Court Opinion

ID: 3159266
Source: CourtListenerOpinion
Date Created: 2015-12-02 15:08:53.863925+00
Date Added: 2024-06-11T11:59:21.757827
License: Public Domain

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)

                    Thomas DeMarco v. Sean Robert Stoddard, D.P.M. (A-104-13) (073949)

Argued April 27, 2015 -- Decided December 1, 2015

CUFF, P.J.A.D. (temporarily assigned), writing for a majority of the Court.

         In this appeal, the Court considers whether the Rhode Island Medical Malpractice Joint Underwriting
Association (RIJUA) must defend and indemnify a podiatrist in a medical malpractice action pending in New Jersey
following rescission of the podiatrist’s malpractice liability policy.

         Defendant Sean Robert Stoddard, D.P.M. practiced podiatry at a clinic with offices in Toms River and
Lakewood. In 2007, he applied to the RIJUA for medical malpractice liability insurance. Among other
representations, the application indicated that at least fifty-one percent of Dr. Stoddard’s practice was generated in
Rhode Island; that answer was false. Dr. Stoddard submitted renewal applications from 2008 through 2011, each of
which stated that at least fifty-one percent of Dr. Stoddard’s practice was generated in Rhode Island.

          Dr. Stoddard performed three surgeries on plaintiff Thomas DeMarco, a New Jersey resident. The third
surgery occurred in September 2010. In October 2011, DeMarco and his wife filed a medical malpractice complaint
in New Jersey alleging that Dr. Stoddard negligently performed the September 2010 surgery. Dr. Stoddard
forwarded the complaint to the RIJUA, which responded with a reservation of rights letter stating that the RIJUA
only provides coverage for physicians who maintain fifty-one percent of their “professional time and efforts” in
Rhode Island, and that the RIJUA was “in the process of securing facts concerning whether [Dr. Stoddard] . . . met
the fifty-one percent (51%) requirement for the provision of insurance coverage from the [RI]JUA.”

          In January 2012, the RIJUA filed declaratory judgment action in Rhode Island, naming both Dr. Stoddard
and the DeMarcos as defendants. The RIJUA sought a declaration that Dr. Stoddard misrepresented material
information in his insurance applications and a judgment permitting rescission of the policy. In March 2012, the
DeMarcos named the RIJUA as a defendant in their medical malpractice action, and sought a declaratory judgment
that the RIJUA was required to defend Dr. Stoddard and indemnify him up to $1 million. In May 2012, the Rhode
Island court entered a default judgment against Dr. Stoddard, declaring his 2010-2011 renewal policy void and
holding that the RIJUA had no duty to defend or indemnify him for the DeMarcos’ claims. Thereafter, the RIJUA
and the DeMarcos filed cross-motions for summary judgment in the New Jersey malpractice case. The court
determined that New Jersey law should apply, and held that the Rhode Island judgment could not be enforced in the
New Jersey action because it was entered without jurisdiction over the DeMarcos. The trial court went on to grant
the DeMarcos’ motion for summary judgment and deny the RIJUA’s motion.

          The Appellate Division granted the RIJUA’s motion for leave to appeal, and affirmed the trial court order
in a published opinion. 434 N.J. Super. 352 (App. Div. 2014). The panel determined that New Jersey law should
apply and concluded that innocent third parties should be protected for a claim arising before rescission. Id. at 380.
Comparing medical malpractice liability insurance to the protection afforded to innocent third parties when a motor
vehicle liability insurance policy has been rescinded, the panel concluded that the RIJUA owed a duty to indemnify
Dr. Stoddard up to $1 million -- the amount of medical malpractice liability insurance that a physician licensed to
practice medicine and performing medical services in this State is required to maintain.

         The Court granted RIJUA’s motion for leave to appeal. 218 N.J. 270 (2014).

HELD: The 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.

                                                          1
1. In New Jersey, malpractice insurance is mandatory for physicians and podiatrists. The mandated minimum
amount of coverage is $1 million per occurrence and $3 million per policy year. There is scant case law interpreting
the statutes and regulations requiring medical malpractice liability insurance. However, in Jarrell v. Kaul, ___ N.J.
___, ___ (2015) (slip op. at 2), the Court reviewed the medical malpractice liability insurance scheme in the context
of a complaint against a physician who did not have the statutorily mandated coverage. There, only one issue
implicated the consequences to a patient with a pending negligence claim when a policy is rescinded. The Court
opined that the statute requiring a physician to obtain and maintain medical malpractice liability insurance does not
give rise to a direct cause of action by an injured patient to enforce that requirement. (pp. 14-16)

2. In the context of compulsory legal malpractice insurance, there is a well-developed body of law holding that a
malpractice insurance policy may be declared void from its inception due to a misrepresentation of material fact in
an application for insurance. Upon rescission, the insurer owes no duty to defend or indemnify a firm or defalcating
attorney for any complaints pending or claims that accrued at the time of rescission. An attorney will not have
access to insurance coverage to respond to claims from injured third parties, clients, or title companies, if the policy
has been rescinded due to the attorney’s misrepresentations of material fact in the policy application. See Liberty
Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 446-49 (2007); First American Title Insurance Co. v.
Lawson, 177 N.J. 125, 192 (2003). The Court discerns no basis to treat other professionals required to maintain
professional liability insurance, including physicians and podiatrists, in a different manner. All professional liability
insurance serves the same purpose -- to defend when claims are filed against a professional and to serve as a source
of funds to compensate injured patients or clients. Reformation of a medical malpractice liability policy to conform
to statutorily mandated minimum amounts suggests that fraudulent conduct is condoned, and runs counter to Jarrell,
where the Court denied a direct action for compensation by a patient against an uninsured physician. (pp. 16-20)

3. In reaching this determination, the Court concludes that the compulsory automobile insurance model has no
relevance to the remedial response to a fraudulently obtained policy of professional liability insurance and the effect
of rescission on innocent third parties. In contrast to the web of interrelated provisions attending the no-fault
automobile liability model, the Legislature has not constructed a matrix of alternate remedies for other types of
liability insurance, including compulsory professional liability insurance. Nor has the Legislature created an
expectation that insurance coverage will be available to redress an injury even in the face of a fraudulently obtained
policy. Furthermore, the vast differences in the amount of liability insurance that a driver and a physician must
carry, and the fact that some physicians procure professional liability insurance through a joint underwriting
association, counsel against utilizing the compulsory automobile liability insurance model to devise a remedy for an
injured patient whose physician is uninsured by virtue of a rescission. The Court, thus, concludes that the Appellate
Division’s reliance on the compulsory automobile liability insurance model was misplaced. (pp. 20-24)

4. Finally, the Court addresses the panel’s determination that a conflict of laws arose from the difference in the
manner in which New Jersey and Rhode Island address compulsory medical malpractice insurance. The Court finds
that on the critical inquiry in this appeal -- whether a rescinded policy of medical malpractice liability insurance
provides any coverage to the insured for claims that arose prior to rescission -- both New Jersey and Rhode Island
courts would rescind a policy ab initio, in which case the insured is without insurance coverage to respond to a claim
by a third party. To the extent that each state requires a podiatrist to maintain medical malpractice liability
insurance, the Court discerns no difference in the laws that amounts to a conflict of laws. (pp. 24-27)

         The judgment of the Appellate Division is REVERSED.

         ALBIN, J., DISSENTING, joined by CHIEF JUSTICE RABNER, agrees with the majority’s conclusion
that New Jersey law applies to the DeMarsos’ lawsuit, but disagrees that under this State’s law, the medical-
malpractice carrier can retroactively cancel insurance to deny an innocent patient coverage for a physician’s
professional negligence. Justice Albin expresses the view that New Jersey’s compulsory medical malpractice
insurance law exists to ensure that patients can secure financial compensation in the event of a doctor’s professional
negligence. He would require the insurer to provide coverage up to $500,000 to DeMarco and his wife.

       JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, and SOLOMON join in JUDGE
CUFF’s opinion. JUSTICE ALBIN filed a separate, dissenting opinion in which CHIEF JUSTICE RABNER
joins.
                                                           2
                                       SUPREME COURT OF NEW JERSEY
                                        A-104 September Term 2013
                                                  073949

THOMAS DEMARCO and CYNTHIA
DEMARCO,

    Plaintiffs-Respondents,

         v.

SEAN ROBERT STODDARD, D.P.M.,
Individually and t/a CENTER
FOR ADVANCED FOOT & ANKLE
CARE, INC.,

    Defendant,

         and

MEDICAL MALPRACTICE JOINT
UNDERWRITING ASSOCIATION OF
RHODE ISLAND,

    Defendant-Appellant.

         Argued April 27, 2015 – Decided December 1, 2015

         On appeal from the Superior Court, Appellate
         Division, whose opinion is reported at 434
N.J. Super. 352 (App. Div. 2014).

         Todd J. Leon argued the cause for appellant
         (Hill Wallack, attorneys; Mr. Leon and
         Gerard H. Hanson, on the briefs).

         Michael D. Schottland   argued the cause for
         respondents (Lomurro,   Davison, Eastman &
         Munoz, attorneys; Mr.   Schottland, Christina
         Vassiliou Harvey, and   Michael J. Fasano, on
         the briefs).

         Hugh P. Francis argued the cause for amici
         curiae (Francis & Berry, attorneys for
         Property Casualty Insurers Association of

                                 1
            America and Insurance Council of New Jersey;
            Brown Moskowitz & Kallen, attorneys for New
            Jersey Civil Justice Institute; Fox
            Rothschild, attorneys for New Jersey
            Physicians United Reciprocal Exchange; Mr.
            Francis, Joanna Huc, Shalom D. Stone,
            Jeffrey M. Pollock and Abbey True Harris, on
            the briefs).

            E. Drew Britcher argued the cause for amicus
            curiae New Jersey Association for Justice
            (Britcher, Leone & Roth, attorneys; Mr.
            Britcher and Jessica E. Choper, on the
            brief).

    JUDGE CUFF (temporarily assigned) delivered the opinion of

the Court.

    In this appeal, we consider whether the Rhode Island

Medical Malpractice Joint Underwriting Association (RIJUA) must

defend and indemnify a podiatrist in a medical malpractice

action pending in New Jersey following rescission of the

podiatrist’s medical malpractice liability policy.    The policy

had been rescinded due to material misrepresentations concerning

the state in which the insured podiatrist maintained his primary

practice.    The trial court and the Appellate Division, applying

New Jersey law, held that in a medical malpractice action

pending in this State, the insurer had the duty to defend and

indemnify the insured podiatrist up to $1 million, the amount of

professional liability insurance physicians and podiatrists are

required to maintain in this State.

                                  2
    We granted leave to appeal, and now reverse.     The critical

inquiry in this case is whether a rescinded policy of medical

malpractice liability insurance provides any coverage to the

insured for claims that arose prior to rescission.   Although the

Appellate Division correctly determined that New Jersey law

applies, we conclude that the Appellate Division erred when it

referred to the compulsory automobile liability model as the

guidepost for fashioning a remedy for third-party claimants

whose claims arose prior to rescission.   The appellate panel

further erred by reforming the rescinded policy to require the

insurer to defend and indemnify its insured up to the mandatory

minimum amount of coverage required in this State.

    We conclude that resolution of the question of what, if

any, coverage is available to an insured to respond to third-

party claims following rescission of a policy is governed by the

rule announced in First American Title Insurance Co. v. Lawson,

177 N.J. 125 (2003), and its progeny.   Applying that rule, the

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.      We

therefore reverse the judgment of the Appellate Division.

                               I.

                                3
    Plaintiff Thomas DeMarco, a New Jersey resident, sought

treatment for chronic plantar fasciitis from defendant Sean

Robert Stoddard, D.P.M.   Dr. Stoddard practiced podiatry at the

Center for Advanced Foot & Ankle Care, Inc., which had offices

in Toms River and Lakewood.   Dr. Stoddard diagnosed DeMarco with

a split peroneal tendon and performed three surgical procedures

on DeMarco between 2004 and January 2011.     The third surgery,

which forms the basis of DeMarco’s complaint, occurred in

September 2010.

    In 2007, Dr. Stoddard applied to the RIJUA for medical

malpractice liability insurance.     He submitted his application

through Linda O’Neill, an agent located in Rhode Island.     The

application listed Dr. Stoddard’s office at a Rhode Island

address, but the office phone number had a New Jersey area code.

The application also provided that Dr. Stoddard was “currently

applying” for affiliation with a Rhode Island hospital.    The

“Licensure” section of the application asked whether at least

fifty-one percent of the applicant’s practice was generated in

Rhode Island.   The application had “Yes” checked off, but that

answer was false.   The application then stated, partly in bold

letters:   “IF YOUR ANSWER IS NO, DO NOT CONTINUE.    You are not

eligible for coverage under the Rhode Island MMJUA.”     The agent

claims that Dr. Stoddard provided all of the information

required in his initial application.

                                 4
    Through the same Rhode Island agent, Dr. Stoddard submitted

renewal applications each year from 2008 through 2011.      Each of

the renewal forms stated that at least fifty-one percent of Dr.

Stoddard’s practice was generated in Rhode Island.     In addition,

the renewal application for the 2010-2011 coverage year -- when

Dr. Stoddard performed the surgery that forms the basis of

DeMarco’s malpractice claim -- listed an office address in

Lakewood.

    In January 2011, Dr. Stoddard told DeMarco that he was

moving to California.     DeMarco’s condition worsened, and he

sought treatment from an orthopedic surgeon.     The surgeon

performed two additional surgeries on DeMarco.

    In October 2011, DeMarco and his wife, Cynthia DeMarco (the

DeMarcos) filed a medical malpractice complaint in New Jersey

against Dr. Stoddard and the Center for Advanced Foot & Ankle

Care, Inc., alleging that Dr. Stoddard negligently performed the

September 2010 surgery.    Dr. Stoddard forwarded the DeMarcos’

complaint to the RIJUA, which responded with a reservation of

rights letter.   The letter indicated that the RIJUA only

provides coverage for physicians who maintain fifty-one percent

of their “professional time and efforts” in Rhode Island and

that the RIJUA was “in the process of securing facts concerning

whether [Dr. Stoddard] . . . met the fifty-one percent (51%)

                                  5
requirement for the provision of insurance coverage from the

[RI]JUA.”

    Less than a week later, Dr. Stoddard wrote a letter to the

attorney representing the DeMarcos, advising that he “has no

malpractice coverage in regards to [their] claim.”       Dr. Stoddard

also stated that he tried to build his practice in Rhode Island

but failed and that an agent told him he could enroll with the

RIJUA even though the bulk of his practice was in New Jersey.

Additionally, Dr. Stoddard stated that he had no assets, his new

practice -- a professional corporation in California -- was

struggling, he was in the midst of a divorce, he had defaulted

on his student loans, and he had “a significant amount of debt.”

Dr. Stoddard conceded that he could not prove that he satisfied

the RIJUA’s fifty-one percent requirement, and stated that “it

would be a waste of time to pursue this claim against me based

on these facts.”

                                  II.

    In January 2012, the RIJUA filed a complaint for a

declaratory judgment in Rhode Island, naming both Dr. Stoddard

and the DeMarcos as defendants.       The RIJUA sought a judgment

declaring that Dr. Stoddard misrepresented material information

in his four applications to the RIJUA.       It also sought a

judgment permitting rescission of the policy.       In February 2012,

the DeMarcos’ attorney sent a letter to the RIJUA’s general

                                  6
counsel, indicating that he did not believe his clients were

subject to personal jurisdiction in Rhode Island.

