Can insurance companies rescind policies after first canceling them? Doctor's Company v. Drezga Explained

In Doctor’s Company v. Drezga, the Utah Supreme Court addressed whether an insurance company can rescind a policy after first taking action to cancel it. The case provides important guidance on contractual interpretation and the consequences of choosing between alternative remedies in insurance contracts.

Background and Facts

Dr. Gregory Drezga obtained a malpractice insurance policy from The Doctor’s Company (TDC) in 1996, but misrepresented on his application that he had no prior malpractice claims when he actually had three. In 1997, Drezga’s use of forceps during delivery caused severe brain damage to a patient. Shortly thereafter, Drezga disappeared and his whereabouts remain unknown over a decade later. When the patient’s mother sued for malpractice, resulting in a $1.3 million judgment, TDC sought to avoid liability by claiming the right to rescind the policy based on Drezga’s misrepresentations and failure to cooperate.

Key Legal Issues

The case presented three primary issues: (1) whether TDC waived its right to rescission by first canceling the policy, (2) whether Drezga’s disappearance constituted actionable noncooperation, and (3) whether the district court had authority to order TDC to pay attorney fees for court-appointed counsel representing the absent insured.

Court’s Analysis and Holding

The Utah Supreme Court affirmed the summary judgment, holding that TDC waived its rescission rights by first canceling the policy. The insurance contract contained disjunctive language stating that TDC could “rescind or cancel” the policy in cases of misrepresentation. Because TDC chose to cancel, it could not later pursue rescission. The court emphasized that contractual ambiguities must be resolved in favor of the insured and against the drafter. Additionally, the court found TDC failed to demonstrate reasonable diligence in locating Drezga or substantial prejudice from his absence, as required under Utah’s noncooperation doctrine.

Practice Implications

This decision highlights the importance of precise contractual language in insurance policies. When contracts provide alternative remedies using disjunctive language, insurers must carefully consider their choice as it may preclude other options. The court also established a narrow exception allowing district courts to order insurers to pay attorney fees for court-appointed counsel in extraordinary circumstances involving absent insureds and innocent third parties. For appellate practitioners, the case demonstrates how waiver principles can prevent insurers from switching remedial strategies mid-litigation.