The New Jersey Supreme Court has released its opinion in the interesting medical malpractice case, DeMarco v. Stoddard. The 5-2 majority opinion overturned an Appellate Division decision that had treated medical malpractice insurance like auto insurance, and reaffirmed the court’s commitment to applying the law as written.
“Unfortunately, insurance companies are sometimes caught between policy holders who fraudulently obtain coverage and innocent third parties who have been injured,” said NJCJI president Marcus Rayner. “The majority did an admirable job in looking to the underlying statute and applying the law as it exists, not as they may wish it to be. Though the dissenters argued otherwise, the statute was not on their side.”
Thomas DeMarco was a patient of the defendant, Dr. Sean Stoddard, a podiatrist. In September 2010, Stoddard performed surgery on DeMarco. The surgery was unsuccessful and the plaintiff’s condition worsened, so he sued Stoddard for medical malpractice.
Stoddard sought indemnification from his insurer, the Medical Malpractice Joint Underwriting Association of Rhode Island (RIJUA). JUA denied the claim after discovering that Stoddard had lied on his application for insurance, which required him to certify that at least 51% of his practice was generated in Rhode Island. In fact, the vast majority of Stoddard’s practice was in New Jersey even though he was licensed in both New Jersey and Rhode Island.
DeMarco asked the court to require RIJUA to compensate him for his injuries despite the fact that the insurance policy it had issued was void due to Stoddard’s misrepresentations. The trial court granted DeMarco’s request and the appellate court affirmed, holding that medical malpractice insurers should be held to the same standard as auto-insurers because public policy favors the compensation of innocent third parties.
The New Jersey Supreme Court agreed to hear the case on appeal, and the New Jersey Civil Justice Institute filed an amicus curiae “friend of the court” brief. We argued that malpractice insurance is significantly different from automobile insurance, and thus New Jersey’s unique rules requiring automobile insurers to compensate innocent third parties, even when the insurance policy held by the tortfeasor is void, should not be extended to cases involving medical malpractice insurance. The statutory foundation that the automobile rule is built on is simply inapplicable to any other type of insurance, and the required statutory minimums for auto insurance are significantly lower ($15/30K vs. $1 million) than for medical malpractice insurance.
The New Jersey Supreme Court’s Ruling
The high court’s ruling aligns with the arguments we made in our amicus brief. In a 5-2 majority opinion authored by Judge Cuff, who is serving on the Supreme Court on assignment, the court held “RIJUA owed neither a duty to defend nor a duty to indemnify its insured, who had misrepresented the proportion of his practice generated in Rhode Island, which was a fact that formed the basis for his eligibility for insurance through the RIJUA.”
While the lower courts looked to the automobile insurance statutes to craft a remedy benefiting the plaintiffs, the high court refused to do so. The court pointed out that “…the Legislature has not constructed a similar matrix of alternate remedies for any other type of liability insurance, including compulsory professional liability insurance, or created an expectation that insurance coverage will be available to redress an injury even in the face of a fraudulently obtained policy.”
The Court, therefore, concluded that the Appellate Division’s reliance on the compulsory automobile liability insurance model was misplaced.
Cuff’s opinion was joined by Justices LaVecchia, Patterson, Fernandez-Vina, and Solomon.
Albin & Rabner Dissent
Justice Albin filed a separate, dissenting opinion which was joined by Chief Justice Rabner. The dissent is critical of the majority’s decision to ignore the public policy implications of its decision. The dissenters would compensate the plaintiffs because patients should have “a right to presume that his physician is in compliance with the law.”
Thank you to Shalom D. Stone of Brown Moskowitz & Kallen for authoring our brief.