By Michael J. Spithogiannis, Esq. Email Michael
The New York Court of Appeals, by a unanimous bench, decided a question that has been highly contested throughout New York State emanating from the sale and demutualization of Medical Liability Mutual Insurance Company (“MLMIC”), a mutual insurance company in the business of issuing medical malpractice policies to doctors and other medical professionals throughout the State.
The Court of Appeals decided the issue in favor of the policyholders – the medical professionals. Among the cases decided was Columbia Memorial Hospital v. Hinds, where Weiss Zarett represented Dr. Marcel Hinds, and Seth A. Nadel, Esq. argued the case to the Court of Appeals on April 20, 2022.
When MLMIC was sold in 2018, the sale generated approximately $2.5 billion. The question became: who was entitled to this money – the so-called cash consideration? Employers – hospitals and medical practices – argued that they, not the policyholders, were entitled to the money, because they paid the premiums. Their argument was simple: they paid the premiums, they are entitled to the money. Policyholders argued that under the governing provision of the Insurance Law, they were entitled to the money; employers merely paid the premiums because they had agreed to under their employment agreements. Litigation ensued.
The Court of Appeals determined that under New York’s Insurance Law the employee is the policyholder and an owner of the company, and that, absent contrary terms in an employment contract, insurance policy, or separate agreement, the employee – not the employer – is entitled to the sale proceeds.
The Court of Appeals soundly rejected the employers’ primary argument that they are entitled to the proceeds simply because they paid the premiums. The Court was clear: insurance premiums were not paid by employers gratuitously, but because they were contractually obligated to do so under employment agreements. Moreover, premiums were paid for the cost of coverage only, not for an ownership interest in MLMIC. Under the Insurance Law, MLMIC was owned by the policyholders, and there was nothing unjust or inequitable about paying them the cash consideration.
Almost four years after MLMIC’s demutualization, and against a backdrop of conflicting decisions among New York courts, the Court of Appeals has conclusively settled the issue.
A copy of the decision from the Court of Appeals may be found here.
Weiss Zarett represents numerous physician-policyholders in MLMIC disputes, as well as a variety of other legal matters affecting physicians, medical practices, and health-related businesses. If you have any questions about the MLMIC demutualization, please reach out to David A. Zarett, Esq. at [email protected] or 516-627-7000.
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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