INSURANCE-RELATED COURT CASES
Digested from case reports published online
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Medical Liability Mutual Insurance Company (MLMIC), formerly a mutual insurance company, issued professional liability insurance policies to the eight medical professionals who were litigants in the eight cases on appeal. The premiums for those policies were paid by their employers. In October 2018, MLMIC demutualized and was acquired by National Indemnity Company, a unit of the Berkshire Hathaway Group. Pursuant to its “plan of conversion”—approved by the New York State Department of Financial Services (DFS)—MLMIC sought to distribute $2.502 billion in cash consideration to “eligible policyholders.”
A state law provides that the “policy-holder” is entitled to cash consideration when a mutual insurance company demutualizes. Here it was undisputed that each medical professional/employee was the sole named policyholder of a professional liability insurance policy issued by MLMIC. Further, no contract of employment, insurance policy language, or separate agreement in any of the eight cases purported to assign the employee/policyholder’s rights in the demutualization consideration to anyone. Therefore, the medical professionals/employees were legally entitled to the cash consideration.
Before the appellate division, all the medical professionals/employees pre-vailed. The facts of each case were detailed extensively by the state supreme court and the appellate division.
The medical practices/employers argued that because they paid the policy premiums, they were entitled to the cash consideration, asserting that they were the “de facto” owners of the policies because they chose the policies, paid the premiums, and handled the necessary administrative tasks. According to the court, that argument was not persuasive. The premiums were paid for the cost of insurance coverage, not for an ownership interest in MLMIC. A policyholder’s ownership interest in a mutual insurance company is “an incident of the structure of mutual insurance policies,” not something purchased through the payment of premiums.
The court stated that the employers failed on every allegation. First, the employees were not unjustly “enriched” by receiving the cash consideration. Rather, the employees should receive the cash consideration because they lost something valuable as a direct result of the demutualization: their ownership interests as members of MLMIC.
Under the second allegation, the employees would not receive the cash consideration “at [their employers’] expense.” Although the employers paid the premiums for each of their employees, those premiums paid for the cost of professional liability insurance coverage; the ownership interest the employees had in MLMIC was incident to the corporate structure of mutual insurance companies, wholly unrelated to the payment of premiums. Moreover, “[e]nrichment alone will not suffice to invoke the remedial powers of a court of equity. Critical is that under the circumstances and as between the two parties to the transaction the enrichment be unjust.” Here the employers did not pay the insurance premiums gratuitously; they paid the premiums on the employees’ behalf because they were contractually obligated to do so by the employment agreements they negotiated, and the employers received the full benefit of those agreements because they received the services of the employees and the residual benefits of their staff being insured.
Under the third claim, the court said, there is nothing inequitable about complying with the clear statutory language establishing that policyholders are the members of mutual insurance companies, which are to operate for their benefit, and should receive consideration distributed in the event of demutualization. The employees were entitled to the cash consideration under the insurance law; the medical practices/employers could have written agreements assigning the demutualization benefits to themselves had they so chosen, and their failure to do so did not render the outcome inequitable.
In each case, the court held, the order of the appellate division should be affirmed with costs.
Columbia Memorial Hospital v. Hinds—New York Court of Appeals—Nos. 36 and 38—May 19, 2022.