In March 2019, the Erie County Supreme Court issued the first substantive decision in a lawsuit regarding whether the employees who were the named policyholders or the employers who paid the insurance premiums were entitled to the proceeds of the MLMIC demutualization. In Maple-Gate Anesthesiologists v. Nasrin, 63 Misc.3d 703, (Sup. Ct., Erie County 2019), the defendant-employees moved to dismiss the lawsuit brought by their former employers, arguing that they were the lawful policyholders of their respective MLMIC policies and thus possessed an actual and exclusive ownership interest in the cash consideration under the New York Insurance Law. The plaintiff-medical group’s arguments in opposition mirrored those of other employers in most other MLMIC disputes; that it was entitled to the demutualization proceeds, because the employer had served as policy administrator and paid the employees’ MLMIC premiums.
The Supreme Court rejected the medical group’s claims and dismissed the lawsuit, reasoning that no party other than the policyholder was recognized under the law as being entitled to the MLMIC cash consideration. The Supreme Court similarly disagreed with 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.
On April 24, 2020, the Fourth Department unanimously affirmed the Supreme Court’s ruling in Maple-Gate that the employer’s complaint should be dismissed in its entirety. As stated by the appellate court: “Contrary to [the employer’s] contention, the [lower] court properly granted the motion because the documentary evidence established as a matter of law that [the employer] had no legal right to the demutualization payments.”
The court likewise confirmed that under the plain terms of Insurance Law § 7307 and MLMIC’s Plan of Conversion, demutualization proceeds were payable to a lawful policyholder unless the policyholder had affirmatively designated another party to receive the funds. Although certain rights had, in fact, been assigned to the employer by the policyholders under their respective policy administrator designations, the appellate court concluded that the right to demutualization proceeds was not among them. Finally, the appellate court noted the contrary decision by the First Department in Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465 (1st Dep’t 2019), but rejected its holding, stating that “the mere fact that [the employer] paid the annual premiums on the policies on [the policyholders’] behalf does not entitle it to the demutualization proceeds.”
A copy of the Fourth Department’s decision may be found here.
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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