    In March 2012, the DeMarcos amended their medical

malpractice complaint.   They added the RIJUA as a defendant and

sought a declaratory judgment that the RIJUA was required to

defend Dr. Stoddard and indemnify him up to $1 million in the

event that the DeMarcos were awarded damages for their claims

against Dr. Stoddard.

    In May 2012, the Rhode Island court entered a default

judgment against Dr. Stoddard, declaring his renewal policy from

2010 to 2011 void and holding that the RIJUA had no duty to

defend or indemnify Dr. Stoddard for the DeMarcos’ claims.

    Thereafter, the RIJUA and the DeMarcos filed cross-motions

for summary judgment in the New Jersey malpractice case.     The

motions addressed whether the RIJUA was required to defend and

indemnify Dr. Stoddard and the effect of the default judgment in

Rhode Island against Dr. Stoddard.    The trial court applied a

choice of law analysis and determined that New Jersey law should

apply.   The court held that the Rhode Island judgment was not

entitled to full faith and credit and could not be enforced in

the New Jersey action because it was entered without

jurisdiction over the DeMarcos.   Finally, the trial court denied

the RIJUA’s motion for summary judgment and granted the

DeMarcos’ motion, concluding that the DeMarcos were entitled to

                                  7
summary judgment “because compulsory insurance cannot be voided

as to an innocent third party.”       The court also awarded the

DeMarcos attorneys’ fees for successfully litigating the RIJUA’s

disclaimer of coverage.

    The Appellate Division granted the RIJUA’s motion for leave

to appeal.   In a published opinion, DeMarco v. Stoddard, 434
N.J. Super. 352 (App. Div. 2014), the Appellate Division

affirmed the trial court order.

    The Appellate Division determined that “[t]he precise

question before us is whether a medical malpractice insurance

carrier may rescind a policy so that the carrier has no duty to

indemnify the insured doctor for injuries suffered by an

innocent third party who made a malpractice claim before the

policy was rescinded.”    Id. at 367.    The panel predicted that

this State would permit rescission of a compulsory medical

malpractice liability insurance policy due to misrepresentations

of material facts in the policy application but would protect an

innocent third party, such as a patient whose claim arose prior

to rescission, up to the minimum amount of required coverage.

Ibid.   The panel also determined that Rhode Island might protect

innocent third parties.   Ibid.

    In addition, the panel concluded that “[a]nalogous case law

of both states suggests that both would restrict the rescission

remedy . . . in order to provide some protection to innocent

                                  8
third parties for whose benefit compulsory insurance laws were

enacted.”    Ibid.   In reaching this conclusion, the panel

compared medical malpractice liability insurance to the

protection afforded to innocent third parties when a motor

vehicle liability insurance policy has been rescinded.        Id. at

368-73.     The Appellate Division determined, however, that Rhode

Island had “not directly compelled coverage in any specific

amount,” while New Jersey requires $1 million of coverage,

necessitating a choice-of-law analysis.     Id. at 373-74.    The

Appellate Division determined that New Jersey law should apply

and concluded that innocent third parties should be protected

for a claim arising before rescission.     Id. at 380.   Applying

that rule to plaintiffs, the panel concluded that the RIJUA owed

a duty to indemnify Dr. Stoddard up to $1 million, the amount of

medical malpractice liability insurance that a physician

licensed to practice medicine and performing medical services in

this State is required to maintain, even though the record

demonstrated that Dr. Stoddard provided materially false

information to the RIJUA in his applications for insurance

coverage.    Ibid.

    We granted the RIJUA’s motion for leave to appeal.        218
N.J. 270 (2014).     We also granted motions to appear as amicus

curiae by five entities:     New Jersey Civil Justice Institute

(NJCJI), New Jersey Physicians United Reciprocal Exchange

                                   9
(NJPURE), Property Casualty Insurers Association of America

(Property Casualty Insurers), Insurance Council of New Jersey

(Insurance Council), and New Jersey Association for Justice

(NJAJ).

                               III.

                                A.

    The RIJUA raises three points of error in the Appellate

Division’s decision.   First, it argues that Rhode Island law

should apply to the coverage dispute.   Although the RIJUA agrees

that Rhode Island and New Jersey law conflict, it disputes that

a conflict of law analysis results in the application of New

Jersey law.   In particular, the RIJUA argues that the Appellate

Division erroneously viewed the coverage dispute as a first-

party claim by the DeMarcos against the RIJUA.   Instead, the

RIJUA submits that the dispute consisted of a third-party claim

by the DeMarcos, which addressed whether the RIJUA must defend

and indemnify Dr. Stoddard in response to their claims.

Accordingly, the RIJUA maintains that the Appellate Division

focused on the DeMarcos’ interests when it should have focused

on the interests of the parties to the insurance contract -- the

RIJUA and Dr. Stoddard.   The RIJUA thus argues that

consideration of those interests would have led to the proper

conclusion that Rhode Island law applies.

                                10
    Second, the RIJUA argues that the reformation remedy

fashioned by the Appellate Division was inequitable under New

Jersey law.   Citing the dissent in Citizens United Reciprocal

Exchange v. Perez (CURE), 432 N.J. Super. 526, 538 (App. Div.

2013), rev’d, 223 N.J. 143 (2015), the RIJUA asserts that while

courts must protect innocent third parties, they must also

provide some relief to the defrauded insurance provider.     Under

the Appellate Division judgment, even though the policy is void

due to Dr. Stoddard’s misrepresentations, the RIJUA is made

liable for the same amount of coverage -- $1 million -- as it

would if the policy was valid.   In other words, the RIJUA argues

that the Appellate Division’s decision is inequitable because it

failed to provide any relief whatsoever to the RIJUA.     It also

states that such a result fails to provide any disincentive for

an applicant to lie to an insurance provider.

    The RIJUA also contends that “mandatory [professional]

malpractice coverage can and will be voided, in full and ab

initio, as a result of fraud in the application by an insured.”

In particular, the RIJUA relies on Lawson, supra, 177 N.J. 125.

    Last, the RIJUA argues that attorneys’ fees were improperly

awarded to the DeMarcos under Rule 4:42-9(a) because its

position was not a “groundless disclaimer” of coverage.

                                 B.

                                 11
    The DeMarcos argue that this case does not present a

significant conflict of law issue because both New Jersey and

Rhode Island have laws requiring compulsory medical malpractice

insurance and both states protect innocent third parties seeking

to recover under a statutorily mandated insurance policy.

Nevertheless, the DeMarcos assert that the Appellate Division

resolved the conflict of law question correctly by ruling that

New Jersey law applied.

    Additionally, the DeMarcos assert that the Appellate

Division decision was fair and equitable.   Plaintiffs contend

that the RIJUA was in a better position to detect Dr. Stoddard’s

misrepresentations and reject his renewal applications.

Accordingly, they contend it would not be equitable to force the

DeMarcos to bear the loss.

    The DeMarcos also assert that the Appellate Division’s

determination is consistent with New Jersey law.   They contend

that it is universally recognized that an insurer cannot escape

liability to a third party even if the insured procured coverage

through fraud or misrepresentation.   The DeMarcos distinguish

Lawson on the grounds that the insured party here is a private

citizen, as opposed to an insurance company.   Moreover, the

misrepresentation in Lawson related to a presently existing

claim against the law firm, whereas the misrepresentation in

this case related to the likelihood of potential future claims

                               12
arising outside of Rhode Island.     They assert that the RIJUA

knew that Dr. Stoddard could potentially face a claim outside of

Rhode Island, as the policy only required fifty-one percent of

the practice to be in Rhode Island.     Therefore, the RIJUA

knowingly assumed the risk that it might become involved in

litigation in New Jersey.   In contrast, the DeMarcos contend

that the misrepresentation in Lawson induced an agreement by

concealing a risk unknown to the insurer.

    Finally, the DeMarcos assert that the trial court properly

awarded attorneys’ fees.

                                C.

