Physician’s Malpractice Insurance not Available When License Revoked

By Barry Zalma on June 12, 2026

Applicant for Insurance is Obligated to Advise Insurer in Material Changes After Application Was Signed

Post number 5371

Doctor Criminally Charged and License Suspended After Application Signed had Policy Rescinded for Failure to Advise Insurer of Change

In Xiang (Sean) Yuan, M.D. v. Positive Physicians Insurance Company, No. 1821 EDA 2025, No. J-A08033-26, Superior Court of Pennsylvania (May 29, 2026) Dr. Xiang (Sean) Yuan, a physician, sought renewal of his professional liability insurance policy with Positive Physicians Insurance Company (PPIC) in June 2020 and again in May 2021.

In the June 2020 renewal application, he answered “no” to questions asking whether he knew of any circumstances that might lead to a professional liability claim, whether his professional license had ever been suspended, and whether he had been charged with or investigated for a criminal offense. The application also required him to notify PPIC of any future material changes to those answers.

Two days after signing the 2020 renewal application, Dr. Yuan was charged with 36 criminal offenses, and shortly thereafter his medical license was suspended for about three months. He did not notify PPIC of either development. In May 2021, he applied for renewal again and still did not disclose the criminal charges or prior suspension, despite language in the application warning that withholding material information could result in rescission.

After a patient, Sheila Tobin, sued him for malpractice in October 2021, Dr. Yuan submitted the lawsuit to PPIC. PPIC then rescinded the policy in November 2021 based on his failure to disclose the criminal charges and license suspension.

Dr. Yuan filed a declaratory judgment action seeking a ruling that PPIC had a duty to defend him. The trial court granted summary judgment to PPIC, and Dr. Yuan appealed.

LAW

Under Pennsylvania law, an insurer may rescind an insurance policy if the insured obtained or maintained it through fraudulent material misrepresentations. Fraud must be shown by clear and convincing evidence, and a misrepresentation is material if it would influence the insurer’s decision to issue the policy, assess the risk, or set premiums.

DISCUSSION / ANALYSIS

On the merits, the court rejected Dr. Yuan’s argument that he had answered the 2020 questions truthfully at the exact moment he signed the application. Even if technically true when made, his answers became false within days when he was criminally charged and his license was suspended. Because the application expressly required him to notify PPIC of any future material changes, he had a continuing duty to supplement his answers.

The court found that the criminal charges and medical license suspension were plainly material. A reasonable insurer would consider both in deciding whether to continue medical malpractice coverage. By remaining silent after those developments, Dr. Yuan concealed material facts from PPIC.

The court also held the language was clear, in the same font size as the rest of the application and plainly required disclosure of any future material changes. The phrase “including without limitation” made clear that the listed examples were not exhaustive.

The court further found that Dr. Yuan repeated the concealment in the 2021 renewal application. Although that application did not specifically ask about license suspension or criminal charges, it stated that he had not withheld any information that could influence PPIC’s judgment. The court held that the suspension of a physician’s medical license and criminal charges tied to patient treatment obviously qualified as such information.

The appellate court concluded that even the most unsophisticated person must know that, in answering the questionnaire and submitting it to the insurer, he is furnishing data on the basis of which the company will decide whether, by issuing a policy, it wishes to insure him. If, while the company deliberates, he discovers facts which make portions of his application no longer true, the most elementary spirit of fair dealing would seem to require him to make a full disclosure.

Because these omissions constituted material misrepresentations, PPIC was entitled to rescind the policy, and summary judgment was proper. The Superior Court of Pennsylvania held that Dr. Yuan had a continuing duty to disclose material changes to his insurance applications, including his criminal charges and medical license suspension. As the United States Supreme Court aptly declared in Stipcich v. Metropolitan Life Ins. Co., 277 U.S. 311, 316-17 (1928) Dr. Yuan should have known, two days and nine days after he signed his application, that the significant changes in his answers were material and must be updated. His failure to do so amounted to material misrepresentations, allowing PPIC to rescind the malpractice insurance policy and avoid any duty to defend him in the underlying malpractice suit.

ZALMA OPINION

As Lord Mansfield said in Carter v. Boehm in 1766 the covenant of good faith and fair dealing applies equally to the insured and the insurer to do nothing to deprive the other of the benefits of the contract. Dr. Yuan was arrested within two days of placing his signature on the application and should have advised his insurer of the change of facts. He did not do so and his insurer properly rescinded the policy.

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