D&O Insurance: Knowledge, Renewal and Rescission

D&O Insurance: Knowledge, Renewal and Rescission - 4/20/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

D&O Insurance: Knowledge, Renewal and Rescission
Kevin LaCroix

The D & O Diary. April 20, 2009
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EXCERPT: In an interesting decision that raises a host of important issues, a federal district court applying Arkansas law held that due to renewal application misrepresentations, a hospital’s D&O insurance policy is void ab initio, and therefore that the hospital must refund amounts the insurer previously paid as defense costs. […] In her April 17 opinion, Judge Wright granted the insurance carrier’s motion for summary judgment and denied the hospital’s summary judgment motion. […] her conclusion that Baptist Health was "specifically aware" of a wide variety of circumstances that suggested the possibility of a claim when it answered the prior knowledge questions on the application. She found that, given Baptist Health’s awareness of the likelihood of litigation, the conclusion that Baptist Health’s answers to the prior knowledge questions in the renewal applications "were misrepresentations" seems "inescapable." Among other things, Judge Wright noted that Baptist Hospital was aware of that other hospitals’ adoption of similar policies had led to litigation. She specifically found that "a reasonable person would foresee that adoption" of the policy "in these circumstances may give rise to or result in a claim." She also noted that Baptist Health’s CEO acknowledged in a deposition in the underlying action that the ECOI policy "was adopted knowing that a claim would result." Judge Wright reviewed Baptist Health’s responses to other questions in the renewal applications that called for relevant information but that Baptist Health had failed to supply. She found Baptist Health’s attempts to explain its answers to these questions to be "reflective of an apparent tendency on the part of Baptist Health to contort language to its own purposes" and "disingenuous." She said of Baptist Health’s defense of its responses to one renewal application question "reflects a parsing of language that might properly be characterized as a misrepresentation."

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