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| 1 minute read

Two Years Later, Entitlement to MLMIC Demutualization Proceeds is Still Unclear

It all seemed so straight forward at the time - in 2018, Medical Liability Mutual Insurance Company ("MLMIC"), which provided professional liability insurance to healthcare providers, was acquired by a subsidiary of Berkshire Hathaway. The acquisition resulted in the demutualization of MLMIC, which entitled eligible "policyholders" to a one time cash payment. The problem - while the healthcare provider was listed as the policyholder, the medical practice that employed the policyholder often paid the insurance premiums. Medical practices have used that fact to argue that they are entitled to the cash proceeds of the demutualization.

Initially, the Courts agreed with the medical practices, as the New York State Appellate Division, First Department ruled in favor of the medical practice. However, disputes regarding entitlement to MLMIC proceeds have now been heard by three of the four departments of the New York State Appellate Division, with the Third and Fourth Departments finding for the policyholder. Another matter is proceeding to the First Department in the next few months - it will be interesting to see whether the First Department adopts the Third and Fourth Department's rationale. 

This uncertainty has added a significant layer of difficulty to arbitration proceedings regarding the MLMIC demutualization. While the cases noted above were decided in New York state court, an arbitration forum was established by the American Health Law Association ("AHLA") to handle these disputes. I recently represented a provider in an AHLA arbitration on this very issue. After a hearing on the merits, the arbitrator awarded the provider approximately 2/3 of the MLMIC proceeds. The arbitrator's decision has no precedential value, so I will not state the reasoning behind the decision in this post. That said, the medical practice often has a significant advantage in these types of proceedings because they are facing claims from multiple employees and thus have counsel that are litigating the same issues in multiple cases, sometimes in front of the same arbitrator. It is critical that providers not handle these matters on their own and instead find experienced counsel to handle these types of arbitration matters against their employer.

The process of returning MLMIC’s equity was convoluted from the start but has become even more so as decision-makers struggle with one question: should payments be remitted to the named insured on the MLMIC policy (the medical provider) or to the insured’s employers (the medical practice)? The emerging majority view on this question has followed the holding in Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465 (1st Dept. 2019) that the party paying the premiums on the MLMIC policy is entitled to payments. But, a recent decision from the Fourth Department in Maple-Gate Anesthesiologists, P.C. v. Deixy Nasrin and Douglas Brundin, 2020 NY Slip Op 02389 (4th Dept. 2020) has created a minority view that will likely need to be resolved ultimately by the New York Court of Appeals.