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

• Decision Date: 09 July 1993
• Docket Number: Civ. A. No. 92 CV 1656.
• Citation: 826 F. Supp. 155
• Court: U.S. District Court — Eastern District of Virginia
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. Cecil B. JACOBSON, Jr., M.D., and Reproductive Genetics Center, Ltd., Defendants.

826 F. Supp. 155

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. Cecil B. JACOBSON, Jr., M.D., and Reproductive Genetics Center, Ltd., Defendants.

Civ. A. No. 92 CV 1656.

United States District Court, E.D. Virginia, Alexandria Division.

July 9, 1993.

COPYRIGHT MATERIAL OMITTED

Daniel W. Cotter, Fairfax, VA, for plaintiff.

Thomas Richard Nedrich, Nicholas D. Vlissides, Falls Church, VA, for defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

I.

This insurance coverage dispute grows out of a physician's criminal misconduct and the tragic consequences of that misconduct. Plaintiff, St. Paul Marine and Fire Insurance Company ("St. Paul") initiated this declaratory judgment action against defendants Dr. Cecil Jacobson, Jr. ("Jacobson") and Reproductive Genetics Center, Ltd ("RGC"), to obtain rescission of a professional liability policy issued to the defendants or, in the alternative, for declaratory judgment relieving St. Paul of its obligation to defend and indemnify Jacobson and RGC in connection with civil suits filed against them by former patients. St. Paul bases its prayer for rescission and declaratory relief on the alleged misconduct of Jacobson, a fertility specialist, in using his own sperm in the artificial insemination of his patients. This matter is now before the Court on the parties' cross-motions for summary judgment. Because no material facts are in dispute, summary disposition is appropriate.

Summary judgment is especially appropriate in this case because the construction of insurance contracts is a legal question well suited for resolution by the court. John Deere Ins. Co. v. Shamrock Indus. Inc., 929 F.2d 413, 417 (8th Cir.1991) ("the interpretation and construction of insurance policies is a matter of law, and therefore, such cases are particularly amenable to summary judgement"); Morrisville Water & Light Dept. v. United States Fidelity and Guaranty Co., 775 F.Supp. 718, 722-23 (D.Vt.1991) (summary judgment appropriate "because the construction of an insurance policy is a question of law, not fact"). Given this, and for the reasons set forth below, summary judgment is granted in favor of defendants Jacobson and RGC.

II.

At the center of this insurance coverage dispute is the professional liability insurance policy issued by St. Paul, a Minnesota insurance company, to Jacobson, a Utah doctor practicing in Virginia, and RGC, the Virginia fertility clinic owned and operated by Jacobson. This policy covers claims arising from "the providing or withholding of professional services." According to its terms, the policy:

"provides protection against professional liability claims which might be brought against you in your practice as a physician or surgeon."

In addition, the policy obligates St. Paul to:

"defend any suit brought against you for damages covered by this agreement ... even if the suit is groundless or fraudulent."

St. Paul initially issued the policy to Jacobson in April 1976, extending coverage in April 1979 to include RGC. The policy was in effect at all times relevant to this action. Coverage was subject to periodic review by St. Paul, and, as a condition of renewal, St. Paul required Jacobson to submit signed insurance applications on behalf of himself and RGC. In 1986, Jacobson submitted an insurance application in accordance with St. Paul's renewal requirements. This application requested Jacobson to answer the following question:

39. 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?

In response, Jacobson answered "yes," and disclosed that he was a named defendant in one pending lawsuit.¹ But Jacobson did not disclose that he was engaged in an ongoing fraud in connection with his fertility practice — i.e., that he was inseminating patients with his own semen, rather than, as he represented to patients, with semen from anonymous donors or the patients' husbands.

Subsequently, a federal grand jury returned a fifty-three count indictment against Jacobson, charging him with violations of federal law including, inter alia, mail fraud, wire fraud, travel fraud, and perjury. These charges stemmed in part from Jacobson's fraudulent insemination practices.² Following a trial in February, 1992, a jury convicted Jacobson on these fifty-three counts. Jacobson was thereafter sentenced to sixty months in prison, and his appeal of the conviction is currently pending before the United States Court of Appeals for the Fourth Circuit.

