New 4th Circuit Opinion | Did Doctor Lie for Disability Policy?

The Fourth Circuit decided a case that addresses an interesting insurance law question; while also touching on another issue that vexes medical malpractice lawyers in Maryland.  The 4th Circuit overruled a great judge, Federal Magistrate Jillyn K. Schulze, who awarded summary judgment against a suspended surgeon for making a disability claim.

misrepresentations rulingWhile cursed with a boring name, Certain Underwriters at Lloyd’s, London v. Cohen, is a case that has some interesting facts.  The Plaintiffs are underwriters at Lloyd’s of London.  The defendant was a general surgeon in Bethesda, who was suspended for three months from practicing medicine in Maryland, because he violated the standard of care, kept inadequate medical records and grossly over-utilized health care services.  I’m not sure of all the details, but they are strong allegations against a surgeon.  Anyway, the insurers wanted to rescind a disability policy, because the doctor made material misrepresentations on a disability policy, which he later sought benefits.

What were the misrepresentations?   There were three questions at issue.  The doctor answered “Yes” to the question, “Are you actively at work?” six days before he signed the policy application.  He represented that his “occupation” was “surgeon” and his “daily duties” were “surgery.” He responded “No” to the question, “Are you a party to any legal proceeding at this time?” and he also represented that he was not “aware of any facts that could change your occupation or financial stability.”  In fact, he added, gratuitously as Federal Magistrate Jillyn K. Schulze would later point out, that he was “opening a D.C. Office.”

Less than two weeks after submitting his application, the surgeon signed a consent order with the Maryland State Board of Physicians.  The terms of the agreement had long been decided.  The doctor was suspended for three months and, if he returned to clinical practice, he would be on probation for 5 years.  In addition, the doctor faced some other humiliation conditions and requirements, like being required to get a second opinion to confirm the medical necessity of any surgical/diagnostic procedure that he ordered.

A month after the disability policy kicked in, the doctor received treatment for numbness in his thumb and leg pain in his right leg after a fall.  He made a claim and the insurance company did an investigation.  You can figure out the rest of the story.  The insurer sought a declaratory judgment that the policy was properly rescinded.

Did the Insured Lie on the Application?

Judge Schulze, who I have been before in mediation and she was fantastic, saw a clear misrepresentation of facts; concluding that the doctor represented had income from performing surgeries at a time when he knew he was suspended from performing surgeries.  You can see the logic, right? Clearly, on some level, the doctor was holding back something from the insurance company, right?  Obviously, if a surgeon gets suspended from practicing medicine, it is an enormous deal in that doctor’s life.  He certainly knew or should have known that it could at least potentially be a sign for the insurance company.  So why not just step up and disclose the truth?  Wouldn’t you want your kids to grow up to do just that?

But the 4th Circuit said that while Maryland law places a heavy burden on people to honestly answer the questions on an insurance application, the insurance company has to ask unambiguous questions.  “In sum, the language of each question at issue here is ambiguous,”  Judge Diana Gribbon Motz concluded in his opinion for the 4th Circuit panel.   The court found that all three of the questions contained language susceptible to more than one reasonable interpretation by a layperson.  Unlike the District Court, they looked past the fact that the second question elicited a response that set out his daily duties as a surgeon.  Why?  While the doctor’s suspension in Maryland was pending, the surgeon was still licensed in Washington, D.C., and performed administrative work and other tasks related to his job.

Admissibility of Consent Order

Judge Schulze’s also found that the consent order suspending the doctor was admissible.  The question of whether a consent order between a doctor and the Maryland State Board of Physicians is admissible in this proceeding has never been addressed before by a Maryland or Federal Appeals court.

The 4th Circuit found that Maryland law requires the express consent of all parties to an underlying board proceeding before an order can be admitted into evidence in a civil proceeding.  Every medical malpractice lawyer in Maryland understands this.  But it begs the question: is this a legal proceeding?  The 4th Circuit said that it is ambiguous and that reasonable minds could differ.  It also cited the public policy that keeps these out of malpractice cases and apparently even a case like this:

Barring the admission of board disciplinary orders in later civil and criminal actions encourages physicians to cooperate during board proceedings.  Such cooperation strengthens the board’s ability to conduct proceedings that are thorough and fair, and thereby advances the board’s efforts to protect the health and safety of the public.

So the case will proceed without the consent order.  I still have to think there would be other ways to get into evidence the fact that the doctor was suspended and unable to perform surgery for those three months.   That is what the case is all about.

So What Happens Now?

Because the application questions were ambiguous, the 4th Circuit found that summary judgment was inappropriate.  On remand, the District Court will allow the parties to present evidence of parol evidence to cure the ambiguity.

Realistically, I think this case is teed up for the doctor’s motion for summary judgment.  There will not be any evidence that sheds light on what the parties understood those terms to mean. If extrinsic evidence does not cure the ambiguity — and, really, what are the chances? — that ambiguity under Maryland law is to be construed against the insurer as the drafter.  So the likely outcome is that the doctor can collect on his disability policy.  Is this a good outcome?  It depends on how you view the matter.

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