A federal court in South Carolina recently held that the acts of a man posing as a physician could not be imputed to his employer, a senior care facility, in an action by an insurer to rescind the senior care facility’s policy based on the fraudulent insurance application submitted by the “physician.” Evanston Ins. Co. v. Watts, et al., 2014 WL 4954689 (D. S.C. Oct. 2, 2014), as amended (Oct. 31, 2014).
The insurer provided professional liability insurance to a senior care facility. While the policy was in place, a man posing as a physician obtained employment with the insured and sought coverage under the professional liability policy by filling out an application representing that he was a licensed physician. As a result of this application, the insurer issued an endorsement adding the “physician” as an insured to the policy. After the employee’s true identity came to light, several patients filed suit against the employee and the insured for medical malpractice. The insurer then sought a declaration that the entire policy was void ab initio and that it had no duty to defend or indemnify the insured in the underlying lawsuits, based on the material misrepresentations of the “physician” in his application.
Granting the insured’s motion for summary judgment, the court held that the misrepresentation could not be imputed to the insured. The court explained that, in order to void a policy under South Carolina law, an insurer must show that the applicant not only made the misrepresentation, but also that the misrepresentation was known by the applicant at the time it was made. Here, the court found that there were actually two separate applications and the insured itself did not make any misrepresentations in its application. Moreover, the court found no evidence that the insured knew of the misrepresentations of the “physician” at the time of his application.