United States: Ross And Cholewa Succeed In Rescission Action In Coverage Case

White Plains, New York, partners Mat Ross and Ilysa Cholewa commenced a rescission action to declare four disability policies, totaling more than $30 million, void ab initio. The Insured physician was charged on a federal complaint for Medicare fraud in 2019 and shortly after submitted a claim for disability, which he said began earlier that same year. Mat and Ilysa rescinded based on the Insured's material misrepresentations in the applications, most notably a question relating to facts he knew would affect his financial stability and occupation. He was subsequently indicted in 2021 and pled guilty in 2022 to Medicare fraud and was imprisoned for six months and paid restitution. During motion practice the Insured argued that our client had not proved that there were misrepresentations on the application because collateral estoppel from the allocution did not include the time period of the fraud and therefore there was an issue of fact as to whether the criminal acts were being perpetrated prior to the application date of the policy. The Insured further argued that that there was no misrepresentation because the question in the application was ambiguous and vague and therefore his answer could not be deemed false as a matter of law. The Insured then argued that even if there were misrepresentations, our client had not proved that the misrepresentations were material as a matter of law because our client did not produce written manuals or guides that showed that the policies would not have been issued. Mat and Ilysa argued that the dates alleged in the charges were not disputed during the allocution and therefore the Insured's guilty plea admitted to the dates as alleged in the indictment. They argued that the question was not ambiguous in light of the fact that the Insured knew he was engaging in a crime that could affect his occupation and financial status (in fact it did) and that he had admitted in divorce proceedings that 80 percent of his business was based on Medicare clients. They also argued that no underwriting manuals were necessary in this case as no rational juror could ever find that an insurer would have underwritten this same risk. The court granted the motion.

In the process of filing the motion, certain exhibits needed to be filed on NYSCEF with a sealed order since they were subject to a confidentiality agreement. This required a separate Order to Show Cause. A special shout out to executive assistant Cindy Powers and managing clerks supervisor Eugenia Jones, who jumped through clerical and procedural hoops to have the motion filed.