Written like a blockbuster Hollywood film, the U.S. District Court in South Carolina, in Evanston Insurance Company v. Agape Senior Primary Care, et al., 2014 WL 5365679, issued a ruling October 21, 2014, in which it held that despite a false application for professional liability insurance submitted by an applicant pretending to be a doctor, the insurance afforded to the company and other doctors and nurses identified as named insureds under the policy remained in force, and was not void ab initio as to the innocent co-insureds.
This case arose out of Evanston Insurance Company’s request that the professional liability insurance policy it issued to Agape Senior Primary Care, and the doctors, nurses and other health care professionals who provide care to patients at nursing homes, rehabilitation centers, and assisted living facilities on behalf of Agape, should be declared void ab initio as to all policyholders based on the false insurance application submitted by Dr. Arthur Kennedy, an alleged doctor. Earnest Addo, posing as Dr. Arthur Kennedy, obtained employment with Agape. Once employed, he filled out an application for professional liability insurance with Agape’s professional liability insurer, Evanston, warranting that he was a licensed medical doctor. Turns out Addo’s representations in his application to Evanston were false, Addo knew it, and he intended for Evanston to rely on them, which they did by extending coverage for Addo. Based on Addo’s misrepresentations, Evanston sought to void the coverage it issued to Dr. Kennedy (a/k/a Addo) and to every other doctor, nurse and health care professional employed by Agape.
The court agreed with Evanston that Addo’s misrepresentations voided coverage as to Addo, but the court disagreed with Evanston’s position that Addo’s misrepresentations should be imputed for purposes of voiding coverage for the other insureds. To arrive at this conclusion, the court considered two questions: (1) whether Agape and the other insured doctors and nurses were “applicants” for purposes of Addo’s insurance and whether they had knowledge of Addo’s misrepresentations, and (2) whether the other insureds were co-insureds under the policy. The court found that each of the insured doctors and nurses prepared and submitted separate insurance applications, each provided a warranty of truthfulness only as to their individual application, and that none of the other doctors and nurses had any knowledge of the misrepresentations made by Addo. In finding that the professional liability policy issued by Evanston provided for multiple co-insureds, the court was persuaded by the fact that Evanston increased the premium when an individual insured was extended coverage under the policy, and by the fact that the policy specified different effective dates of coverage for each individual named insured.
In holding that coverage for the innocent co-insureds should be upheld, the court relied on South Carolina law, which stands for the proposition that where an insurance policy creates several, individual obligations among co-insureds, criminal acts or misrepresentations by one co-insured does not bar the innocent co-insureds from recovering under the policy. McCracken v. Government Employees, Ins. Co., 325 S.E.2d 62 (S.C. 1985).
Policyholders should be mindful of the ruling in Agape to review their professional liability policies, as well as directors’ & officers’ liability policies, to ensure that the insurance coverage provided is properly protected from the misrepresentations, fraud, theft, or dishonesty of a single individual employee, executive, director, or officer. Often times, policyholders do not learn until after a claim has been filed that coverage afforded to innocent employees, directors or officers can be jeopardized by the acts of a single individual insured.