    Amici NJCJI, NJPURE, Property Casualty Insurers, and

Insurance Council urge reversal of the Appellate Division

judgment.   Each argues that the appellate panel misperceived the

breadth of the rule protecting innocent third parties following

rescission of an insurance policy.    Each notes that compulsory

automobile insurance policies occupy a unique place in the law

of this State, and each emphasizes that well-established

authority addressing compulsory professional liability insurance

coverage permits rescission of a fraudulently induced policy

with no protection to innocent third parties, such as clients or

patients.

    Amicus NJPURE also asserts that the appellate panel opinion

“incentivizes applicants to commit fraud.”     Amici Property

                                13
Casualty Insurers and Insurance Council urge that the rule

announced by the Appellate Division will hinder proper

underwriting and diminish the availability of professional

liability insurance coverage.

     Amicus NJAJ urges affirmance of the Appellate Division

judgment.    It contends that the opinion upholds the public

policy of this State to protect the rights of innocent third

parties when an insurer seeks to void ab initio a policy of

insurance.

                                 IV.

                                  A.

     In New Jersey, the Legislature first instituted mandatory

malpractice insurance for physicians and podiatrists in 1998.

L. 1997, c. 365, § 1 (physicians); L. 1997, c. 365, § 2

(podiatrists).   N.J.S.A. 45:5-5.3, which codified L. 1997, c.

365, § 2, mandates that podiatrists must obtain and maintain

malpractice liability insurance, or if coverage is unavailable,

a letter of credit for at least the minimum amount prescribed by

the Board of Medical Examiners (BME).1    The BME promulgated a

regulation setting the minimum amount of malpractice insurance

for physicians and podiatrists at $1 million per occurrence and

$3 million per policy year.     N.J.A.C. 13:35-6.18.

1 The minimum amount required for the letter of credit is
$500,000. N.J.A.C. 13:35-6.18(b).
                                  14
      In 2004, the Legislature amended L. 1997, c. 365, § 1.

N.J.S.A. 45:9-19.17; L. 2004, c. 17, § 25.   The 2004 amendment

codified the 1999 regulation and set the minimum amount of

malpractice insurance for physicians at $1 million per

occurrence and $3 million per policy year.   L. 2004, c. 17, §

25.   Notably, the 2004 statutory amendment addressed only

physicians.   Nevertheless, the 1999 regulation applies to both

physicians and podiatrists, and sets the floor for both at $1

million per occurrence and $3 million per policy year.    N.J.A.C.

13:35-6.18.   In addition, N.J.S.A. 45:9-19.17 requires

physicians to maintain an insurance policy specifically “by a

carrier authorized to write medical malpractice liability

insurance policies in this State,” but N.J.S.A. 45:5-5.3 does

not include a similar requirement for podiatrists.

      There is scant case law interpreting the statutes and

regulations requiring physicians and podiatrists to obtain and

maintain medical malpractice liability insurance.    In Jarrell v.

Kaul, ___ N.J. ___, ___ (2015) (slip op. at 2), the Court

reviewed the compulsory medical malpractice liability insurance

scheme adopted by the Legislature in the context of a multi-

count complaint filed by a patient injured by a physician who

did not have the statutorily mandated medical malpractice

liability coverage.   Only one of the issues before the Court in

Jarrell implicated the consequences to a patient with a pending

                                15
negligence claim when a policy is rescinded.    Ibid.   The Court

opined that the statute requiring a physician practicing

medicine in this State to obtain and maintain medical

malpractice liability insurance does not give rise to a direct

cause of action by an injured patient to enforce that

requirement.   Id. at ___ (slip op. at 21).    The only other case

addressing the consequences to an injured third party due to the

absence of medical malpractice liability insurance is the

opinion under review.

    In the context of compulsory legal malpractice insurance,2

however, there is a well-developed body of law holding that a

legal malpractice insurance policy may be declared void from its

inception due to a misrepresentation of material fact by the

insured in an application for insurance.    Liberty Surplus Ins.

Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 446-49 (2007);

Lawson, supra, 177 N.J. at 129.    Upon rescission, the insurer

owes no duty to defend or indemnify the law firm or any

2 In 1997, the Court adopted rules that require firms organized
to practice law as professional corporations pursuant to The
Professional Service Corporation Act, N.J.S.A. 14A:17-1 to -18,
as limited liability companies pursuant to the New Jersey
Limited Liability Company Act, N.J.S.A. 14A:2B-1 to -70 (now
repealed), or as limited liability partnerships pursuant to the
Uniform Partnership Act, N.J.S.A. 42:1A-1 to -56, to obtain and
maintain professional liability insurance. R. 1:21-1A(a)(3), –
1B(a)(4), and -1C(a)(3). Rhode Island has a similar
requirement, although the minimum mandatory amount of coverage
is different from that in New Jersey. R.I. Gen. Laws § 7-5.1-8.
                                  16
defalcating attorney of the firm for any complaints pending or

claims that accrued at the time of rescission.      Lawson, supra,

177 N.J. at 129.

    In Lawson, one of three members of a law firm applied for

professional liability insurance for the firm and its members.

Id. at 131.   At the time, the member had been engaged in a

scheme in which he improperly transferred funds between client

accounts and the firm business account to meet the firm’s

financial obligations.    Id. at 130-31.    A second member of the

firm had previously discovered the scheme but took no action to

cease the practice.   Ibid.   In the insurance application, the

member who initiated the scheme falsely stated that he knew of

no “acts, errors or omissions in professional services that may

reasonably be expected to be the basis of a professional

liability claim,” and warranted that all information in the

application was accurate.     Id. at 131.   At about the same time,

the Office of Attorney Ethics (OAE), acting on three grievances

filed against the firm, notified the firm that it would conduct

an audit.   Id. at 132.   The attorney who had filed the original

application later provided a new warranty as to the accuracy of

the information in the application.     Ibid.3

3
 Soon thereafter, the OAE sought and obtained the temporary
suspension of the member who had discovered but did not curtail
the scheme. Id. at 132.
                                  17
     As a result of numerous improper transfers, title insurers

that paid claims to various individuals represented by the firm

sought recovery against the firm and its members, who in turn

sought coverage from their professional liability insurer.      Id.

at 132-33.   The insurer obtained a declaratory judgment allowing

it to rescind coverage in respect to the two defalcating members

but not the third member or the firm.    Id. at 134.   In reviewing

this judgment,4 this Court held that the insurer had “the clear

right to rescind [a defalcating attorney’s] coverage in the face

of his blatant and direct misrepresentations.”    Id. at 140.   The

Court expressly rejected the contention of the title insurers --

injured third parties -- that the remedy for such

misrepresentations should only be prospective rescission of the

policy.   Ibid.   In doing so, the Court recognized that two of

the firm’s three attorneys would be without insurance coverage

to respond to malpractice claims filed against them by injured

clients and the title insurer.    Id. at 143.   The Court reasoned

that the harsh result was warranted because “[p]ermitting the .

. . coverage to survive [the member’s] defalcations would, in

essence, condone . . . fraudulent conduct.”     Id. at 141.

     Later, in Liberty Surplus Insurance, supra, this Court

upheld the entry of summary judgment in favor of the insurer in

4 On appeal, the Appellate Division held that the coverage was
void as to all three members and the firm. Id. at 134.
                                 18
a declaratory judgment action seeking rescission ab initio of a

legal malpractice liability insurance policy due to

misrepresentations of material fact in the policy application.
189 N.J. at 450.    The firm therefore faced the legal malpractice

claim filed by the injured client without coverage.    Ibid.; see

also Liebling v. Garden State Indem., 337 N.J. Super. 447, 450-

51 (App. Div.) (affirming summary judgment rescinding legal

malpractice policy and denying coverage for professional

negligence action filed and served on firm before application

for and issuance of policy), certif. denied, 169 N.J. 606

(2001).

    Thus, it is well established in this State that an attorney

will not have access to insurance coverage to respond to claims

from injured third parties, clients, or title companies, if the

professional liability insurance policy has been rescinded due

to the attorney’s misrepresentations of material fact in the

policy application.    We discern no basis to treat other

professionals required to obtain and maintain professional

liability insurance, including physicians and podiatrists, in a

different manner.

