St. Paul Fire & Marine Ins. Co. v. Jacobson

• Decision Date: 17 February 1995
• Docket Number: No. 93-1986,93-1986
• Citation: 48 F.3d 778
• Parties: ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. Cecil B. JACOBSON, Jr.; Reproductive Genetics Center, Limited, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 778

48 F.3d 778

ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. Cecil B. JACOBSON, Jr.; Reproductive Genetics Center, Limited, Defendants-Appellees.

No. 93-1986.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 7, 1994.

Decided Feb. 17, 1995.

ARGUED: Bethany K. Culp, Oppenheimer, Wolff & Donnelly, Saint Paul, MN, for appellant. Nicholas Drakoulis Vlissides, Thomas R. Nedrich & Associates, P.C., Falls Church, VA, for appellees. ON BRIEF: David M. Wilk, Oppenheimer, Wolff & Donnelly, Saint Paul, MN; Daniel W. Cotter, Daniel W. Cotter Law Offices, Fairfax, VA, for appellant. Thomas R. Nedrich, Thomas R. Nedrich & Associates, P.C., Falls Church, VA, for appellees.

Before ERVIN, Chief Judge, and WIDENER and WILLIAMS, Circuit Judges.

Affirmed by published opinion. Judge WIDENER wrote the opinion, in which Chief Judge ERVIN and Judge WILLIAMS joined.

OPINION

WIDENER, Circuit Judge:

Appellant St. Paul Fire and Marine Insurance Company ¹ (St. Paul) appeals from an order of the district court denying its motion for summary judgment and granting summary judgment in favor of Dr. Cecil B. Jacobson in a case contesting insurance coverage. We affirm.

I

In early 1992, Dr. Cecil B. Jacobson, a physician, was convicted of 52 felony counts for mail fraud, wire fraud, travel fraud, and perjury. See United States v. Jacobson, No. 92-5406, slip op., 1993 WL 343172 (4th Cir. Sept. 3, 1993) (unpublished), cert. denied, --- U.S. ----, 114 S.Ct. 1643, 128 L.Ed.2d 364 (1994). These criminal offenses stemmed in part ² from Jacobson's misconduct in implementing a fraudulent sperm donor scheme in which he injected his own sperm into his patients instead of the promised sperm of the patient's husband or an anonymous donor during artificial insemination procedures at his fertility clinic, Reproductive Genetics Center, Ltd. St. Paul Fire & Marine Ins. Co. v. Jacobson, 826 F.Supp. 155, 158 (E.D.Va.1993). ³ As a result of these activities, which were brought into public light by the 1992 criminal action, at least six civil suits have been filed against Jacobson by the parents of children Jacobson allegedly fathered. 826 F.Supp. at 158. The civil suits allege various counts of fraud, battery, negligence, tort of outrage, negligent infliction of emotional distress, medical malpractice, and child support arising out of Jacobson's providing of professional services.

Pursuant to various reapplications and renewals, Jacobson has held a physicians' professional liability policy with St. Paul Fire and Marine Insurance Company during all times relevant to this action. Under the terms of the policy, St. Paul agreed to defend Jacobson and pay damages in any suits "resulting from ... [the] providing or withholding of professional services." Jacobson requested that St. Paul defend the pending civil suits described above. In response, St. Paul filed its complaint for rescission or declaratory relief, claiming that St. Paul had no obligation to defend the pending civil suits and was not responsible for any recovery. St. Paul argued that rescission was required because Jacobson's 1986 insurance application contained materially false representations in that he had not disclosed his fraudulent insemination activities, which began as early as 1976, in response to Question # 39 or otherwise. St. Paul also argued that Jacobson's intentional and fraudulent use of his own sperm to inseminate patients was not a "professional service" and thus was not covered under the policy. Lastly, St. Paul contended that Virginia's public policy precluded insuring a wrongdoer against the consequences of his intentional, fraudulent, illegal acts. Both parties moved for summary judgment. The district court denied St. Paul's motion and granted summary judgment for Jacobson because it concluded that St. Paul could not escape responsibility for defending Jacobson under any of its three arguments. This appeal followed. ⁴

II

St. Paul argues that the district court's grant of summary judgment in Jacobson's favor was error based on the same three arguments it made in its complaint for rescission and declaratory relief. We review the district court's granting of summary judgment de novo, applying the same standard as did the district court. See, e.g., Overstreet v. Kentucky Central Life Ins. Co., 950 F.2d 931, 938 (4th Cir.1991); Fed.R.Civ.P. 56(c). We affirm, although on reasoning which differs somewhat from the district court's, especially on the question of public policy.

