Columbia Mem'l Hosp. v. Hinds
| Decision Date | 19 May 2022 |
| Docket Number | 36, No. 37, No. 38 |
| Parties | COLUMBIA MEMORIAL HOSPITAL, Appellant, v. Marcel E. HINDS, Respondent. Kim E. Schoch, Respondent, v. Lake Champlain OB-GYN, P.C., Appellant. Maple Medical, LLP, Appellant, v. Joseph Scott, &c., Respondent, et al., Defendant. (And Five Related Appeals) |
| Court | New York Court of Appeals Court of Appeals |
Garfunkel Wild, P.C., Great Neck (Andrew L. Zwerling and Jason Hsi of counsel), for appellant in the first above-entitled action.
Weiss Zarett Brofman Sonnenklar & Levy, P.C., New Hyde Park (Seth A. Nadel of counsel), for respondent in the first above-entitled action.
Dreyer Boyajian LLP, Albany (James R. Peluso and Joshua R. Friedman of counsel), for appellant in the second above- entitled action.
Nolan Heller Kauffman LLP, Albany (Justin A. Heller and Brendan J. Carosi of counsel), for respondent in the second above-entitled action.
Finger & Finger, White Plains (Carl L. Finger of counsel), for appellant in the third through eighth above-entitled actions.
Nolan Heller Kauffman LLP, Albany (Justin A. Heller and Brendan J. Carosi of counsel), for respondents in the third through eighth above-entitled actions.
Cohen & Gresser LLP, New York City and Washington, D.C. (Ronald F. Wick of the District of Columbia bar, admitted pro hac vice, of counsel), and Foley Hoag LLP, New York City (Peter A. Sullivan of counsel), for James D. Sullivan, M.D. and others, amici curiae in all of the above-entitled actions.
Siri & Glimstad LLP, New York City (Mason A. Barney and Sonal Jain of counsel), for Wyckoff Heights Medical Center, amicus curiae in all of the above-entitled actions.
Hinman Straub P.C., Albany (David T. Luntz and David B. Morgen of counsel), for The Brooklyn Hospital Center and others, amici curiae in all of the above-entitled actions.
Hancock Estabrook, LLP, Syracuse (Alan J. Pierce and Janet D. Callahan of counsel), for Regional Medical Practice, P.C. and others, amici curiae in all of the above-entitled actions.
Medical Liability Mutual Insurance Company (MLMIC), formerly a mutual insurance company, issued professional liability insurance policies to the eight medical professionals who are litigants in the eight cases before us on these appeals. The premiums for those policies were paid by their employers. In October 2018, MLMIC demutualized and was acquired by National Indemnity Company. Pursuant to its "Plan of Conversion"—approved by the New York State Department of Financial Services—MLMIC sought to distribute $2.502 billion in cash consideration to "Eligible Policyholders."
The question presented is as follows: when an employer pays premiums to a mutual insurance company to obtain a policy for its employee, and the insurance company demutualizes, who is entitled to the proceeds from demutualization: the employer or the employee? We answer that, absent contrary terms in the contract of employment, insurance policy, or separate agreement, the employee, who is the policyholder, is entitled to the proceeds.
MLMIC was a mutual insurance company, which means that it was "organized, maintained and operated for the benefit of its members"—and "[e]very policyholder [was] a member of" MLMIC ( Insurance Law § 1211 [a] ). National Indemnity Company (NICO), a member of the Berkshire Hathaway Group, sought to buy MLMIC in exchange for $2.502 billion in cash consideration. On June 15, 2018, MLMIC submitted a "Plan of Conversion" (Plan) to the New York State Department of Financial Services (DFS) seeking to convert from a mutual insurance company owned by its members to a stock insurance company. According to the Plan, the cash consideration was to be distributed to "Eligible Policyholders," defined, consistent with the Insurance Law, as "each person who had a policy ‘in effect’ during the three-year period preceding the MLMIC Board's adoption of the resolution" to convert, which would result in MLMIC becoming a wholly owned subsidiary of NICO.
On September 6, 2018, DFS approved both MLMIC's demutualization and NICO's acquisition subject to approval by a policyholder vote. DFS noted that, at the public hearing, different medical employers "contend[ed] that the cash consideration should be paid to them in the circumstances where they paid the premiums on behalf of policyholders and/or acted as policy administrators." In particular, "[o]ne commenter referred to the provision of Insurance Law § 7307 (e) stating that[,] in calculating such person's equitable share[,] one must factor in the amount ‘such policyholder has properly and timely paid to the insurer’ " on the insurance policy and "suggested that this means that the person that paid the premium is automatically entitled to the proceeds of the sale." DFS rejected that interpretation because "the same provision refers to the ‘policyholder,’ which might or might not be the person who paid the premium." One week later, two-thirds of the policyholders approved the plan. On October 1, 2018, MLMIC and NICO closed both the demutualization and acquisition deal.
