Insurance Law

Policy Needs Void For Fraud Language – Fake Doctor & Innocent Co-Insureds

Medical malpractice insurance is designed to protect doctors who accidentally cause injury to their patients. The insurance policy is issued based upon the truth of facts reported in applications for insurance. In Evanston Ins. Co. v. Watts, Slip Copy, 2014 U.S. Dist. LEXIS 140227 (D.S.C., Oct. 2, 2014), [enhanced version available to subscribers], an insured doctor was discovered to be an imposter who was not who he said he was nor was he a licensed physician. The insurer sought to void coverage for the fake doctor and the group of physicians of which he was a part for suits alleging malpractice against the fake doctor and his group.

Plaintiff, Evanston Insurance Company, (“Evanston”) and Defendants Agape Senior Primary Care (“ASPC”), Floyd Cribbs, Kezia Nixon, and Scott Middleton (“collectively Agape Defendants”), move the district court for summary judgment.


Agape is a business that employs and deploys physicians and nurse practitioners to nursing homes, rehabilitation centers, freestanding offices, and assisted living facilities. Earnest Addo (“Addo”) assumed the identity of Dr. Arthur Kennedy (“Kennedy”), obtained employment with Agape, and sought insurance coverage with Evanston under ASPC’s existing policy. In February of 2012, Addo filled out an application representing that he was Arthur Kennedy, a South Carolina licensed medical physician. Evanston’s added Arthur Kennedy, M.D. to the policy. In August of 2012, Addo’s true identity was discovered by the Lexington County Sheriff’s Department, and Addo was later indicted on federal charges of identity theft.

In the wake of Addo’s true identity coming to light, several lawsuits were filed against Agape and other Named Insureds. Some former patients also alerted Agape to their intention to file suit. These suits and potential claims assert causes of action for medical malpractice and various negligence-based claims.

During the pendency of this case, the parties stipulated to several facts:

1.  Earnest Osei Addo (“Addo”) is not listed as a Named Insured under the Policy.
2.  Addo assumed the identity of and posed as Arthur Kobina Kennedy, M.D. (“Dr.Kennedy”).
3.  Addo posed as a medical doctor, even though he was not a licensed South Carolina physician.
4.  Neither the Hanna Action nor any of the claims by patients or residents of Agape stemming from Addo’s impersonation of Dr. Kennedy allege any wrongful conduct by Dr. Kennedy.


The policy issued to ASPC by Evanston is a claims-made policy providing professional liability coverage. The policy has two types of coverage: Coverage A and Coverage B. The policy provides in pertinent part: Coverage A Individual Professional Liability: “because of Malpractice or Personal Injury, sustained by a patient and committed by the Coverage A Named Insured, or by any person for whose Malpractice or Personal Injury the Coverage A Named Insured is legally responsible.”

Coverage B Association, Corporation or Partnership Liability: “because of Malpractice or Personal Injury, sustained by a patient and committed by any person for whom the Coverage B Named Insured is legally responsible, arising out of the practice of medicine.”

Addo’s Material Misrepresentations and Whether the Policy is Viod Ab Initio

The insurer bears the burden, in South Carolina, of establishing by clear and convincing evidence that an insured has made a material misrepresentation, such that the insurance policy should be voided and coverage denied. In order to void a policy on the ground of fraudulent misrepresentation, it is necessary that the insurer show not only the falsity of the statement challenged, but also that the falsity was known to the applicant, was material to the risk, made with the intent to defraud the insurer, and relied upon by the insurer in issuing the policy.

In policies involving co-insureds, South Carolina has held that where an insurance policy creates several, individual obligations among co-insureds, criminal acts by one co-insured does not bar the innocent co-insureds from recovering under the policy.

Evanston argues that Addo made serious misrepresentations when he assumed the identity of Kennedy and posed as a licensed medical doctor in his application for insurance coverage. Agape Defendants also acknowledge that Addo’s representations to Evanston were fraudulent. Accordingly, there is no factual dispute that Addo’s representations in his application to Evanston regarding his credentials as a physician were false. The false representations were known to Addo at the time he made them, and Addo intended for Evanston to rely on the representations.

