Appellate Division, Third Department Finds That Physicians Are Entitled To Receive MLMIC Demutualization Funds

June 30, 2020

 

On June 18, 2020, the Appellate Division’s Third Judicial Department issued a decision in the case Schoch v. Lake Champlain Ob-Gyn, P.C., No. 529615, concerning entitlement to MLMIC funds distributed in connection with MLMIC’s purchase in 2018 by National Indemnity Company, a Berkshire Hathaway subsidiary.

Schoch involved an appeal from a decision and order of the Supreme Court, Saratoga County, in which the Supreme Court found that an obstetrics and gynecology practice, and not the practice’s policyholder-employee, was entitled to disputed MLMIC funds because the practice paid the premiums for the MLMIC policy under which the employee was insured. The Third Department reversed the Supreme Court’s decision, finding that the employee-policyholder was entitled to the MLMIC funds.

The Third Department’s ruling in Schoch, much like the Fourth Department’s recent decision in Maple-Gate Anesthesiologists, P.C. v. Narsin, CA 19-00612, is premised on a misapplication of New York Insurance Law § 7307. Specifically, the Third Department interprets the statute as giving policyholders a right to demutualization proceeds. The Insurance Law, however, merely describes the process that a company must follow while demutualizing and does not address which parties are entitled to demutualization funds.

This ruling also conflicts with a previous decision by the Appellate Division, First Judicial Department in In re Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465, 96 N.Y.S.3d 526 (1st Dep’t 2019), in which the First Department found that a policyholder physician would be unjustly enriched should she, and not the radiology practice that had paid the premiums for the policy in question, be awarded the disputed MLMIC funds. The Third Department declined to follow the First Department’s ruling in Schaffer, finding that because the employee had a legal right to the demutualization proceeds under the Insurance Law, she had not been unjustly enriched when she received them. However, as previously stated, policyholder-employees have no such statutory right that would preclude an unjust enrichment claim.

In light of the current divide between the First Judicial Department and the Third and Fourth Judicial Departments, the New York Court of Appeals will need to decide which parties are entitled to the MLMIC funds.

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For more information on this decision and other matters relating to the MLMIC demutualization, please contact the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.

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