A

We first address St. Paul's argument that the district court erred in refusing to rescind Jacobson's policy for material misrepresentation on the reapplication form he filled out in 1986. St. Paul argues that Jacobson had a duty to voluntarily disclose his fraudulent insemination activities to the company, or in the alternative, that he did not truly and fully answer Question # 39 on the application. ⁵

Virginia law recognizes that an insurer can rescind an insurance contract for misrepresentation of a material fact in applying for insurance. E.g., Time Ins. Co. v. Bishop, 245 Va. 48, 425 S.E.2d 489, 491 (1993); Mutual of Omaha Ins. Co. v. Dingus, 219 Va. 706, 250 S.E.2d 352, 355 (1979). Virginia Code Section 38.2-309, governing when recovery on an insurance contract may be barred, provides:

No statement in an application or in any affidavit made before or after loss under the policy shall bar a recovery upon a policy of insurance unless it is clearly proved that such answer or statement was material to the risk when assumed and was untrue.

However, it is clear under Virginia law that an insured has no affirmative duty to volunteer information; rather, an insured is only required to disclose information that is asked of him. Greensboro Nat'l Life Ins. Co. v. Southside Bank, 206 Va. 263, 142 S.E.2d 551, 555 (1965). Accordingly, St. Paul is not entitled to rescind the policy simply because Jacobson failed to volunteer information about his past fraudulent conduct, including his donor activities. However, St. Paul's argument that Jacobson withheld material information clearly requested of him on the application requires further consideration. Thus, the only real question as to rescission or escape from liability for misrepresentation is whether Jacobson truthfully answered Question # 39. See Time Ins. Co., 425 S.E.2d at 490. ⁶

Question # 39 on the 1986 insurance application asked:

Do you have knowledge of any pending claims or activities (including requests for medical records) that might give rise to a claim in the future?

Jacobson checked "Yes," and listed two suits against him, "Khamnel vrs. Jacobson--OUT OF COURT SETTLEMENT 1985," and "Dolan vrs. Jacobson--MOTION TO DISMISS FILED JUNE 1986[.]" Since there were not any other activities by patients or others, such as requests for medical records, which led him to believe a claim might be raised in the future, Jacobson argues that he fully and truthfully answered the question. The district court agreed, stating that Question # 39, as fairly read and understood by the ordinary person, asked Jacobson to provide information on any pending claims or activities on the part of third parties that might flag a potential claim.

St. Paul urges us to read the question differently, contending that "activities" means any of the insured's (as opposed to a patient's, law enforcement personnel's, or other third party's) activities in providing professional services which could result in a claim against him. It argues that under such a reading of the question, Jacobson was required to inform St. Paul of his activities in intentionally and fraudulently inseminating his patients with his own sperm, since he knew that such activities might result in a claim against him.

Nevertheless, we are of opinion that Question # 39 requests only the applicant's knowledge of pending claims or activities on the part of third parties, such as patients or law enforcement personnel, which might give rise to a claim in the future. In other words, "activities" is another word for "pending claims" which includes the stages in a lawsuit pursued by a patient or other third party prior to the actual filing of a claim. The structure of the sentence, including the preceding language regarding "pending claims," and the parenthetical reference to "activities," giving as an example "(requests for medical records)," makes the word "activities" unambiguous. In any case, even if the word "activities" were ambiguous, Virginia canons of construing insurance contracts require us to construe ambiguous language in favor of coverage. See, e.g., Granite State Ins. Co. v. Bottoms, 243 Va. 228, 415 S.E.2d 131, 134 (1992) (doubtful or ambiguous language in an insurance policy will be given an interpretation which grants coverage, rather than one which withholds it). We are also of opinion that common sense dictates upholding the district court's reading of the question. If St. Paul's interpretation were correct, an applicant physician would have to list almost all of his activities in providing medical services, since arguably each of a physician's activities in treating his patients as he provides medical care could give rise to a future claim. We simply cannot accept that St. Paul intended to compel such information when it would impose a substantial burden on an applicant and be of little value in computing true risk for the company. If St. Paul truly desires such detailed information it will have to request it more clearly.

B

We next turn to St. Paul's argument that Jacobson's activities in fraudulently inseminating his patients are not the "providing or withholding of professional services," and are therefore not covered under the policy.

The Policy provides for coverage as follows:

What this agreement covers

Individual coverage. Your professional liability protection covers you for damages resulting from:

1. Your providing or withholding of professional services.

...