    Rather, the same reasons that permit rescission of a legal

malpractice insurance policy pertain to medical malpractice

liability insurance.    A policy will be issued following an

analysis of the risk to be assumed.    A misrepresentation of a

                                 19
material fact in an application undermines the risk assessment

and ultimately the decision to provide coverage by an insurer.

Moreover, all forms of professional liability insurance serve

the same purpose -- to defend when claims are filed against a

professional and to serve as a source of funds to compensate

injured patients or clients.   Permitting reformation of a

medical malpractice liability policy to conform to statutorily

mandated minimum amounts also suggests that fraudulent conduct

is condoned.   Finally, reformation runs counter to our recent

decision in Jarrell, which denied a direct action for

compensation by an injured patient against an uninsured

physician.   Jarrell, supra, ___ N.J. at ___ (slip op. at 43).

                                B.

    In reaching this determination, we also conclude that the

compulsory automobile insurance model has no relevance to the

remedial response to a fraudulently obtained policy of

professional liability insurance and the effect of rescission on

innocent third parties.

    Recently, in CURE, supra, we explained that the long-

established and comprehensive no-fault automobile insurance

system, which is “designed to ensure that persons injured in

motor vehicle accidents are compensated promptly for their

injuries and financial losses,” centers on compulsory automobile

liability insurance. 223 N.J. at 152 (internal quotations

                                20
omitted).   In order to preserve the benefits of that insurance,

N.J.S.A. 39:6-48(a) provides that an automobile liability policy

may not be “cancelled or annulled . . . after the insured has

become responsible for the loss or damage” to an innocent third

party.    Thus, a fraudulently obtained policy of insurance is

subject to rescission by the insurer, but an innocent third

party injured by the insured before discovery of the fraud may

look to the liability coverage in place at the time of injury up

to the minimum mandatory insurance required by law.    Palisades

Safety & Ins. Ass’n v. Bastien, 175 N.J. 144, 148-49 (2003);

Marotta v. N.J. Auto. Full Ins. Underwriting Ass’n, 280 N.J.

Super. 525, 530 (App. Div. 1995), aff’d o.b., 144 N.J. 325

(1996).

    Our no-fault automobile liability system provides further

protection to insureds.    For example, any person required to

obtain automobile liability insurance acquires uninsured and

underinsured motorist coverage.    N.J.S.A. 17:28-1.1(b).   Such

coverage ameliorates the financial harm that may arise if a

driver has no or insufficient coverage.    In addition, an injured

person may be able to obtain a financial recovery through the

New Jersey Property-Liability Insurance Guaranty Association

(PLIGA) for losses inflicted by financially irresponsible or

                                  21
unknown owners or operators of motor vehicles.5    N.J.S.A. 39:6-61

to -91.   An injured, insured motorist may also obtain prompt

medical treatment through the personal injury protection (PIP)

benefits of an individual automobile liability insurance policy.

N.J.S.A. 39:6A-4.   An injured person with no recourse to any

insurance coverage may obtain damages for noneconomic loss,

property damage, and PIP benefits through PLIGA.     N.J.S.A. 39:6-

61 to -90.1.

     The web of interrelated provisions attending the no-fault

automobile liability model, including the compulsory automobile

liability provisions, may minimize the number and amount of the

claims of injured third parties.     Moreover, the compulsory

automobile liability insurance model has created an expectation

among those operating motor vehicles that every individual who

may be in an accident will be insured.     By contrast, 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.

5 Prior to 2003, such recovery was obtained through the
Unsatisfied Claim and Judgment Fund (UCJF). See N.J.S.A. 39:6-
64(c). In 2003, the Legislature abolished the UCJF and
transferred its claims to PLIGA, which was already administering
other types of claims in this State. L. 2003, c. 89, §§ 1, 2,
7.
                                22
    Furthermore, the vast differences in the amount of

liability insurance that a driver and a physician must carry

counsels against utilizing the compulsory automobile liability

insurance model to devise a remedy for an injured patient whose

physician is uninsured by virtue of a rescission.       The

compulsory automobile liability insurance model also does not

account for the fact that some physicians may have to procure

professional liability insurance through a joint underwriting

association due to market forces in the place where they

practice.   Such associations function essentially as mandatory

assigned risk pools in order to permit physicians to obtain

medical malpractice insurance and to provide essential medical

services to patients.    In order to maintain affordable rates,

some associations have amassed operating losses.       See Patricia

M. Danzon, Medical Malpractice:    Theory, Evidence, and Public

Policy 93, 112 (1985).   Indeed, unlike many other states’ joint

underwriting associations, the RIJUA remains in effect despite

operating losses over the years.       See Med. Malpractice Joint

Underwriting Ass’n v. Paradis, 756 F. Supp. 669, 671 (D.R.I.

1991).

    For those reasons, we conclude that the Appellate

Division’s reference to and reliance on the compulsory

automobile liability insurance model was misplaced.      Its

reliance on that model also ignored this State’s longstanding

                                  23
rule that an insured professional cannot expect insurance

coverage to respond to third-party claims when the professional

liability insurance has been rescinded due to misrepresentations

of material fact in the application.

                                  V.

    Finally, we address the purported conflict of laws

identified by the Appellate Division.    The panel declared a

difference in the manner in which each state addressed

compulsory medical malpractice insurance and determined that the

difference constituted a conflict of laws.    We conclude that

such a determination was unfounded.     As we have explained,

resolution of the issue presented in this appeal begins and ends

with the judicial response to a misrepresentation of material

fact on an application for professional liability insurance.     In

this State, a court may rescind a policy ab initio, in which

case the insured is without insurance coverage to respond to a

claim by a third party.   Based on our research, it appears that

Rhode Island courts would do the same.

    Our research has identified no case in Rhode Island that

has addressed the issue presented in this appeal other than the

judgment entered in the declaratory judgment action commenced by

the RIJUA against Dr. Stoddard.    There, due to his ineligibility

for coverage through the RIJUA, the trial court rescinded the

policy ab initio and declared that the RIJUA owed no obligation

                                  24
to defend or indemnify Dr. Stoddard in the DeMarco action

pending in New Jersey.   This outcome is entirely consistent with

well-established law in Rhode Island holding that an insurance

policy is subject to rescission if the insurer was induced to

insure an applicant based on a false representation of fact in

the application.   Evora v. Henry, 559 A.2d 1038, 1040 (R.I.

1989) (rescinding fire insurance policy); The Guardian Life Ins.

Co. of Am. v. Tillinghast, 512 A.2d 855, 859 (R.I. 1986)

(rescinding disability insurance policy).   This rule applies

broadly to a wide variety of insurance policies other than

compulsory motor vehicle liability insurance.   See, e.g.,

Commonwealth Land Title Ins. Co. v. IDC Props., Inc., 547 F.3d
15, 20-23 (1st Cir. 2008) (applying Rhode Island law to permit

rescission of title insurance policy); Commercial Union Ins. Co.

v. Pesante, 459 F.3d 34, 38 (1st Cir. 2006) (applying Rhode

Island law to permit rescission of marine insurance policy); see

also R.I. Gen. Laws § 27-18-16 (“The falsity of any statement in

the application for [accident and sickness insurance policies]

may not bar the right to recovery under the policy unless the

false statement materially affected either the acceptance of the

risk or the hazard assumed by the insurer.” (emphasis added)).

    Focusing as we have on the broader universe of insurance

policies issued to protect an insured from a variety of risks,

including professional liability claims, we discern that New

                                25
Jersey and Rhode Island permit rescission of an insurance policy

when that policy has been issued based on misrepresentations of

material fact.   In each situation, other than the compulsory

motor vehicle liability insurance model in each state, a third

party who has asserted a claim or whose claim accrued prior to

rescission receives no benefit from the rescinded policy.     In

short, although we cannot determine with certainty that the laws

of each state are in harmony on this issue, we are also in no

position to declare that a conflict exists between the laws of

New Jersey and Rhode Island on this issue.

