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Sagemark Companies, Ltd. v. Arch Insurance Group Inc.

February 4, 2009


The opinion of the court was delivered by: Leonard B. Austin, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the printed Official Reports.


Defendant, Arch Specialty Insurance Company, s/h/a Arch Insurance Group, Inc. a/k/a Arch Specialty Insurance Agency, Inc. moves pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint which seeks a judgment declaring that certain medical malpractice polices are void. Plaintiff cross-moves to amend the caption to reflect the correct name of the Defendant.


Plaintiffs, the Sagemark Companies Ltd., and its subsidiaries Premier P.E.T. of Long Island, LLC ("Long Island LLC") and PET Management of Queens, LLC ("Queens LLC")(collectively "Sagemark"), allege that they are not physicians, and that the LLCs are prohibited from practicing medicine under New York law. Thus, they allege that they do not require medical malpractice insurance and that Defendant, Arch Specialty Insurance Agency Inc. ("Arch"), issued medical malpractice insurance to them knowing that they did not practice medicine. Plaintiffs demand a return of premiums paid for policies and renewals thereof over a multi-year period.

Addressing the specific allegations of the complaint, paragraph 5 alleges that "this is an action for a declaratory judgment . . . that certain medical malpractice insurance policies . . . are null and void and that, accordingly, all premiums paid in connection with such void policies should be returned to Plaintiffs..." Plaintiffs seek a return of $337,851.96 in premiums paid over a period of several years for the subject policies and renewals thereof.

The basis for the claim that the policies are void is that "the New York LLCs do not engage in the practice of medicine" and that pursuant to New York law "limited liability companies are prohibited from engaging in the practice of medicine" (Complaint (Complaint ¶¶ 7, 8). The complaint alleges that although Sagemark submitted applications which state that the Long Island and Queens LLCs provide "management and administrative" services, Arch purported to issue "a medical malpractice insurance policy".

Complaint ¶¶ 20 and 21 state that the Plaintiffs are "in the business of managing radiology medical practices" and do not perform any "radiology or other medical services themselves." The complaint alleges that "since the New York LLCs do not provide any medical services and are prohibited by New York Law from doing so" there was no basis for Arch to issue the policies (emphasis supplied). Plaintiffs repeatedly refer to the alleged medical malpractice policies as "the Void Policies" (Complaint ¶ 23).

Plaintiffs allege that "in addition, because there was no insurable risk since the New York LLCs were not engaged in the practice of medicine and because New York Law expressly prohibits New York LLCs from practicing medicine, any such medical malpractice insurance policies purportedly issued to them by Arch . . . are null and void and without force and effect" (Complaint ¶ 24).

Plaintiffs allege that Arch was aware that "the New York LLCs did not provide medical services, yet still issued the policies to the New York LLCs and collected premiums. . . " (Complaint ¶ 30). Plaintiffs also use the term "health care professional" services interchangeably with "medical" services, repeating that they are "prohibited from providing such services under New York law" (Complaint ¶ 32).

The complaint concludes: "As the New York LLCs do not, and legally cannot, perform any health care professional services, there is no insurable risk under the Void Policies, and the Void Policies are void, and the premiums paid for these policies by Sagemark and/or the New York LLCs must be returned to them" (Complaint ¶ 34).

Arch avers that the policies issued to Plaintiffs did not provide coverage for medical malpractice, but rather for "healthcare professional services." It claims that the Long Island and Queens LLCs are not legally prohibited from, and do provide, healthcare services covered by the subject policies, that risk attached, and that Plaintiffs are not entitled to a return of premiums. In support, they provide a copy of Sagemark Companies Ltd. Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007. Arch also submits copies of the subject insurance policies.

Sagemark's annual report under the Securities Exchange Act of 1934, Form 10-KSB, for the fiscal year ending December 31, 2007, reports that Sagemark had operated PET/CT, short for Positron Emission Tomography and Computer Tomography, imaging centers at multiple locations throughout the United States, including Kansas, New York, New Jersey and Florida. Page 6 of the report (Moving Papers Ex. B, p. 12 of 103) notes that some of the states in which Sagemark operated "prohibit the practice of medicine by non-physicians . . . prohibit the ...

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