Ninth Circuit Rejects Contention that Failure to Include SIR on Certificate of Insurance Was a Material Misrepresentation

The U.S. Court of Appeals for the Ninth Circuit has affirmed a district court’s decision dismissing a lawsuit alleging that the failure to mention a $1 million self-insured retention (“SIR”) in a certificate of insurance was a material misrepresentation.

The Case

Medical Staffing Network contracted with a hospital to provide the hospital with temporary nursing staff. Pursuant to the contract, Medical Staffing gave the hospital a Certificate of Liability Insurance issued on behalf of Lexington Insurance Company by USI Insurance Services, LLC, and USI Holdings (together, “USI”). The certificate stated that Medical Staffing had a professional liability insurance policy that provided up to $5 million of coverage. It did not state, however, that the professional liability policy was subject to a $1 million SIR.

The hospital subsequently sued Lexington and USI, alleging that the failure to include the $1 million SIR on the certificate was a material misrepresentation on which the hospital had relied to its detriment. The district court dismissed the hospital’s claims, and it appealed.

The Circuit Court’s Decision

The Ninth Circuit affirmed.

The circuit court first ruled that the hospital’s complaint did not contain sufficient facts to state a claim for affirmative misrepresentation, noting that it did not contend that any information in the certificate was false but simply that the SIR should have been included and was not.

It also ruled that the hospital’s complaint did not contain sufficient facts to state a claim for negligent failure to disclose information, reasoning that the defendants were not in a fiduciary or quasi-fiduciary relationship with the hospital – and, in fact, declaring that they were “not in any relationship with the hospital at all.”

The Ninth Circuit then found no evidence that including the SIR on the certificate was necessary to prevent a partial statement of facts from being misleading. The certificate was a one-page form document, with no column for retention amount or deductible, the circuit court pointed out. It also observed that the certificate expressly stated that, “the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies,” and that the certificate was “issued as a matter of information only.” Indeed, the circuit court continued, the hospital could have asked Medical Staffing for a copy of its insurance policy.

The Ninth Circuit concluded that if defendants had a duty to disclose retentions, exclusions, and all policy terms that a third party could conceivably rely on when issuing a certificate of insurance, certificates would “essentially be transformed into copies of insurance policies, and would lose their value as succinct statements of the existence of insurance.”

The case is Multicare Health System v. Lexington Ins. Co., No. 12-35436 (9th Cir. Aug. 28, 2013).