    Finally, to the extent that each state requires a

podiatrist to maintain medical malpractice liability insurance,

we discern no difference in the laws of each state that amounts

to a conflict of laws.   To be sure, Rhode Island adopted a

statute that established minimum levels of coverage lower than

those required in New Jersey.   Compare R.I. Gen. Laws § 42-14.1-

2 (setting minimum amounts of $100,000 per claim and $300,000

per policy year), with N.J.S.A. 45:5-5.3 and N.J.S.A. 45:9-19.17

(requiring minimum amounts of $1 million per claim and $3

million per policy year).   Furthermore, the executive agency

tasked with adopting regulations to implement the Rhode Island

statute did not do so until Fall 2013.   See 02-030-021 R.I. Code

R. § 5 (requiring minimum amounts of $1 million per claim and $3

million per policy year).   Indeed, the mandatory nature of such

                                26
insurance remained an open question as late as 2013.     See

Peloquin v. Haven Health Ctr. of Greenville, L.L.C., 61 A.3d
419, 429-30 (R.I. 2013).

       A conflict of laws however does not arise unless there is a

substantive difference between or among the potentially

applicable laws.     Cornett v. Johnson & Johnson, 211 N.J. 362,

374 (2012); P.V. ex rel. T.V. v. Camp Jaycee, 197 N.J. 132, 143

(2008).    A substantive difference between the law of one state

and another exists when the difference is offensive or repugnant

to the public policy of this State.     Cornett, supra, 211 N.J. at

377.    Here, the difference cannot be considered substantive.

Both states have declared that physicians and podiatrists are

required to obtain and maintain medical malpractice liability

insurance.     Moreover, Dr. Stoddard had a policy of medical

malpractice liability insurance in place at all relevant times,

rendering any differences in the states’ insurance coverage

requirements irrelevant.    Rather, the issue presented in this

case is whether an insurance policy is subject to rescission

based on a false representation of fact in the insurance

application.    With respect to that core issue, both states agree

that rescission is the appropriate remedy.

                                 VI.

       In summary, it is well established in this State that a

professional who has made a misrepresentation of material fact

                                  27
in an application for professional liability insurance can

expect that the policy may be rescinded on application of the

insurer.     A professional in that position can also expect that

claims that arose prior to discovery of the misrepresentation

will be excluded from coverage.     In other words, once the policy

has been rescinded, the professional responds to any claims from

injured third parties without coverage.

     Here, the policy of professional liability issued to Dr.

Stoddard was rescinded due to misrepresentations concerning the

extent of his practice in Rhode Island.     Those

misrepresentations went to his eligibility of insurance through

the RIJUA.    As a result of the RIJUA’s rescission of the policy,

Dr. Stoddard stood without coverage to respond to the DeMarcos’

claim.     We have not identified any sound reason to treat medical

professionals any differently than other similarly situated

professionals.    We cannot identify a sound reason to permit

reformation of a rescinded professional liability policy to the

statutory minimum of $1 million.6

     We therefore hold that the Appellate Division erred when it

resorted to the compulsory automobile liability insurance model

6 We also reject the suggestion that whether the RIJUA actually
and reasonably relied on Dr. Stoddard’s misrepresentation of the
location of his practice is an unresolved issue of fact. Dr.
Stoddard had notice of and every opportunity to contest the
declarative judgment action. He chose not to do so and a final
judgment has been entered granting full relief to the RIJUA.
                                  28
rather than the existing rule governing professional liability

insurance to fashion a remedy for injured third parties affected

by rescission of the medical care provider’s insurance.   Having

obtained a judgment rescinding the medical malpractice liability

policy, the RIJUA owed no duty to defend Dr. Stoddard or to

indemnify him in the medical malpractice action pending against

Dr. Stoddard in this State.

                              VII.

    The judgment of the Appellate Division is reversed.

     JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, and SOLOMON
join in JUDGE CUFF’s opinion. JUSTICE ALBIN filed a separate,
dissenting opinion in which CHIEF JUSTICE RABNER joins.

                               29
                                        SUPREME COURT OF NEW JERSEY
                                         A-104 September Term 2013
                                                   073949

THOMAS DEMARCO and CYNTHIA
DEMARCO,

    Plaintiffs-Respondents,

         v.

SEAN ROBERT STODDARD, D.P.M.,
Individually and t/a CENTER
FOR ADVANCED FOOT & ANKLE
CARE, INC.,

    Defendant,

         and

MEDICAL MALPRACTICE JOINT
UNDERWRITING ASSOCIATION OF
RHODE ISLAND,

    Defendant-Appellant.

    JUSTICE ALBIN, dissenting.

    All physicians and podiatrists who practice medicine in New

Jersey are required to maintain at least $1,000,000 in medical

malpractice insurance or a $500,000 letter of credit.    N.J.S.A.

45:9-19.17(a); N.J.S.A. 45:5-5.3; N.J.A.C. 13:35-6.18.    The

purpose of this compulsory insurance law is to ensure that

patients can secure financial compensation in the event of a

doctor’s professional negligence.    Every patient has a right to

presume that his physician is in compliance with the law.

    In this case, defendant Dr. Sean Stoddard, a podiatrist,
                                 1
misrepresented to his medical malpractice insurer -- the Medical

Malpractice Joint Underwriting Association of Rhode Island

(RIJUA) -- that the majority of his podiatry practice was in

Rhode Island, rather than New Jersey.     During the period the

RIJUA insured him, Dr. Stoddard performed foot surgery on

plaintiff Thomas DeMarco (DeMarco).     In a medical-malpractice

action, DeMarco sought damages from Dr. Stoddard for worsening

his medical condition.   In addition, DeMarco’s wife filed a

loss-of-consortium claim.   After the DeMarcos filed their

lawsuit, the RIJUA cancelled Dr. Stoddard’s malpractice

insurance.   The RIJUA claims that its insurance contract with

Dr. Stoddard should not only be rescinded, but also that the

rescission should be backdated, thus denying the DeMarcos the

protection of the insurance coverage that was in effect at the

time of the allegedly botched surgery.

    I agree with the majority’s conclusion that New Jersey law

applies to the DeMarcos’ lawsuit.     I disagree that under this

State’s law, the medical-malpractice carrier in this case can

retroactively cancel malpractice insurance to deny an innocent

patient coverage for a physician’s professional negligence.       The

approach taken by the majority is at complete odds with our

State’s public policy, which finds expression in our compulsory

medical malpractice insurance law.     The aim of the law is to

provide financial protection to every patient in this State.

                                 2
    The RIJUA was in the best position to ferret out any

misrepresentation made by Dr. Stoddard when he applied and

reapplied for malpractice insurance coverage.    The innocent

patient was in no position to do so.

    I would require the insurer to provide coverage up to

$500,000 to DeMarco and his wife.    After all, DeMarco underwent

surgery with Dr. Stoddard when he was lawfully insured -- that

is, before the carrier backdated the rescission.    At the time of

DeMarco’s surgery, the RIJUA, in effect, represented to the

world that it was insuring Dr. Stoddard against claims of

negligence.   The public had the right to rely on that

representation.   By requiring coverage, the equities of all

parties are balanced, and the patient receives the benefit of

the financial security intended by the law.

    Because the majority has taken the path that leaves the

innocent patient without compensation for his injuries and

rewards the insurance company for its lack of due diligence, I

respectfully dissent.

                                I.

    In this case, Dr. Stoddard purchased medical malpractice

insurance from the RIJUA.   In his application, he misrepresented

the primary location of his practice.    From 2007 until 2011, Dr.

Stoddard represented to the RIJUA that at least fifty-one

percent of his podiatry practice was generated in Rhode Island -

                                 3
- a prerequisite to receiving the RIJUA’s insurance coverage.

