Steven J. Svabek, D.O. v. Lancet Indemnity Risk Retention Group, Inc. (mem. dec.) ( 2017 )

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any May 11 2017, 7:33 am
court except for the purpose of establishing CLERK
the defense of res judicata, collateral Indiana Supreme Court
Court of Appeals
and Tax Court
estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Michael N. Red Douglas B. Bates
John J. Morse Neal Bailen
Morse & Bickel, P.C. Chelsea Stanley
Indianapolis, Indiana Stites & Harbison PLLC
Jeffersonville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Steven J. Svabek, D.O., et al., May 11, 2017
Appellant-Defendant, Court of Appeals Case No.
41A05-1610-PL-2271
v. Appeal from the Johnson Superior
Court
Lancet Indemnity Risk The Honorable Marla K. Clark,
Retention Group, Inc., Judge
Appellee-Plaintiff. Trial Court Cause No.
41D04-1401-PL-8
Najam, Judge.
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Statement of the Case
[1] Steven J. Svabek, D.O., appeals the trial court’s entry of summary judgment in
favor of Lancet Indemnity Risk Retention Group, Inc. (“Lancet”) on Lancet’s
complaint seeking rescission of Svabek’s medical malpractice insurance policy.
Svabek presents three issues for our review, but we address a single dispositive
issue, namely, whether the trial court erred when it entered summary judgment
for Lancet on its claim for rescission of the policy. We affirm.
Facts and Procedural History
[2] The trial court’s findings set out the relevant facts and procedural history as
follows:
1. Dr. Svabek is an orthopedic surgeon residing in Boca Raton,
Florida. Dr. Svabek previously practiced medicine in the State of
Indiana. (Amended Complaint).
2. Lancet is an insurance company organized under the laws of
the State of Nevada with its corporate office in Las Vegas,
Nevada, and its executive office in Tampa, Florida. (Amended
Complaint).
3. On or about December 7, 2012, and in consideration of a
premium payment made contemporaneously by Dr. Svabek
totaling $68,040.00, the parties entered into a policy of
physician’s professional liability insurance, policy number
LI09121000182 (the “Policy”).
4. The Effective Date of the policy is December 7, 2012, with a
Retroactive Date of December 7, 2010. The Policy is a “Tail
Policy” only with no prospective coverage.
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5. The Policy Period is December 7, 2012 through December 7,
2013. (Lancet’s Ex. A).
6. The Policy only covers an Occurrence on or after December 7,
2010 [the Retroactive Date] and before December 7, 2012 which
was first made against Dr. Svabek and reported to Lancet
between December 7, 2012 and December 7, 2013 [the Policy
Period]. (Lancet’s Ex. A; Lancet’s Ex. A-1; Lancet’s Ex. A-2).
7. The coverage provided by the Policy is subject to a number of
exclusions, including the following:
“[Lancet Indemnity is] not obligated to defend or pay any
Damages, judgments, settlements, loss, indemnity or Medical
Payments on account of any Claim:
(a) based on, arising out of, or in any way involving any
Occurrence, fact, circumstance, or situation:
1. that was the subject of written notice given under
any prior policy unless such prior policy was one of
our policies and providing that the Occurrence
happened subsequent to the Retroactive Date of this
Policy;
2. that was the subject of any prior or pending written
demand for monetary damages, administrative or
arbitration proceeding or civil or criminal litigation
against any Insured, or the same or substantially the
same fact, circumstance, or situation underlying
or alleged in the prior matter, which existed prior to
the initial effective date of the Policy Period;
3. that was reported in the Application or was
identified in any summary or statement of Claims or
potential Claims submitted in connection with the
Application;
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4. that was reported to any other source from which
payment might be made before the initial effective
date of the Policy Period of the first policy that we
issue to you;
5. of which any Insured had knowledge prior to the
inception of the first insurance policy issued to you
by [Lancet Indemnity] and continuously renewed by
[Lancet Indemnity] if such knowledge would cause a
reasonable person to believe that a Claim might be
made; or
6. arising out of Professional Services rendered prior
to the Retroactive Date of this Policy.[”]
(Lancet’s Ex. A-1).
