By David A. Zarett, Esq. & Seth A. Nadel, Esq.

In a prior web alert, we discussed the sale and demutualization of Medical Liability Mutual Insurance Company (“MLMIC”), and how physician-policyholders insured by MLMIC between 7/2013 and 7/2016 were entitled to the proceeds arising from that transaction. We also discussed that MLMIC had an “objection” procedure for certain employers to have the money placed in escrow pending agreement of the parties, or the outcome of an adversarial proceeding. Predictably, in the intervening months, numerous disputes have arisen between the physician-policyholders and their current- and former-employers regarding the disposition of the MLMIC proceeds.

On March 22, 2019, the New York Supreme Court, in Erie County, issued what appears to be the first substantive decision in a lawsuit between an employer and an employee with respect to which party is legally entitled to the MLMIC demutualization proceeds. In Maple-Gate Anesthesiologists v. Douglas Brundin, 2019 N.Y. Slip Op. 29075 (Sup. Ct., Erie County 2019), the plaintiff-medical practice sued two Certified Registered Nurse Anesthetists following their receipt of the MLMIC proceeds, claiming conversion and unjust enrichment based on the fact that the plaintiff-employer had paid the applicable MLMIC premiums for the policies during the eligibility period.

The defendant-employees moved to dismiss the lawsuit. In support of their motion, the defendants contended that they were the lawful policyholders and thus possessed an actual and exclusive ownership interest in the cash consideration. The medical group’s arguments in opposition mimicked those of many New York State employers in other MLMIC disputes; that it had a “virtual ownership interest” based on the fact that it had served as the policy administrator and paid the applicable MLMIC premiums. The plaintiff further argued that, in its estimation, the MLMIC Plan of Conversion and other applicable authority expressly recognized its claim and foreclosed the defendants’ argument that they were entitled to the MLMIC proceeds.

Significantly, the court rejected every one of the medical group’s claims and dismissed the lawsuit. The court based its decision on the fact that no party other than the policyholder was named in the law as being entitled to the MLMIC cash consideration. The court similarly struck down the employer’s argument that its status as policy administrator, or the fact that it paid the MLMIC premiums for the applicable policies, granted it any right to the funds at issue. A full copy of the decision can be found here.

Weiss Zarett is handling a number of cases on behalf of physician-employees involved in MLMIC disputes with their current or former employers. If are involved in a MLMIC dispute with your employer, or have any further questions regarding the MLMIC issue, please feel free to reach out and contact us.

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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