Dr. Stoddard’s Rhode Island practice, however, never met the

RIJUA’s fifty-one percent requirement.

    In each of his insurance applications from 2007 through

2010, Dr. Stoddard indicated that his office was located in

Rhode Island, although he did list his telephone and fax numbers

as having a 732 New Jersey area code, which should have signaled

that he had a New Jersey office.     In Dr. Stoddard’s renewal

application for March 2010 to March 2011, he gave 1195 Highway

70, #12, Lakewood, New Jersey as the address for his office.

Once again, he provided a New Jersey telephone number.    The

RIJUA was on notice that Dr. Stoddard had a New Jersey practice

when he performed surgery on DeMarco in September 2010.

    Only after October 2011, when the DeMarcos filed a medical

malpractice lawsuit alleging that Dr. Stoddard negligently

performed surgery, did the RIJUA rescind its insurance policy on

the basis that the majority of Dr. Stoddard’s podiatry practice

was not situated in Rhode Island, as represented in his

malpractice-insurance applications.    The RIJUA returned Dr.

Stoddard’s premium payments for the period from March 2010 to

January 2011, but kept the premiums paid from 2007 through

February 2010.   Dr. Stoddard informed DeMarco that he had no

assets.   DeMarco and his wife then amended their complaint

seeking the payment of damages from the RIJUA on the malpractice

                                 4
claim.

    Both the trial court and the Appellate Division in a well-

reasoned opinion, DeMarco v. Stoddard, 434 N.J. Super. 352 (App.

Div. 2014), held that the RIJUA was required to provide coverage

of $1,000,000 should Dr. Stoddard be found liable on the

malpractice claim.

                                II.

                                A.

    All physicians and podiatrists who practice medicine in New

Jersey are required to maintain medical malpractice liability

insurance.   N.J.S.A. 45:9-19.17(a); N.J.S.A. 45:5-5.3.

According to N.J.S.A. 45:9-19.17(a),

         [a] physician who maintains a professional
         medical practice in this State and has
         responsibility for patient care is required to
         be covered by medical malpractice liability
         insurance issued by a carrier authorized to
         write medical malpractice liability insurance
         policies in this State, in the sum of
         $1,000,000 per occurrence and $3,000,000 per
         policy year and unless renewal coverage
         includes the premium retroactive date, the
         policy shall provide for extended reporting
         endorsement coverage for claims made policies,
         also known as “tail coverage,” or, if such
         liability coverage is not available, by a
         letter of credit for at least $500,000.

The requirement that physicians and podiatrists maintain

$1,000,000 in coverage per occurrence or $500,000 by a letter of

credit is “to ensure the citizens of the State that they will

have some recourse for adequate compensation in the event that a
                                 5
physician or podiatrist is found responsible for acts of

malpractice.”   Assembly Health Comm., Statement to S. 267 (Sept.

19, 1996).   The clear intent of the legislation is to provide

financial protection to patients who suffer preventable injuries

at the hands of their doctors.

    The question in this case is whether a medical-malpractice

insurer may avoid paying damages to an innocent patient when the

rescission of the physician’s insurance policy is backdated,

thus denying the patient the benefit of the coverage in effect

at the time the malpractice occurred.

                                 B.

    “[A] material factual misrepresentation made in an

application for insurance may justify rescission if the insurer

relied upon it to determine whether or not to issue the policy.”

Remsden v. Dependable Ins. Co., 71 N.J. 587, 589 (1976); see

also Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 527-28

(2008); Mass. Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 111

(1991); N.Y. Life Ins. Co. v. Weiss, 133 N.J. Eq. 375, 379-80

(1943).   Rescission of the contract prevents an insured from

directly benefitting from his misrepresentation.   Bonnco Petrol,

Inc. v. Epstein, 115 N.J. 599, 612 (1989).

    But different interests are in play when a scheme of

compulsory insurance is intended to protect innocent members of

the public, such as in our compulsory insurance laws for

                                 6
automobiles, limited liability partnerships, and the practice of

medicine.    In such cases, our jurisprudence draws a distinction

between the party who procures an insurance policy through

misrepresentations and the innocent party who plays no role in a

fraud on the insurer and is a victim falling within the coverage

protections of the insurance policy.    LaCroix, supra, 194 N.J.

at 530-32; see also Fisher v. N.J. Auto. Full Ins. Underwriting

Ass’n, 224 N.J. Super. 552, 557 (App. Div. 1988) (“The insurance

carrier’s liability to its [in]sured who may be guilty of some

act or conduct which renders a policy void ab initio is

therefore distinct from its liability to an injured third

person.”).    Thus, “an insurer cannot, on the ground of fraud or

misrepresentations relating to the inception of the policy,

retrospectively avoid coverage under a compulsory or financial

responsibility insurance law so as to escape liability to a

third party.”   Fisher, supra, 224 N.J. Super. at 558 (quoting 7

Am. Jur. 2d Automobile Insurance § 37 (1980)); see also

Palisades Safety & Ins. Ass’n v. Bastien, 175 N.J. 144, 149

(2003) (noting that insurance company cannot “escape[] liability

in respect of innocent, third-party members of the public whose

protection is a paramount concern”).    An example of those

equitable principles is found in our automobile insurance law.

    In New Jersey, all motor vehicle owners must maintain

liability insurance coverage.    N.J.S.A. 39:6B-1(a).   Moreover,

                                  7
“once its insured has become responsible for damages to third-

party judgment creditors, an insurer is precluded from

retroactively ‘cancelling’ or ‘annulling’ an automobile

liability policy based upon prior misrepresentations or fraud of

its insured.”   N.J. Mfrs. Ins. Co. v. Varjabedian, 391 N.J.

Super. 253, 256 (App. Div.) (quoting N.J.S.A. 39:6-48(a)),

certif. denied, 192 N.J. 295 (2007).     The principle that an

insurance company cannot void a policy to the detriment of an

innocent third party has been upheld in cases involving

compulsory insurance laws intended for the protection of the

public.

    In LaCroix, supra, we determined that the insured’s

eighteen-year-old daughter could not be barred from receiving

“personal-injury-protection (PIP) benefits under her father’s

automobile insurance policy because, unbeknownst to her, her

father had not identified her as a household resident in his

insurance application.” 194 N.J. at 518-19.    The father was

required to purchase PIP coverage under N.J.S.A. 39:6A-4.3.

Lacroix, supra, 194 N.J. at 532.     We held that “the equitable

remedy of rescission properly was molded to require payment of

the statutorily required minimum level of PIP benefits to” the

daughter who suffered injuries in an automobile accident.        Id.

at 519.   We did so because the daughter was “innocent of the

deceit perpetrated by her father” and because “we have never

                                 8
turned a deaf ear to the equities when plainly innocent parties

cry out for relief.”   Id. at 530-31.

                                C.

    No controlling precedent supports the position the majority

takes today, reversing both the trial court and the Appellate

Division and leaving the innocent patient remediless.     The

majority reaches the inequitable, not the inevitable, outcome.

    First, the comparison of physicians and podiatrists to

lawyers in general is not apt because lawyers are not presently

subject to a comprehensive legislative or judicial scheme

mandating the purchase of malpractice insurance.     Lawyers are

required to purchase malpractice insurance only if they organize

as professional corporations or limited liability partnerships.

R. 1:21-1A(a)(3), -1B(a)(4), -1C(a)(3).

    Second, none of the legal-malpractice cases cited by the

majority bear any resemblance to the facts before us.     Liberty

Surplus Insurance Corp. v. Nowell Amoroso, P.A., 189 N.J. 436,

439-41 (2007), merely stands for the proposition that a law firm

forfeited coverage in a malpractice case under a claims-made

policy by misrepresenting in the insurance application that it

was unaware of a potential claim at the time the application was

completed.   Liberty Surplus deals with the denial of a claim,

not the rescission of an insurance policy.   Ibid.