In the Plan approved by DFS, MLMIC established an objection and escrow procedure. According to the objection procedure, a "Designee"—defined to include "Policy Administrators ... to the extent designated by Eligible Policyholders to receive the portion of Cash Consideration allocated to such Eligible Policyholders," with "Policy Administrator" defined as "a Person designated on the declarations page of the applicable Policy or otherwise as the administrator on behalf of the applicable Policyholder"— could object to the distribution of the cash consideration to the policyholder if it believed that it, rather than the policyholder, was entitled to receive the distribution. Upon a timely objection, the money would be placed in escrow pending the agreement of the parties or the outcome of an adversarial proceeding. On January 14, 2019, DFS issued an order related to cash consideration remaining in escrow, which provided that if MLMIC received timely notice that an employer and employee were in a dispute resolution process or litigation about the cash consideration, MLMIC would continue to hold the funds in escrow.
The eight cases before us on these appeals have slight differences but share the facts that are necessary for resolving the legal question before us. The facts of each case have been detailed extensively by Supreme Court1 and the Appellate Division,2 so we only summarize them here.
In each case, a medical professional/employee was the sole named policyholder of a professional liability insurance policy issued by MLMIC. In each case, the medical practice/employer had included the provision of such insurance coverage as a term of employment in each employee's employment agreement; had, in most of the cases, been designated by its employee as the policy administrator3 and had handled the administrative logistics of the policy, including receiving dividends and paying policy premiums; and, after the demutualization, had asserted that it, and not its employee, was entitled to the cash consideration that MLMIC allocated to each medical professional/employee despite the absence of an assignment of the cash consideration to the employers.
Supreme Court found that Marcel Hinds, employed as an OB/GYN physician by Columbia Memorial Hospital, was entitled to the cash consideration and granted Dr. Hinds's motion to dismiss the hospital's action against him seeking to establish its entitlement to the funds ( 2019 N.Y. Slip Op. 51508[U] [Sup. Ct. 2019] ). Central to the court's analysis was that Insurance Law § 7307 "repeatedly refers to those eligible for cash consideration as the ‘policyholder,’ " that Dr. Hinds was "clearly the policyholder" while Columbia was the policy administrator, and that Dr. Hinds had not signed any agreement assigning his portion of the cash consideration to Columbia ( id. at *2-3 ).
Unlike Columbia Memorial Hospital, the other two medical practices/employers—Lake Champlain OB-GYN, P.C., and Maple Medical, LLP—prevailed before Supreme Court. Supreme Court denied Ms. Schoch's motion for summary judgment in her action seeking a declaration that she was solely entitled to the cash consideration and granted Lake Champlain's cross-motion for summary judgment ( 64 Misc. 3d 1215(A) [Sup. Ct. 2019] ). The court relied exclusively on a First Department case, Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465, 96 N.Y.S.3d 526 (1st Dept. 2019), which held that an employer that paid the insurance policy premiums, rather than the employee who was the named policyholder, was entitled to the cash consideration resulting from MLMIC's demutualization on a theory of unjust enrichment.4 Similarly, Supreme Court granted summary judgment to Maple Medical in its actions against six medical professionals/employees, holding that it was entitled to the MLMIC consideration, on the ground that Schaffer was "dispositive of the issues raised in this matter" and that the court was bound to follow it under the doctrine of stare decisis ( 64 Misc. 3d 909, 911, 105 N.Y.S.3d 823 [Sup. Ct. 2019] ).
Before the Appellate Division, however, all the medical professionals/employees prevailed. In Columbia Memorial Hospital v. Hinds , the Appellate Division affirmed Supreme Court's order granting Dr. Hinds's motion to dismiss, 188 A.D.3d 1337, 133 N.Y.S.3d 344 (3d Dept. 2020). Citing Insurance Law § 7307, the Court held that ( id. at 1338, 133 N.Y.S.3d 344 ).
In Schoch v. Lake Champlain Ob-Gyn, P.C. , the Appellate Division reversed, granted Ms. Schoch's motion for summary judgment, and declared that she was entitled to the cash...
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