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By: Thomas Paschos, Esq.
Thomas Paschos & Associates, PC
Haddonfield, New Jersey

In Thomas DeMarco v. Sean Robert Stoddard, D.P.M., 2015 N.J. LEXIS 1237 (N.J. December 1, 2015), Defendant Sean Robert Stoddard, D.P.M. practiced podiatry in New Jersey. In 2007, he applied to the RIJUA for medical malpractice liability insurance. Among other representations, the application indicated that at least fifty-one percent of Dr. Stoddard's practice was generated in Rhode Island. That answer was false. Dr. Stoddard submitted renewal applications from 2008 through 2011, each of which stated that at least fifty-one percent of Dr. Stoddard's practice was generated in Rhode Island.

Dr. Stoddard performed three surgeries on plaintiff Thomas DeMarco, a New Jersey resident. In 2011, DeMarco and his wife filed a medical malpractice complaint in New Jersey alleging that Dr. Stoddard negligently performed the surgery. Dr. Stoddard forwarded the complaint to the RIJUA, which responded with a reservation of rights letter stating that the RIJUA only provides coverage for physicians who maintain fifty-one percent of their "professional time and efforts" in Rhode Island, and that the RIJUA was "in the process of securing facts concerning whether [Dr. Stoddard] . . . met the fifty-one percent (51%) requirement for the provision of insurance coverage from the [RI]JUA."

In January 2012, the RIJUA filed declaratory judgment action in Rhode Island, naming both Dr. Stoddard and the DeMarcos as defendants. The RIJUA sought a declaration that Dr. Stoddard misrepresented material information in his insurance applications and a judgment permitting rescission of the policy. In March 2012, the DeMarcos named the RIJUA as a defendant in their medical malpractice action, and sought a declaratory judgment that the RIJUA was required to defend Dr. Stoddard and indemnify him up to $1 million.  The Rhode Island court entered a default judgment against Dr. Stoddard, declaring his 2010-2011 renewal policy void and holding that the RIJUA had no duty to defend or indemnify him for the DeMarcos' claims. Thereafter, the RIJUA and the DeMarcos filed cross-motions for summary judgment in the New Jersey malpractice case. The court determined that New Jersey law should apply, and held that the Rhode Island judgment could not be enforced in the New Jersey action because it was entered without jurisdiction over the DeMarcos. The trial court went on to grant the DeMarcos' motion for summary judgment and deny the RIJUA's motion.

The Appellate Division granted the RIJUA's motion for leave to appeal, and affirmed the trial court order. The panel determined that New Jersey law should apply and concluded that innocent third parties should be protected for a claim arising before rescission. The panel concluded that the RIJUA owed a duty to indemnify Dr. Stoddard.  RIJUA appealed.

The Supreme Court held that the RIJUA owed neither a duty to defend nor a duty to indemnify Dr. Stoddard based on his misrepresentation on the insurance application.  The Court looked to the law on legal malpractice insurance, under which a legal malpractice insurance policy may be declared void from its inception due to a misrepresentation of material fact by the insured in an application for insurance. Applying the same rules, the Court held that the RIJUA owed neither a duty to defend nor a duty to indemnify its insured.

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