8. In entering the contract for the Policy, on December 7, 2012,
Dr. Svabek completed and submitted an application to Lancet.
In that application, Dr. Svabek confirmed, among other things,
that he had no known potential or anticipated losses and that no
prior carrier had declined or refused coverage for a medical
incident. (Lancet’s Ex. A-5).
9. The Policy states that Lancet relied upon the statements made
by Dr. Svabek in his application for insurance and that Dr.
Svabek warrants those statements are true:
“In issuing this Policy, [Lancet Indemnity] relied upon the
statements and representations in the Application. The Insureds
warrant that all such statements and representations are true and
deemed material to the acceptance of the risk or the hazard
assumed by [Lancet Indemnity] under this Policy.[”]
(Lancet’s Ex. A-1).
***
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14. Subsequent to entering into the Policy, the following three
(3) matters (the “Matters”) were brought to the attention of
Lancet for which Dr. Svabek asserts coverage is owed:
(a) On August 15, 2012, Ms. Robin Sykes and Mr.
Thomas Williams (“Sykes and Williams”) filed a
proposed complaint (the “Sykes/Williams Matter”)
against Dr. Svabek with the Indiana Department of
Insurance (“IDOI”). In the proposed complaint,
Sykes and Williams allege harm resulting from
surgeries performed by Dr. Svabek on or about
February 16, 2009, March 22, 2010, December 20,
2010, and March 4, 2011. (Lancet’s Ex. D).
(b) On November 30, 2012, Ms. Sharon Pettigrew
(“Ms. Pettigrew”), as Administratrix of the Estate of
Mr. John Austin, filed a proposed complaint (the
“Pettigrew Matter”) with the IDOI. In the proposed
complaint, Ms. Pettigrew alleges harm resulting from
medical care provided by Dr. Svabek on or about
December 8, 2010. (Lancet’s Ex. I).
(c) On February 5, 2013, Ms. Tamara Nardini (“Ms.
Nardini”), individually and on behalf of her minor
son, Matthew Nardini, filed a lawsuit (the “Nardini
Matter”) against Dr. Svabek in the Morgan County
Superior Court. Ms. Nardini alleges harm resulting
from medical care provided by Dr. Svabek on or
about February 9, 2011 and February 24, 2011.
(Lancet’s Ex. K).
15. On August 28, 2012, the Indiana Patient’s Compensation
Fund ("PCF") through the IDOI, sent notice of the
Sykes/Williams Matter to Dr. Svabek. (Lancet’s Ex. E).
16. On November 20, 2012, counsel for Ms. Sykes and Mr.
Williams sent the Proposed Complaint directly to Evanston
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Insurance, the insurance company that provided a medical
malpractice policy that covered Dr. Svabek for the period of
January 12, 2010 until January 12, 2011. (Lancet’s Ex. F-1;
Lancet’s Ex. F-2).
17. On November 20, 2012, a senior claims examiner with
Markel Corporation, a company acting as claims manager for
Evanston Insurance, sent Dr. Svabek the correspondence
and Proposed Complaint that it received from the lawyer
representing Sykes/Williams. (Lancet’s Ex. F-1).
18. On December 4, 2012, Markel sent correspondence to Dr.
Svabek advising that no coverage was available under the
Evanston policy for the Sykes/Williams Proposed Complaint
because the Evanston policy lapsed on January 12, 2011 and thus
would not cover the Proposed Complaint filed on August 15,
2012. (Lancet’s Ex. F-3).
19. The Markel December 4, 2012 denial letter was sent to Dr.
Svabek by certified mail. It was also sent to Dr. Svabek by email
to svabek.steve@gmail.com. (Id.)
20. Dr. Svabek admits that his email address in 2012 was
svabek.steve@gmail.com, which is the email address where the
denial letter was sent. (Lancet’s Ex. G).
21. Markel’s records reflect that the email sent to
svabek.steve@gmail.com was successfully delivered on
December 4, 2012. (Lancet’s Ex. F-3).
