A general surgeon applied for disability insurance. The application asked a number of questions pertaining to the applicant's personal, financial, and medical information. When asked “Are you actively at work?,” the surgeon checked the “Yes” box. In response to the question “Are you aware of any fact that could change your occupation or financial stability?,” the surgeon checked the “No” box. When asked “Are you party to any legal proceeding at this time?,” the surgeon checked the “No” box. The surgeon signed final applications with these answers and the policies became effective on that date.
Shortly after submission of his initial applications and prior to submission of his final applications, the surgeon signed a Consent Order with the Maryland State Board of Physicians (the “Board”), which suspended his license to practice medicine in Maryland. The Consent Order provided the start date of the surgeon's suspension and that the suspension would continue for a period of three months. The surgeon agreed in the Consent Order to wind down his practice and refer all patients to other doctors during the three-month period prior to his suspension, and supply the Board with sixty days' notice of his intent to become clinically active following his suspension. The Consent Order further provided that if the surgeon returned to active practice, he would be on probation for five years, and would be supervised for the first year.
One month after the disability policies went into effect, the surgeon sought medical treatment for injuries to his thumb and leg resulting from a fall. Later that month, the surgeon's insurer was notified of a possible claim. The insurer retained a third party to investigate and adjust the potential claim. That investigation uncovered the Consent Order. The insurer then notified the surgeon that it intended to rescind the policies, and issued a check refunding his premium payments. The surgeon exhausted the policy’s grievance procedures.
The insurer commenced an action in diversity against the insured general surgeon and the corporate entity under which his practice operated, seeking to determine their legal rights regarding whether they properly rescinded his disability insurance policies. The surgeon filed a motion in limine to exclude all references to any proceedings, records, files, or orders by the Board. The United States District Court for the District of Maryland denied the motion, concluding that the Consent Order was admissible. The parties then filed cross-motions for summary judgment. The district court granted summary judgment for the insurer determining that the surgeon made material misrepresentations on his policy applications.
The Fourth Circuit United States Court of Appeals reversed and remanded. The court held that the question on the policy application asking “[a]re you actively at work?” was ambiguous; the question on the policy application asking “[a]re you aware of any fact that could change your occupation or financial stability?” was ambiguous; the question on the policy application asking “[a]re you a party to any legal proceeding at this time?” was ambiguous; and, on an issue of first impression, orders from the Maryland State Board of Physicians, while public, are not admissible in a civil or criminal action absent consent.
The question on the policy application asking “[a]re you actively at work?” was ambiguous. Under Maryland law, insurance policy language is ambiguous if it is general and suggests two meanings to a reasonably prudent layperson. The court reasoned that the question was ambiguous because there were several possible interpretations of what it meant to be “actively at work.” The court noted that the application did not define the phrase “actively at work,” did not limit its inquiry to Maryland work, and did not provide that being “actively at work” required performance of the specific “daily duties” an applicant may have listed in the limited space available for that response.
The question on the policy application asking “[a]re you aware of any fact that could change your occupation or financial stability?” was ambiguous. The question was subject to more than one reasonable interpretation. The court noted that the application did not define “financial stability,” or provide any guidance on how an applicant would determine whether the applicant’s financial stability could “change.” “Financial stability” was a broad term that could refer to net worth. The court noted the record indicated that this surgeon's net worth increased during his suspension.
The question on the policy application asking “[a]re you a party to any legal proceeding at this time?” was ambiguous. The question was subject to more than one reasonable interpretation. The application did not define “legal proceeding.” The Board proceeding did not involve a court, and a person subject to a Board proceeding might well conclude that by agreeing to the suspension of a medical license, the person would avoid a legal proceeding. The court noted that at the time the surgeon submitted his final application, the Board proceeding was over as the surgeon was not then a party to a Board proceeding, legal or not, at that time.
Orders from the Maryland State Board of Physicians, while public, are not admissible in a civil or criminal action absent consent. According to Md. Code Ann., Health Occ. § 14–410, a Board order can only be admitted into evidence in a civil proceeding solely by the express stipulation and consent of all parties to a proceeding before the Board. The court found no exception in the statute for insurance coverage matters or any indication that this admissibility bar applied only in malpractice actions. The court found no consent to disclose the Board order in this case. The legislative history of the statute indicated that the General Assembly intended the provision to be a straightforward bar to the admission of all Board orders, except with express consent of all parties to the underlying Board proceeding. The fact that the Consent Order was a public document under the Maryland Public Information Act and publicly available on the Internet did not render it admissible in a judicial proceeding. The court reasoned that the fact a document was public did not remove it from the purview of the rules of evidence or a statute explicitly governing its admissibility.
The Fourth Circuit United States Court of Appeals reversed the district court’s grant of summary judgment in favor of the insurer.
See: Certain Underwriters at Lloyd's, London v. Cohen, 2015 WL 2040764 (C.A.4 (Md.), May 5, 2015) (not designated for publication).