The instant coverage dispute arises from various civil actions filed against Jacobson and RGC following this criminal prosecution. To date, five lawsuits have been filed. Each action seeks tort damages and child support based on Jacobson's fraudulent and unauthorized use of his own semen in connection with the artificial insemination of the female patients named as plaintiffs.³ Faced with these lawsuits, Jacobson and RGC have called upon St. Paul to defend and indemnify them against these civil claims (and any others that may arise in the future) under the professional liability policy. St. Paul has refused this request. It disagrees that there is any duty to defend or indemnify in the circumstances. To resolve this dispute, and because it anticipates that additional claims may be filed in the future, St. Paul has filed this action for declaratory judgment pursuant to 28 U.S.C. § 2201. At present, however, St. Paul is defending Jacobson and RGC in the underlying actions pursuant to a reservation of rights.

III.

Analysis properly begins with the threshold determination of the validity of St. Paul's rescission claim. Specifically, St. Paul contends that Jacobson's 1986 renewal application contained materially false representations that warrant rescission of the policy. If valid, this claim would be case dispositive and render moot the remaining coverage issues.

Under Virginia law, an insurer may rescind an insurance policy because of misrepresentations in the insurance application only in certain circumstances.⁴Va.Code § 38.2-309 provides in pertinent part:

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 proven that such an answer or statement was material to the risk when assumed and was untrue. (emphasis added)

Rescission of the St. Paul policy is therefore appropriate only if St. Paul clearly proves that an answer or statement in Jacobson's 1986 renewal application for insurance was both (i) material to the risk assumed; and (ii) untrue. See Mutual of Omaha Ins. Co. v. Dingus, 219 Va. 706, 250 S.E.2d 352, 355 (1979); Utica Mutual Ins. Co. v. National Indemnity Co., 210 Va. 769, 173 S.E.2d 855, 858 (1970). In light of the undisputed facts presented here, St. Paul cannot make such a showing.

In essence, St. Paul's rescission claim fails because it cannot "clearly prove" the second prong of the well-settled test for rescission — i.e., that Jacobson's response to Question 39 represented an "untrue statement." Question 39 asked whether or not Jacobson had knowledge of "any pending claims or activities (including request for medical records) that might give rise to a claim in the future." Since it is undisputed that Jacobson answered "yes" to this question, and then noted the caption and status of a pending lawsuit against him, he cannot be deemed to have made an affirmative misstatement. Nor does Jacobson's non-disclosure of his fraudulent activity amount to an untrue statement. Significantly, the "terms of a question in an application for insurance must be interpreted as the ordinary person standing in the shoes of the insured would understand them." MFA Mutual Insurance Co. v. Lusby, 295 F.Supp. 660, 667 (W.D.Va. 1969). Thus, only if Question 39, as understood by the ordinary person, clearly required Jacobson to provide information concerning his fraudulent insemination of his patients would the omission constitute a misrepresentation.⁵ Fairly read, it did not do so. Fairly read, Question 39 did not require Jacobson to disclose knowledge of any and all of his "activities" that might conceivably spawn future legal claims. Instead, Question 39 asked about "pending" claims, which Jacobson answered accurately. And it also asked about "activities (including requests for medical records) that might give rise to a claim in the future," which Jacobson answered by saying, in effect, "none." This, too, was an accurate answer if, as an ordinary person would reasonably conclude, the "activities" referred to in the question were not those of Jacobson, but of third parties. The conclusion that Question 39's plain language addresses "activities" of third parties, not the insured, finds further support in the example given in the question, namely a request for medical records by a patient or someone on the patient's behalf. Common sense, too, dictates this reading of the question. If Question 39 were directed to the insured's activities, then prudence might dictate listing every patient and treatment (or at least every unsuccessful treatment), as conceivably, each might be an activity "that might give rise to a claim in the future." To omit any would invite a coverage dispute on virtually every claim, as the insurer would routinely deny coverage where the activity giving rise to the claim was not listed. This is a nonsense result. It follows therefore that, properly understood by the ordinary person, Question 39 seeks information on the "activities" that might flag a potential claim. So read and understood, Question 39 was properly answered by Jacobson. Accordingly, the record does not provide the requisite clear proof of a material misrepresentation, and the rescission claim accordingly fails.⁶

IV.

The next inquiry, given the failure of the rescission claim, is whether the policy requires St. Paul to defend and indemnify Jacobson and RGC...