22. The Markel denial letter was also sent by mail and email to
Susan Cline, an attorney previously hired by Markel to represent
Dr. Svabek in a separate claim. (Id.; Lancet’s Ex. F-4).
23. On December 7, 2012, three days after Evanston sent its
denial of coverage to Dr. Svabek by certified mail and by email,
Dr. Svabek completed and submitted an application to Lancet for
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medical malpractice insurance coverage. In that application, Dr.
Svabek confirmed, among other things, that he had no known
potential or anticipated losses and that no prior carrier had
declined or refused coverage for a medical incident. (Lancet’s
Ex. A-5).
24. On December 18, 2012, Ms. Sykes and Mr. Williams filed a
complaint for damages against Dr. Svabek in the Johnson
Superior Court. (Lancet’s Ex. H).
25. Lancet was put on notice of the claims being asserted by
Sykes/Williams and retained separate counsel to represent Dr.
Svabek in the Johnson Superior Court action, subject to a
reservation of rights. (Lancet’s Ex. A).
***
28. The Policy excludes coverage for any claim that was the
subject of an administrative proceeding, civil litigation or written
demand for damages which existed prior to the Policy’s Effective
Date of December 7, 2012. (Lancet’s Ex. A-1).
29. On November 30, 2012, Ms. Pettigrew, as Administratrix of
Mr. Austin’s Estate, filed a proposed medical malpractice
complaint against Dr. Svabek with the IDOI under the provisions
of the Indiana Medical Malpractice Act (the “Pettigrew Proposed
Complaint”). (Lancet’s Ex. I).
30. The Pettigrew Proposed Complaint alleges Dr. Svabek
rendered medical care and treatment to Mr. Austin from
December 8, 2010 to January 6, 2011 that fell below the
appropriate standard of care. (Id.).
31. On December 10, 2012, Ms. Pettigrew filed a complaint
against Dr. Svabek in the Marion Superior Court, under Cause
No. 49D05-1212-CT-047168. (Lancet’s Ex. J).
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32. Lancet was put on notice of Ms. Pettigrew’s lawsuit and
retained separate counsel to represent Dr. Svabek in the Marion
County Court action, subject to a reservation of rights. (Lancet’s
Ex. B; Lancet’s Ex. A).
***
40. Lancet would have declined to issue the Policy or would
have offered a policy to Dr. Svabek on much different terms if
Dr. Svabek had disclosed in his application the existence of the
Sykes/Williams claim. (Lancet’s Ex. A).
41. On January 24, 2014, Lancet filed three separate complaints
for declaratory judgment in the Morgan, Marion and Johnson
County courts asking for a determination as to whether
Lancet owed coverage to Dr. Svabek for malpractice claims
pending in each of those respective courts. . . .
***
45. The three actions were consolidated in the Johnson County
Superior Court on August 18, 2015.
46. Lancet filed its amended complaint on August 27, 2015. The
amended complaint seeks a declaration that Lancet is entitled to
rescind the insurance policy it issued to Dr. Svabek. In the
alternative, the amended complaint seeks a declaration that Dr.
Svabek is not entitled to coverage as to the three medical
malpractice claims.
Appellant’s App. Vol. II at 19-27.
[3] On February 22, 2016, Lancet moved for summary judgment. Following a
hearing, the trial court concluded in relevant part as follows:
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6. Lancet is entitled to rescind the Policy because Lancet relied
on false and material representations in Dr. Svabek’s insurance
application. Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664,
672 (Ind. 1997) (An insurance policy is “voidable at the
insurance company’s option” if the insurer relies on a “material
misrepresentation or omission of fact in an insurance
application.”)
7. Insurers “rely on the truthfulness and completeness of the
information on the application in assessing whether to issue a
policy and on what terms.” Roe v. Sewell, 128 F.3d 1098,
1103 (7th Cir. 1996); see also Guzorek, 690 N.E.2d at 672
(rescission “protects the insurer’s right to know the full extent of
the risk it undertakes when an insurance policy is issued”).
8. Dr. Svabek’s insurance application erroneously stated that no
prior insurance carrier had refused or declined to issue coverage
regarding any medical incident or threat of claim. That false
statement was contained in the “Statement of No Known
Claims/Losses” that Dr. Svabek completed and submitted to
Lancet on December 7, 2012.
