civil or criminal action’ except by consent, or when ‘a party to a proceeding before the Board’ brings a civil action, claiming to be ‘aggrieved by a decision of the Board.’” Therefore, only by the express stipulation and consent of all parties before the Board can a Board order be admitted into evidence in a civil proceeding like this one. There was no consent here. The Fourth Circuit held that while public documents, Board Orders are not admissible in a civil or criminal action absent consent, except for in an action brought by a party aggrieved by a Board decision. Therefore, the judgment of the district court was reversed and the case remanded.

Full Opinion

Austin T. Reed

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