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Insurer’s med mal coverage dispute must go to trial: Ruling

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The issue of whether an insurer can rescind the medical malpractice policies of medical clinics, several of whose employees were charged with writing illegal prescriptions, will have to be decided at trial, says a federal court in Indianapolis.

Birmingham, Alabama-based ProAssurance Indemnity Co. Inc. had provided medical malpractice coverage to Kokomo, Indiana-based Wagoner Medical Center L.L.C. and many of its employees between 2001 and 2013, according to Tuesday’s ruling by the U.S. District Court in Indianapolis in ProAssurance Indemnity Co. Inc. v. Donald J. Wagoner et al.

In seeking to rescind its policies, ProAsusrance alleged several defendants in the case made material misrepresentations and omissions related to the illegal prescription of controlled substances.

According to a news report, Kokomo police and U.S. Drug Enforcement Agency officers raided the two Wagoner clinics in Kokomo and Burlington, Indiana, in March 2013 and arrested several clinic doctors and employees a month later.

Prosecutors filed 95 charges in April 2013, stating more than two dozen people died as a result of illegal prescribing practices, according to the news report. Several of the defendants pleaded guilty in the criminal case, according to the ruling.

ProAssurance filed a motion for summary judgement on its rescission claim, seeking a declaration its policies are void and that the insurer has no obligation to defend against pending and future claims, or to pay judgments or damages that may be assessed against the defendants, according to the ruling.

“Two questions bear on whether ProAssurance has complied with the procedural requirements for rescission under Indiana law,” said the ruling. “(1) Was ProAssurance required to tender premiums it received in consideration for the policies back to the insured? And (2) if so, did ProAssurance wait too long to do so?’”

ProAssurance “appears to admit that it has not tendered premiums back to the insured for the policies it now seeks to rescind,” and alleges it is not obligated to do so because of it has already paid for defense costs under the policies, said the ruling.

“In order to ascertain whether ProAssurance was required to tender premiums back to the insureds before seeking rescission of the policies, the court must determine whether ProAssurance paid claims under the policies that were greater in amount than the premiums it received,” said the ruling.

“It is impossible for this court to make such a determination based on the evidence before it,” said the ruling however. The “court cannot ascertain the amount of the claims paid or premiums received,” it said, adding there is a “genuine need for a trial.”