On May 19, 2022, the New York Court of Appeals issued its highly anticipated decision resolving the Appellate Division split in favor of the physician-employees, in the consolidated appeal of Columbia Memorial Hospital v. Hinds (APL-2021-0001), Schoch v. Lake Champlain OB-GYN, P.C. (APL-2020-00169), and Maple Medical, LLP v. Scott (APL-2021-00045).
In October 2018, Medical Liability Mutual Insurance Company (MLMIC) demutualized in connection with its $2.5 billion acquisition by National Indemnity Company, a member of the Berkshire Hathaway Group. Under MLMIC’s plan of conversion from a mutual insurance company owned by its policyholders to a stock company, MLMIC sought to distribute the $2.5 billion in cash consideration to “eligible policyholders.”
The MLMIC Dispute
Medical practice-employers who purchased MLMIC policies and paid the premiums for its physician-employees—a common practice in the healthcare industry—argued that they were entitled to the cash consideration because they had paid the premiums. The physician-employees argued that they were entitled to the cash consideration because they were the policyholders. In turn, litigation ensued with varying outcomes at the trial level and a split of authority between the Appellate Divisions.
The First Department held that the medical practice-employers were entitled to the MLMIC proceeds under an unjust enrichment theory of recovery. Subsequently, the Second, Third, and Fourth Departments, however, all held, in detailed decisions, that the physicians-employees, as the “eligible policyholders,” were entitled to the consideration under Insurance Law § 7307, among other things. Notably, the Honorable W. Franc Perry, a Justice of the Supreme Court of New York County, situated in the First Department, held in a well-reasoned decision in AdvantageCare Physicians, P.C., v. Duker (Index No. 152451-2019), where Kudman Trachten Aloe Posner LLP (KTAP) represented the physician-employee, that the cash consideration belonged to KTAP’s client despite First Department case law indicating otherwise. For good measure, Justice Perry distinguished the case before him from the First Department authority.
Court of Appeals Decision
The Court of Appeals recently resolved the split of authority siding with the Second, Third, and Fourth Departments (and Justice Perry). The decision from the Court of Appeals stated, “that when an employer pays premiums to a mutual insurance company to obtain a policy of which its employee is the policyholder, and the insurance company demutualizes, absent contrary terms in the contract of employment, insurance policy, or separate agreement, the [employee] policyholder is entitled to the proceeds from the demutualization.”
KTAP has represented 28 healthcare professionals arising from disputes of the MLMIC demutualization proceeds. If you are or were a MLMIC policyholder and have any questions, please contact KTAP at firstname.lastname@example.org or call us at (212) 868-1888.