Therefore, Evanston has satisfied the elements of material misrepresentation with regard to Addo’s application for insurance and the Court concluded that such misrepresentations clearly allow Evanston to void coverage as to Addo/”Kennedy.”

Policy Void as to Addo But is It Void As to Other Insureds?

In light of Addo’s conduct, the major dispute between the parties appears to be whether Addo’s misrepresentations can be imputed onto the Agape Defendants, such that the entire policy of insurance is void under a theory of material misrepresentation.

Evanston asserts Addo’s misrepresentations in his application not only void his coverage, but also void the entire policy of insurance for all named-insureds. In order to prevail under South Carolina law and void the policy based on a material misrepresentation.

The application requires the applicant, Addo, to warrant that “the information contained herein is true, and that it shall be the basis of the policy and deemed incorporated therein, should the Company evidence its acceptance of this application by issuance of a policy.”

Notably, Evanston does not present any evidence to the contrary. Furthermore, in its own brief, Evanston states, “Addo, not agape [sic] is the applicant.”

The Policy Has Multiple Named Co–Insureds

Evanston’s ability to void the entire insurance policy based on Addo’s misrepresentations is also hindered if the policy is one that affords coverage to multiple co-insureds. Evanston argues it may rescind the policy based on Addo’s misrepresentations, thus barring other insureds from retaining coverage. Agape Defendants insist the policy contains several and independent obligations to each named insured.

In determining whether the policy, as written, provides coverage for co-insureds, the court must attempt to interpret the policy in accordance with the parties’ intention. Each individual doctor submitted his or her own application to Evanston for insurance coverage. ASPC also submitted its own application for coverage under the policy. The Endorsement refers to “each” insured and lists different effective dates and expiration dates of coverage for each named insured.

In South Carolina if the policy contains a fraud provision courts are unwilling to apply the innocent co-insured doctrine. In such circumstances, the policy has made clear that recovery is barred for all insureds if any insured makes a misrepresentation or acts fraudulently in procuring a loss under the policy. Here, in Evanston’s contract, there is no specific fraud provision contained in the insurance policy.

Accordingly, based on the contract itself, the Court agreed with Agape and finds that the other named co-insureds should not be barred from obtaining coverage under the policy.

Policy Exclusions

The policy contains several exclusions that Evanston argues void coverage for certain claims. The two applicable exclusions related to Coverage A which are raised by Evanston are:

Exclusion A-bars coverage for any Malpractice or Personal Injury committed in violation of the any law or ordinance; to any Claim based upon or arising out of any dishonest, fraudulent, criminal, malicious, knowingly, wrongful, deliberate, or intentional acts, errors or omissions committed by or at the direction of the Insured.

Exclusion B-bars coverage for any Malpractice or Personal injury that happens while the Insured’s license or certificate to practice the Insured’s profession is suspended, surrendered, revoked, expired, terminated, or otherwise not in effect.

Addo/”Kennedy” is not entitled to Coverage A under the policy. However, all other Coverage A Named Insureds are entitled to coverage, to the extent a claim exists that would trigger their coverage under the policy.Coverage B

Under the policy, Coverage B provides the “Association, Corporation or Partnership” liability coverage for claims due to “Malpractice or Personal Injury, sustained by a patient and committed by any person for whom the Coverage B Named Insured is legally responsible, arising out of the practice of medicine.” All named insureds, except Addo are entitled to coverage.


The insurer failed to void coverage for an obvious and admitted fraud because of a failure of underwriting and a failure to effectively write policy wording that protected the insurer from fraud. Had the insurer simply added a clause to the policy that stated that: “This entire policy shall be void if, whether before or after a loss, any insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto…” the court would have found that the entire policy, not just as to Addo, was void. In addition, it could have avoided the problem by making the policy a single policy for ASPC with each of the doctors only acting as additional insureds of the ASPC policy and require that ASPC sign for all as well as individual applications for each doctor.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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