New York Court of Appeals Resolves MLMIC Dispute By Concluding That Employee-Physicians Are Entitled to Conversion Funds

May 25, 2022

 

This case involves the 2018 demutualization of the medical malpractice insurer Medical Liability Mutual Insurance Company (“MLMIC”) and who was entitled to the more than $2.5 billion in cash consideration that was to be distributed as a result of that demutualization.  Specifically, the New York Court of Appeals had to decide between the employer-medical provider that paid the malpractice premiums and the employee-physician who was the policyholder on the MLMIC policy.  Although many employees voluntarily signed consent or assignment forms in 2018 and 2019 and thereby released those monies to their employers, many litigations were spawned throughout New York State involving the remaining employee-physicians before the matter was heard last month by the New York Court of Appeals.

In a decision dated May 19, 2022, the New York Court of Appeals ruled in favor of the physicians in this matter.  The Court concluded that Insurance Law Section 7307 is dispositive of the issue, finding that the statute was clear that the monies must go to the policyholder absent an agreement by the policyholder to forego the right to such monies.

In response to the employers’ statutory argument that the party that paid the premiums is entitled to the conversion funds, the Court found as follows:

  • Those payments  by employers were merely for insurance coverage, not for an ownership interest in MLMIC.
  • Those payments by employers did not thereby transform the employers into policyholders, the status necessary to receive the funds under the statute.
  • Those payments by employers were made on behalf of the employees and thus attributable to the employees for purposes of the statute.
  • That section of the statute referring to payment of premiums merely addressed the method by which the amount to be paid to the policyholder was to be calculated.

The Court also rejected an equitable claims of unjust enrichment brought by the employers, relying in part on the conclusions underlying its statutory analysis.  Click here for a copy of the decision.

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