Physicians Liability Insurance Company (“PLICO”), issued a “claims made medical malpractice insurance policy to Defendant Mark Valentine. As a result of Valentine’s negligence during a surgical procedure, David Wurtz died. The Oklahoma Board of Medical Licensure reviewed the situation and revoked Valentine’s medical license.

Shortly thereafter, Valentine sent a letter to his insurance agency requesting that PLICO cancel his insurance policy and a refund a portion of the premiums paid since his suspended medical license left him unable to practice medicine. A few days later, the agency forwarded to PLICO Valentine’s letter along with a newspaper article detailing the medical board’s decision. PLICO agreed to cancel the policy but, the letters from PLICO were inconsistent regarding whether the cancellation was the company’s decision or at Valentine’s request.

Wurtz’ personal representative, Tracey Chandler, filed suit against Valentine for wrongful death and Valentine entered into a consent judgment. Chandler then filed a garnishment proceeding against PLICO for payment of the judgment to determine if there was a duty to indemnify for the damages.

The issue in the case before the Oklahoma Supreme Court was whether PLICO, by cancelling the policy, violated Oklahoma Statute 36 O.S. § 3625 which states in part that no insurance contract insuring against loss through bodily injury or death shall be retroactively annulled by any agreement between the insurer and the insured after the occurrence of any such injury, death or damage for which the insured shall be liable.

The Oklahoma Supreme Court found that: (1) there was no provision in the policy for cancellation based on revocation of a medical license, therefore Valentine had no right to cancel the policy; (2) there was an obvious agreement between the insured and the insurer to cancel the policy; (3) the evidentiary materials clearly establish that PLICO accepted Valentine’s offer to cancel the policy with knowledge of the events that would certainly generate a wrongful death action against the insured; and (4) PLICO’s conduct in cancelling the policy was at best, ignorance of the statute, and at worst, collusion with the insured to deprive the decedent’s estate of the benefits of coverage.

Although the case was resolved in a garnishment action, many insurers prefer to resolve coverage disputes in a declaratory judgment action. Often the insurer will need to address other potential coverage questions, such as the “duty to defend” the insured per the terms of the insurance contract. These strategy decisions are best made with a competent Oklahoma attorney versed in insurance coverage disputes and litigation.

Chandler v. Valentine, 2014 OK 61, ___ P.3d ___.