    In Liebling v. Garden State Indemnity, 337 N.J. Super. 447,

                                 9
450-51 (App. Div.), certif. denied 169 N.J. 606 (2001), an

attorney did not disclose in an application for a claims-made

malpractice insurance policy that a potential malpractice

lawsuit was looming.   The attorney knew that he would likely be

sued for failing to file a civil action within the statute of

limitations.   Id. at 464-65.   The Appellate Division concluded

that the attorney “could not have honestly believed that he was

secure from a claim, and, therefore, [the insurance carrier] was

justified in denying coverage.”    Liberty Surplus, supra, 189

N.J. at 449 (citing Liebling, supra, 337 N.J. Super. at 464-65).

    Last, First American Title Insurance Co. v. Lawson, 177
N.J. 125 (2003), engaged in a finely nuanced balancing of

equities in reviewing whether an insurance carrier was required

to provide coverage to three attorneys of a law firm organized

as a limited liability partnership.    Two of the attorneys, one

of whom was unauthorized to practice law in New Jersey, were

engaged in a “‘kiting’ scheme whereby monies from one client

trust account would be transferred to pay the obligations of

another client.”   Id. at 130 (quoting First Am. Title Ins. Co.

v. Lawson, 351 N.J. Super. 407, 414 (App. Div. 2002)).    This

Court affirmed the forfeiture of coverage for those two

malefactors, one of whom applied for the firm’s claims-made

professional liability insurance policy with full knowledge of

their wrongdoing, id. at 129 -- wrongdoing that violated the

                                  10
Rules of Professional Conduct.1

       However, the Court took a different approach with respect

to the innocent law partner.    We held that the innocent attorney

could not be stripped of insurance coverage because, unbeknownst

to him, the managing partner and another partner committed

fraudulent acts and secured malpractice insurance through

misrepresentations.    Id. at 129-31.   We noted that our Rule of

Court requiring a limited liability partnership to maintain

professional liability insurance, R. 1:21-1C(a)(3), “helps to

limit the public’s exposure to uninsured risks arising from the

receipt of legal services in this State.”     Lawson, supra, 177

N.J. at 139.    We explained that the innocent partner “had every

reason to expect that his exposure to liability would be

circumscribed in accordance with the Uniform Partnership Law,”

which “shield[s] partners from incurring liability arising

solely from the wrongful acts of fellow partners.”     Id. at 136,

142.    Additionally, we noted that denying coverage to the

innocent law partner “could leave members of the public, whom

[the innocent partner] had represented throughout that period,

unprotected even though the insured himself committed no fraud.”

Id. at 143.

1 Victims of such illegal schemes are financially protected up to
an amount fixed by the New Jersey Lawyers’ Fund for Client
Protection. R. 1:28.
                                11
    Thus, in Lawson, this Court protected the innocent attorney

from a backdated rescission of an insurance policy because he

was unaware of his partner’s misrepresentations in securing the

insurance coverage.    Lawson is a study in how to balance

equities.   It is not a mandate to deny insurance coverage to the

innocent patient who suffered medical malpractice in this case.

                                 III.

    Here, in viewing the totality of the circumstances, equity

weighs in favor of upholding the RIJUA’s obligation to cover the

claim of DeMarco and his wife.    The omitted information in Dr.

Stoddard’s application and reapplication pertained only to the

geography of his practice, not to his ability to perform his

professional duties.   The issue is not whether the RIJUA has a

right to rescind Dr. Stoddard’s insurance, but whether it has

the right to backdate the rescission at the expense of the

innocent patient.

    In balancing the equities, we should place great emphasis

on the fact that the RIJUA was in the best position to uncover

any inaccuracies in Dr. Stoddard’s insurance applications.     By

September 2010, when the alleged malpractice occurred, Dr.

Stoddard’s practice in New Jersey was open and notorious.    In

his insurance renewal application filed earlier that year, Dr.

Stoddard listed an address in Lakewood, New Jersey as the

location of his podiatry practice.

                                 12
     Had the RIJUA exercised even a minimal degree of due

diligence, it would have discovered that Dr. Stoddard’s practice

was not primarily located in Rhode Island.    Only when the RIJUA

had to pay out on a potential claim -- not when it was accepting

premiums -- did it make a reasonable inquiry.    Other

jurisdictions, as a matter of sound public policy, require an

insurance company to exercise due care in reviewing an insurance

application at the time it is submitted.     See, e.g., Olivio v.

Gov’t Emps. Ins. Co. of Washington D.C., 362 N.Y.S.2d 873, 880

(App. Div. 1975) (requiring insurer to pay third-party victim

full policy amount -- as opposed to minimum compulsory amount --

when insurer negligently delayed investigation of fraudulent

application until after suit was filed); State Farm Mut. Auto.

Ins. Co. v. Wood, 483 P.2d 892, 893 (Utah 1971) (“An

insurer cannot neglect its duty to make a reasonable

investigation of insurability or postpone that investigation

until after it learns of a probable claim and still retain its

[premiums.]”).   Dr. Stoddard’s renewal application contained the

location and telephone number of his New Jersey practice.    That

was a sufficient red flag to prompt an inquiry by the RIJUA if

it did not want to continue collecting Dr. Stoddard’s premiums.

    Like the innocent parties in LaCroix and Lawson, DeMarco

was entirely unaware of any misrepresentation made by Dr.

Stoddard to the RIJUA and had no ability to discover it.

                                13
Instead, the patient had the reasonable expectation that his

podiatrist was in compliance with the statutory requirement to

maintain medical malpractice insurance.    He also had the right

to rely on the fact that, at the time of his surgery, the RIJUA

was Dr. Stoddard’s malpractice carrier.

    To require the DeMarcos to bear the entire cost of damages

resulting from Dr. Stoddard’s alleged malpractice is

inconsistent with principles of equity.    The RIJUA in this case

has reaped a windfall -- it pocketed three years of premiums,

backdated a rescission, and is not required to expend a single

dollar of collected premiums to compensate the innocent patient

and his wife victimized by Dr. Stoddard’s alleged medical

malpractice.   That is hardly an equitable result, nor is it in

keeping with New Jersey’s public policy.

    That public policy is clearly expressed in our law that

mandates insurance coverage for innocent victims of medical

malpractice, in circumstances such as we have here.    The RIJUA

should be required to pay up to the minimum amount of insurance

that a patient expects a doctor to maintain -- the $500,000

necessary for a letter of credit.

    In reversing the trial court and Appellate Division, the

majority has decided on an approach that leaves an innocent

patient without a source of compensation for damages suffered by

the malpractice of his insolvent doctor.

                                14
    Because that approach is contrary to public policy, I

respectfully dissent.

                              15
                SUPREME COURT OF NEW JERSEY

NO.    A-104                                    SEPTEMBER TERM 2013

ON APPEAL FROM              Appellate Division, Superior Court

THOMAS DEMARCO and CYNTHIA
DEMARCO,

      Plaintiffs-Respondents,

               v.

SEAN ROBERT STODDARD, D.P.M.,
Individually and t/a CENTER FOR ADVANCED
FOOT & ANKLE CARE, INC.,

      Defendant,

               and

MEDICAL MALPRACTICE JOINT
UNDERWRITING ASSOCIATION OF RHODE
ISLAND,

      Defendant-Appellant.

DECIDED                December 1, 2015
                Chief Justice Rabner                        PRESIDING
OPINION BY           Judge Cuff (temporarily assigned)
CONCURRING/DISSENTING OPINION BY
DISSENTING OPINION BY           Justice Albin

  CHECKLIST                            REVERSE             DISSENT
  CHIEF JUSTICE RABNER                                           X
  JUSTICE LaVECCHIA                        X
  JUSTICE ALBIN                                                  X
  JUSTICE PATTERSON                        X
  JUSTICE FERNANDEZ-VINA                   X
  JUSTICE SOLOMON                          X
  JUDGE CUFF (t/a)                         X
  TOTALS                                   5                     2