COLUMBIA MEMORIAL HOSPITAL, Appellant, v. MARCEL E. HINDS, Respondent. (And Five Related Appeals)
No. 36, No. 37, No. 38
State of New York Court of Appeals
May 19, 2022
WILSON, J.
This opinion is uncorrected and subject to revision before publication in the New York Reports.
Andrew L. Zwerling, for appellant.
Seth A. Nadel, for respondent.
James D. Sullivan et al.; Wyckoff Heights Medical Center; Brooklyn Hospital Center et al.; Regional Medical Practice, P.C. et al., amici curiae.
Case No. 37:
James R. Peluso, for appellant.
Justin A. Heller, for respondent.
Case Nos. 38-43:
Carl L. Finger, for appellant.
Justin A. Heller, for respondent.
James D. Sullivan et al.; Wyckoff Heights Medical Center; Brooklyn Hospital Center et al.;
WILSON, J.:
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
The question presented is
I
A
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 (
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
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
B
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
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 AD3d 465 [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 [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 AD3d 1337 [3d Dept 2020]). Citing
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 consideration, reasoning that because Ms. Schoch “was the named insured on the relevant MLMIC policy . . . per [
In the Maple Medical actions, the Appellate Division held that the physicians/employees were entitled to the MLMIC consideration based on “[t]he plain language of
We granted leave in Columbia Memorial Hospital v Hinds (36 NY3d 904 [2021]) and Schoch v Lake-Champlain Ob-Gyn, P.C. (35 NY3d 918 [2020]). In the Maple Medical actions, the Appellate Division granted Maple Medical leave to appeal to our Court and certified a question as to whether the order was properly made (Scott, 2021 NY Slip Op 62415[U] [2d Dept 2021]; Goldenberg, 2021 NY Slip Op 62413[U] [2d Dept 2021]; Arevalo, 2021 NY Slip Op 62412[U] [2d Dept 2021]; Sundaram, 2021 NY Slip Op 62416[U] [2d Dept 2021]; Mutic, 2021 NY Slip Op 62414[U] [2d Dept 2021]; Youkeles, 2021 NY Slip Op 62417[U] [2d Dept 2021]).
II
We begin and end our analysis of the medical practices/employers’ claim to legal entitlement to receive the demutualization proceeds with the text of New York‘s Insurance Law. “When presented with a question of statutory interpretation, a court‘s primary consideration is to ascertain and give effect to the intention of the Legislature” (Nadkos, Inc. v. Preferred Contrs. Ins. Co. Risk Retention Group LLC, 34 NY3d 1, 7 [2019] [internal quotation marks omitted], quoting Matter of Lemma v Nassau County Police Officer Indem. Bd., 31 NY3d 523, 528 [2018]). “We have long held that ‘the statutory text is the clearest indicator of legislative intent’ and that a court ‘should construe unambiguous language to give effect to its plain meaning‘” (id. [alteration omitted], quoting Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653, 660 [2006]). It is also our well-settled practice that “statutory language should be harmonized, giving effect to each component and avoiding a construction that treats a word or phrase as superfluous” (Lemma, 31 NY3d at 528).
MLMIC‘s conversion from a mutual insurance company to a stock insurance company is governed by
“The plan shall include . . . [t]he manner and basis of exchanging the equitable share of each eligible mutual policyholder for securities or other consideration, or both, of the stock corporation into which the mutual insurer is to be converted and the disposition of any unclaimed shares. The plan shall also provide that each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the resolution described in subsection (b) hereof shall be entitled to receive in exchange for such equitable share, without additional payment, consideration payable in voting common shares of the insurer or other consideration, or both” (
Insurance Law § 7307 [e] [3] [emphasis added]).
“Every domestic mutual insurance corporation shall be organized, maintained and operated for the benefit of its members as a non-stock corporation. Every policyholder shall be a member of such corporation and shall, except as provided in subsection (d) hereof, be entitled to vote at any regular or special meeting of such corporation, to notice thereof pursuant to the by-laws and to share equitably in dividends declared by the board of directors” (
Insurance Law § 1211 [a] [emphasis added]).5
“Prompt notice shall be given by the mutual insurer to all persons who become policyholders or holders of section 1307 agreements on or after the date of the adoption of the resolution described in subsection (b) hereof, of the pendency of a proposed conversion and of the effect thereof on them” (
Insurance Law § 7307 [f] ).
