Thomas DeMarco and Cynthia DeMarco v. Sean Robert Stoddard, D.P.M., Individually and t/a Center for Advanced Foot & Ankle Care, Inc., and Medical Malpractice Joint Underwriting Association of Rhode Island

Summary

The Supreme Court of New Jersey held that the Rhode Island Medical Malpractice Joint Underwriting Association owed neither a duty to defend nor a duty to indemnify a podiatrist after rescinding his malpractice policy based on material misrepresentations about the location of his practice. The Court rejected applying the compulsory automobile insurance model to protect innocent third parties and concluded that rescission principles governing professional liability insurance controlled. The Court reversed the Appellate Division’s judgment requiring coverage up to New Jersey’s mandatory minimum amount.

Holdings

1. New Jersey law governs the coverage dispute.
2. When a professional liability insurance policy is rescinded ab initio because the insured made a material misrepresentation in the application, the insurer owes neither a duty to defend nor a duty to indemnify the insured for claims that arose before rescission.
3. The compulsory automobile insurance model does not govern the remedial consequences of rescission of a fraudulently obtained professional liability policy.
4. A rescinded medical malpractice liability policy may not be reformed to provide the statutory minimum amount of coverage for an innocent third party.

Questions Presented

1. Whether New Jersey or Rhode Island law governed the coverage dispute.
2. Whether rescission ab initio of a professional medical malpractice insurance policy obtained through a material misrepresentation eliminated the insurer's duty to defend and indemnify the insured for a claim that arose before rescission.
3. Whether the compulsory automobile insurance model required reformation of the rescinded medical malpractice policy to provide coverage for an innocent third party.
4. Whether the rescinded policy could be reformed to provide the statutory minimum amount of medical malpractice coverage.

Disposition

reversed