9. Dr. Svabek’s prior insurance carrier denied coverage to Dr.
Svabek for the Sykes/Williams claim pursuant to a denial letter
issued on December 4, 2012.
10. Dr. Svabek’s representation that a prior carrier had not
previously denied coverage, whether intentional or not, was false.
Dr. Svabek’s failure to disclose a known claim entitles Lancet to
rescind the Policy.
11. Dr. Svabek had prior knowledge of the Sykes/Williams
malpractice claim based on multiple notifications sent to him by
various means, from the IDOI and his prior insurance carrier.
Dr. Svabek’s prior knowledge is supported by 1) the letter sent to
him by the Department of Insurance on August 28, 2012, 2) the
notice sent to him by Markel on November 20, 2012, advising
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him of the Sykes/Williams Proposed Complaint, 3) the denial
letter sent to him on December 4, 2012, by certified mail, and 4)
the denial letter sent to him on December 4, 2012, by email.
12. Dr. Svabek admitted that the Markel denial letter was sent to
the exclusive email address he used in December 2012. That
email, as well as the letters sent to Dr. Svabek by certified mail
and ordinary mail, create a presumption of delivery that Dr.
Svabek has not rebutted. E.g., Conrad v. Universal Fire & Cas. Ins.
Co., 686 N.E.2d 840, 843 (Ind. 1997).
***
14. Dr. Svabek submitted his application on December 7, 2012.
He provides no explanation for why he suddenly decided to
obtain malpractice insurance three days after his prior carrier sent
the denial email. . . .
15. Despite having knowledge of the claim, Dr. Svabek did not
disclose the Sykes/Williams Proposed Complaint in the
December 7, 2012, application and affirmatively swore there
were no pending claims against him.
16. False representations warrant rescission “regardless of
whether the misrepresentation was innocently made or made
with fraudulent design” because innocent misrepresentations are
“just as injurious as intentional fraud.”. . . Thus, Dr. Svabek’s
subjective intent in providing the false information to Lancet
does not impact whether rescission is appropriate.
17. The information that Dr. Svabek did not disclose in his
insurance application was material. A representation in an
application for insurance is deemed material if the facts
represented reasonably enter into and influence the insurer’s
decision whether to issue the policy or charge a higher
premium. . . .
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18. Lancet would have either declined to issue the Policy or
offered the Policy to Dr. Svabek on different terms if Dr. Svabek
had provided truthful information in the Statement of No Known
Claims. Chris Teter’s affidavit is sufficient under Indiana law to
establish that Dr. Svabek’s failure to inform Lancet of the
Sykes/Williams Proposed Complaint was material to Lancet’s
decision to issue the Policy. . . .
19. Moreover, the unambiguous language of the Policy itself
“deem[ed] material to the acceptance of the risk” the
misrepresentations at issue.
20. There can be no reasonable difference of opinion that
information regarding a prior carrier’s previous denial of
coverage for an existing claim is material to an insurer’s decision
to issue coverage. . . .
21. Accordingly, Dr. Svabek’s untruthful statement entitles
Lancet to summary judgment in its favor as to its request for a
judgment declaring its right to rescind the Policy. The Court
orders rescission of the Policy and that the parties be returned to
their respective positions prior to the Policy. Lancet is entitled to
recover any amounts paid on Dr. Svabek’s behalf for his legal
defenses during the terms of the Policy subject to any set-off for
any premium payments on the Policy that Lancet received.
22. Even if Lancet is not entitled to rescind the entire policy, Dr.
Svabek still would not be entitled to coverage under the Lancet
Policy for any of the three medical malpractice complaints.
Several unambiguous exclusions apply.
Id. at 29-33 (emphasis original). In the alternative, the trial court also
concluded that Svabek failed to timely make deductible payments to Lancet,
which “operate[d] to exclude any coverage obligation as to” the three
malpractice claims against Svabek. Id. at 36. This appeal ensued.
