In Capson Physicians Insurance Co v. MMIC Insurance Inc., Dr. Hasik changed his private medical practice from Arkansas to work in a hospital in Iowa. He got new professional liability insurance from Capson. In addition, the hospital sought coverage for Dr. Hasik through its insurer, MMIC. Most professional liability insurance is written on a claims made (rather than an occurrence) policy. Between the time Dr. Hasik applied for the MMIC insurance, and the time it was issued, Dr. Hasik was sued for professional negligence. Capson said MMIC was on the hook for the claim, and that Capson’s liability on the claim was secondary to MMIC. The court disagreed, and the 8th Circuit affirmed. MMIC was entitled to rescission under Iowa law.
Dr. Hasik’s and the hospital’s nondisclosure of the Wilson lawsuit was the equivalent of a false assertion. The claim made against Dr. Hasik constituted a significant change that affected the risk that MMIC was offering to underwrite. It also rendered part of Dr. Hasik’s application untrue. The hospital and the doctor had a duty to report the lawsuit to MMIC. Stipcich v. Metro. Life Ins. Co., 277 U.S. 311 (1928) (“Insurance policies
are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.” The Eighth Circuit quoted from Stipchich:
But the reason for the rule still obtains, and with added force, as to changes materially affecting the risk which come to the knowledge of the insured after the application and before delivery of the policy. For even the most unsophisticated person must know that, in answering the questionnaire and submitting it to the insurer, he is furnishing the data on the basis of which the company will decide whether, by issuing a policy, it wishes to insure him. If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure. If he fails to do so the company may, despite its acceptance of the application, decline to issue a policy, or, if a policy has been issued, it has a valid defense to a suit upon it.
Capson argued the doctrine of uberrimae fidei conflicted with Iowa law, which places the burden on the insurer to seek information, construes doubts in favor of the insured, precludes rescission when the insurer’s questions have been answered truthfully, and does not permit courts “to rewrite insurance contracts based upon amorphous policy considerations.” But Iowa permits equitable rescission where one party has superior information on a material issue, as here. And it didn’t matter if the duty to provide this information was found in the policy. See Stipcich, 277 U.S. at 318 (“The obligation was not one stipulated for by the parties, but is one imposed by law as a result of the relationship assumed by them and because of the peculiar character of the insurance contract.”).
A claims-made policy provides coverage for claims that are first made and reported to the insurer during the term of the policy, regardless of when the insured’s alleged negligent act was committed. Insurers limit their exposure “by inserting a ‘retroactive date’ into the policy, prior to which the insured’s acts are not covered.” Occurrence policies provide coverage for occurrences within a specific policy period. It does not matter when the claim is made or reported.