184 A.D.3d 338
N.Y. App. Div.2020Background:
- Plaintiff (a certified nurse midwife) was the named insured on an MLMIC professional liability policy procured and paid for entirely by defendant employer as an employment benefit.
- Plaintiff signed a form naming defendant as the policy administrator, granting administrative control but not explicitly assigning membership/demutualization rights.
- MLMIC demutualized; conversion plan and statute entitled each policyholder (member) who had a policy during the relevant 3-year window to cash consideration calculated by premiums paid.
- Defendant objected to distribution of the $74,747.03 cash consideration to plaintiff; MLMIC escrowed the funds and plaintiff sued for a declaratory judgment that she, as policyholder/member, is entitled to the cash.
- Supreme Court granted defendant’s cross-motion relying on a First Department decision; the Appellate Division, Third Department reversed, holding plaintiff entitled to the funds and rejecting unjust enrichment and the Schaffer precedent.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who is entitled to demutualization cash? | Schoch: as the named policyholder/member, she is statutorily and plan-entitled to the cash. | Lake Champlain: employer who paid premiums/was policy administrator should receive the cash. | Entitlement follows statute and conversion plan definitions: the named policyholder (Schoch) is entitled; admin status or premium payment alone does not transfer that right. |
| Can defendant recover via unjust enrichment because it paid premiums? | Schoch: statutory and plan entitlement controls; no unjust enrichment because no mistake, both benefited, and no change in position. | Lake Champlain: paying all premiums makes payment to Schoch an unjust enrichment to her at employer's expense. | Rejected employer's unjust enrichment claim: defendant failed to show enrichment at its expense, mistake, or inequity sufficient to overcome statutory entitlement. |
| Is the First Department’s Schaffer decision binding? | Schoch: Schaffer was incorrectly decided and not followed. | Lake Champlain: relied on Schaffer to support unjust enrichment holding. | Court declined to follow Schaffer, finding it summary and unpersuasive. |
Key Cases Cited
- Dorrance v. United States, 809 F.3d 479 (9th Cir. 2015) (mutual-policyholders acquire membership rights by operation of law; those rights have value only on demutualization)
- Bank of New York v. Janowick, 470 F.3d 264 (6th Cir. 2006) (distinguishes membership rights from contractual premium payments)
- Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984 (3d Dep’t 2020) (policyholder, not employer, entitled to demutualization proceeds absent assignment)
- Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465 (1st Dep’t 2019) (contrary First Department decision holding employer entitled where it paid premiums)
- Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173 (2011) (elements of unjust enrichment)
- Pappas v. Tzolis, 20 N.Y.3d 228 (2012) (contract governing the subject matter precludes unjust enrichment recovery)
- Paramount Film Distrib. Corp. v. State of New York, 30 N.Y.2d 415 (1972) (factors courts consider when evaluating unjust enrichment claims)
- Goel v. Ramachandran, 111 A.D.3d 783 (2d Dep’t 2013) (receiving benefits alone is insufficient to establish unjust enrichment)