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Discussion and Decision
[4] Our standard of review is clear. “We first observe that a trial court’s order
granting summary judgment comes to us ‘cloaked with a presumption of
validity.’” DiMaggio v. Rosario, 52 N.E.2d 896, 903 (Ind. Ct. App. 2016)
(internal citations omitted). Further,
[w]e review summary judgment de novo, applying the same
standard as the trial court: “Drawing all reasonable inferences in
favor of . . . the non-moving parties, summary judgment is
appropriate ‘if the designated evidentiary matter shows that there
is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.’” Williams v.
Tharp, 914 N.E.2d 756, 761 (Ind. 2009) (quoting T.R. 56(C)). “A
fact is ‘material’ if its resolution would affect the outcome of the
case, and an issue is ‘genuine’ if a trier of fact is required to
resolve the parties’ differing accounts of the truth, or if the
undisputed material facts support conflicting reasonable
inferences.” Id. (internal citations omitted).
The initial burden is on the summary-judgment movant to
“demonstrate [ ] the absence of any genuine issue of fact as to a
determinative issue,” at which point the burden shifts to the non-
movant to “come forward with contrary evidence” showing an
issue for the trier of fact. Id. at 761-62 (internal quotation marks
and substitution omitted). And “[a]lthough the non-moving
party has the burden on appeal of persuading us that the grant of
summary judgment was erroneous, we carefully assess the trial
court’s decision to ensure that he was not improperly denied his
day in court.” McSwane v. Bloomington Hosp. & Healthcare Sys.,
916 N.E.2d 906, 909-10 (Ind. 2009) (internal quotation marks
omitted).
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Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014) (alterations original to
Hughley). However, we will affirm the “trial court’s entry of summary
judgment if it can be sustained on any theory or basis in the record.” DiMaggio,
52 N.E.3d at 904.
[5] In his brief on appeal, Svabek contends that the trial court erred when it entered
summary judgment based on his failure to pay his deductible within ten days
and based on the policy exclusions with regard to the three medical malpractice
claims he had submitted to Lancet. Svabek also contends that the trial court
erred when it entered summary judgment in favor of Lancet because genuine
issues of material fact exist regarding whether Lancet is entitled to rescission of
the contract. Again, the trial court concluded that Lancet was entitled to
rescind the policy, as a matter of law, because of two misrepresentations made
by Svabek on his application, namely, that he had no known claims pending
against him and that he had not previously been denied coverage for a claim.
Because the trial court concluded that Lancet was entitled to summary
judgment on the rescission issue alone, and because, as we explain below,
Svabek has not met his burden to prove that the court erred on that issue, we
need not address the alternative grounds for summary judgment.
[6] As this court has held,
[f]raud in the inducement of a contract is a proper basis for
rescission. Hart v. Steel Prods., Inc., 666 N.E.2d 1270 (Ind. Ct.
App. 1996), trans. denied. The remedy of contract rescission
functions to restore the parties to their precontract position, that
is, the status quo. Stevens v. Olsen, 713 N.E.2d 889 (Ind. Ct. App.
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1999), trans. denied. A request for rescission of a contract is
addressed to the sound discretion of the trial court. Barrington
Management Co., Inc. v. Paul E. Draper Family Ltd. Partnership, 695
N.E.2d 135 (Ind. Ct. App. 1998). The party seeking rescission
bears the burden of proving his right to rescission and his ability
to return any property received under the contract. Id. On the
other hand, the party appealing the trial court’s grant of
rescission has the burden of demonstrating that the trial court’s
decision was erroneous. Id. Rescission is appropriate where the
party seeking rescission is not in default and the defaulting party
can be restored to the same condition he occupied before the
making of the contract. Id.
***
. . . [T]he rescission of a contract requires affirmative action
immediately upon the discovery of the fraud. INB Nat. Bank v.
Moran Elec. Service, Inc., 608 N.E.2d 702 (Ind. Ct. App. 1993),
trans. denied. One who asks a court’s aid in compelling the
rescission of a contract must show that he or she exercised
reasonable diligence in ascertaining the facts and thereafter
promptly sought rescission within a reasonable time after
discovering the fraud. Id. The question whether the party
seeking rescission acted within a reasonable time is ordinarily a
question of fact, but becomes a question of law where the facts
have been ascertained. The determination of whether a delay in
seeking rescission results in waiver depends on whether the delay
was long enough to result in prejudice to the other party. Id.
