Appellate Court Rules That MLMIC Cash Conversion Funds Belong to the Eligible Policyholder, Regardless Of Who Paid The Malpractice Premiums

A second appellate decision regarding who the MLMIC cash distributions belong to (e.g., employer or employee) was rendered on April 24th by the Appellate Division in New York’s Fourth Judicial Department in the case of Maple-Gate Anesthesiologists, P.C. v. Deixy Nasrin and Douglas Brundin. Its conclusion was directly opposite that which was reached by another appellate court in the First Judicial Department. The difference between these two contradictory appellate decisions is significant

Unlike the earlier appellate decision (which was rendered in the case of Schaffer, Schonholz & Drossman), this new appellate decision was issued in the ordinary course from an appeal of a lower court’s decision following the submission of comprehensive legal briefs and memoranda of law by the opposing parties. This new appellate decision is therefore much more enlightening with regard to the substance of the dispute (in that the Schaffer decision was rendered on limited facts submitted by the parties directly to the Appellate Division through a rarely used civil procedure (CPLR 3222) that avoided the need for a lower court to first hear the case and to rule on its merits, leading many attorneys to question whether the Schaffer decision has any precedential value at all beyond the two parties in that action). 

In this new decision, the Appellate Court concluded that “the documentary evidence established as a matter of law that [the physicians’ employer] had no legal or equitable right of ownership to the demutualization payments” [Emphasis added.]  As such, the Appellate Division expressly rejected the claim frequently made by employers in numerous lawsuits regarding the MLMIC dispute — that is, that it would constitute “unjust enrichment” if physician-employees were allowed to retain the MLMIC cash distributions (rather than such distributions going to the employer who actually paid the MLMIC malpractice premiums on their behalves). “Unjust enrichment” is an equitable concept. 

In reaching its conclusion, the Court cited the controlling statute (New York Insurance Law § 7307 (e) (3)) which provides that “when a mutual insurance company converts to a stock insurance company, the plan of conversion: ‘shall . . . provide that each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the resolution [seeking approval of the conversion] shall be entitled to receive in exchange for such equitable share, without additional payment, consideration payable in voting common shares of the insurer or other consideration, or both’.” 

The Court also cited the MLMIC Plan of Conversion in support of its decision and noted that in accordance with the Insurance Law,  the plan “provided that cash distributions were required to be made to those policyholders who had coverage during the relevant period prior to demutualization in exchange for the ‘extinguishment of their Policyholder Membership Interests’.” The Court’s decision goes on to state:  

           “The plan stated that the cash distribution would be made to the policyholder unless he or she ‘affirmatively designated a Policy Administrator . . . to receive such amount on [his or her] behalf’. Additional documentary evidence demonstrated that defendants were the policyholders of the relevant MLMIC policies and that, although defendants had assigned some of their rights as policyholders to plaintiff as Policy Administrator, they had not designated plaintiff to receive demutualization payments [Emphasis added.] Even assuming, arguendo, that plaintiff could be entitled to the demutualization payments without the express designation contemplated by the plan, we conclude that plaintiff has not alleged any facts or circumstances from which it could be established that it was entitled to any such payments. The mere fact that plaintiff paid the annual premiums on the policies on defendants’ behalf does not entitle it to the demutualization payments (cf. Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 AD3d 465 [1st Dept 2019].” [Emphasis added]

This new judicial decision makes it even more likely that a final ruling on this highly contentious dispute may need to come from the New York Court of Appeals, the highest court in the State. If you have any questions, please contact us

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