A.J.’s Automotive Sales, Inc. v. Freet,725 N.E.2d 955, 967-68 (Ind. Ct. App. 2000),
trans. denied.
[7] In support of his contention that the trial court erred when it concluded that
Lancet was entitled to rescission of the policy on summary judgment, Svabek
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avers that genuine issues of material fact exist regarding (1) whether he had
knowledge of “one or more” of the three medical malpractice claims against
him “when he signed the Statement of No Known Claims/Losses” in his
application for the policy and (2) whether “Lancet’s offer of rescission was
reasonably prompt under the circumstances.” Appellant’s Br. at 16. But
Svabek omits any argument with respect to the trial court’s conclusion that he
also misrepresented in his application whether a “prior insurance carrier had
refused or declined to issue coverage regarding any medical incident or threat of
claim” and the court’s conclusion that a prior denial of coverage “is material to
an insurer’s decision to issue coverage.” Appellant’s App. Vol. II at 30, 33.
[8] The trial court concluded that Lancet was entitled to rescission based on each of
Svabek’s misrepresentations in the application. On appeal, Svabek does not
deny that he falsely claimed in his application that “no prior insurance carrier
had refused or declined to issue coverage regarding any medical incident or
threat of claim.” Id. at 30. And Svabek does not challenge the trial court’s
conclusions that “a prior carrier’s previous denial of coverage for an existing
claim is material to an insurer’s decision to issue coverage” and that,
“[a]ccordingly, [his] untruthful statement entitles Lancet to summary judgment
in its favor as to its request for a judgment declaring its right to rescind the
Policy.” Id. at 33. Finally, Svabek makes no argument on appeal that Lancet
did not “promptly s[eek] rescission within a reasonable time after discovering
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the fraud” with respect to the denial of coverage misrepresentation.1 Freet,725
N.E.2d at 968.
[9] In sum, Svabek has failed to “demonstrate [ ] the absence of any genuine issue
of fact as to a determinative issue,” namely, that Lancet is entitled to rescission
based on Svabek’s misrepresentation on his application for insurance regarding
a prior denial of coverage. Hughley, 15 N.E.3d at 1003; and see Colonial Penn Ins.
Co. v. Guzorek, 690 N.E.2d 664, 672 (Ind. 1997) (holding a material
misrepresentation or omission of fact in an insurance application, relied on by
the insurer in issuing the policy, renders the coverage voidable at the insurance
company’s option). Again, we will affirm the trial court’s entry of summary
judgment on any theory supported by the record. DiMaggio, 52 N.E.3d at 904.
Svabek has not met his burden on appeal to persuade us that the trial court’s
entry of summary judgment was clearly erroneous.2
[10] Affirmed.
1
To the extent Svabek attempts to make that argument in his Reply Brief, it is well settled that a party may
not raise an issue for the first time in a reply brief. See Felsher v. Univ. of Evansville, 755 N.E.2d 589, 593 n.6
(Ind. 2001). Moreover, we note that Svabek does not direct us to any evidence in the record to show when
Lancet first became aware that Svabek had lied in his application. Svabek maintains that Lancet was “on
notice” about the misrepresentation with respect to known claims when it “began defending the Sykes and
Williams Matter” on behalf of Svabek in December 2012 “or shortly thereafter.” Appellant’s Br. at 16. But
Svabek does not explain how Lancet’s defense in that litigation tends to prove that Lancet knew about either
of Svabek’s misrepresentations in his application at that time. And Svabek does not cite any evidence in the
record to show when Lancet knew that Svabek had previously been denied coverage by another insurance
carrier.
2
Because we affirm the trial court’s entry of summary judgment for Lancet, we need not address Svabek’s
contention that the court erred when it struck several paragraphs from his proposed findings and conclusions.
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Riley, J., and Bradford, J., concur.
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