Section (j) provides that the demutualization plan will be adopted only if two-thirds of voting policyholders approve it:
“Each such policyholder eligible to vote pursuant to subsection (i) hereof shall be entitled to such number of votes as may be provided for in the by-laws of the mutual insurer” (
id. § 7307 [j] ).
Thus, the Insurance Law mandates that policyholders be informed about and vote on the fairness of demutualization consideration, requirements that are in harmony with the Insurance Law‘s mandate that the same policyholder is entitled to receive the consideration.
The medical practices/employers argue that because they paid the policy premiums, they are entitled to the cash consideration, asserting that they are the “de facto” owners of the policies because they chose the policies, paid the premiums, and handled the necessary administrative tasks. That argument is not persuasive. The premiums paid for the cost of insurance coverage, not for an ownership interest in MLMIC. A policyholder‘s ownership interest in a mutual insurance company is “an incident of the structure of mutual insurance policies” (Dorrance v United States, 809 F3d 479, 485 [9th Cir 2015];
Further, that the employers purchased, negotiated, or selected policies does not make them policyholders or members. A policyholder‘s designation of her or his employer as a policy administrator does not convert the employer into a policyholder or member; it merely authorizes the employer to undertake various tasks on behalf of the employee policyholder. Indeed, that some of the employees/policyholders explicitly delegated to their employers the right to receive dividends on their behalf pursuant to the MLMIC policies cuts against the employers’ claim to the demutualization consideration given that, in all eight cases, the employees/policyholders refused to assign such rights to demutualization consideration to their employers, despite several of the employers repeatedly seeking such assignment.
The medical practices/employers also argue that because the employees themselves paid no premiums, their allocable shares, pursuant to
“The equitable share of the policyholder in the mutual insurer shall be determined by the ratio which the net premiums (gross premiums less return premiums and dividend paid) such policyholder has properly and timely paid to the insurer on insurance policies in effect during the three years immediately preceding the adoption of the resolution by the board of directors under subsection (b) hereof bears to the total net premiums received by the mutual insurer from such eligible policyholders” (
Insurance Law § 7307 [e] [3] ).
Based on this statutory language, the employers argue that because the “net premiums” their employees themselves “properly and timely paid to the insurer” is zero, the employees’ allocable share must also then be zero. The employers contend this language reflects a legislative intent to award the consideration to whomever actually paid the premiums.
We reject that argument. As the Appellate Division correctly noted, the provision of
III
The medical practices/employers argue that, regardless of their legal entitlement, they should nevertheless receive the cash consideration as a matter of equity because the medical professionals/employees would be unjustly enriched if they were entitled to the cash consideration. Their argument is meritless.
Here, the employers fail on every factor. Under the first factor, the employees are not unjustly “enriched” by receiving the cash consideration. Rather, the employees should receive the cash consideration because they have lost something valuable as a direct result of the demutualization: their ownership interests as members of MLMIC. The employers’ argument rests on the unstated premise that an ownership interest in a mutual insurance company is worthless. But that premise is wrong. The Insurance Law‘s mandate that policyholders be compensated for their loss of membership interests demonstrates that the Legislature considered an ownership interest to
Under the second factor, the employees will not receive the cash consideration “at [their employers‘] expense.” Although the employers paid the policy premiums for each of their employees, those premiums, as discussed earlier, paid for the cost of professional liability insurance coverage; the ownership interest the employees had in MLMIC was incident to the corporate structure of mutual insurance companies, wholly unrelated to the payment of premiums. Moreover, “[e]nrichment alone will not suffice to invoke the remedial powers of a court of equity. Critical is that under the circumstances and as between the two parties to the transaction the enrichment be unjust” (McGrath v Hilding, 41 NY2d 625, 629 [1977] [emphasis added]). Here, the employers did not pay the insurance premiums gratuitously; they paid the premiums on the employees’ behalf because they were contractually obligated to do so by the employment agreements that they negotiated, and the employers received the full benefit of those agreements since they received the services of the employees and the residual benefits of their staff being insured.
Finally, under the third factor, for the reasons described above, there is nothing inequitable about complying with the clear statutory language establishing that policyholders are the members of mutual insurance companies, which are to operate for their benefit, and should receive consideration distributed in the event of demutualization. “Typical [unjust enrichment] cases are those in which the [enriched party], though guilty of no wrongdoing, has received money to which [the enriched party] is not entitled” (Corsello v Verizon New York, Inc., 18 NY3d 777, 790 [2012] [emphasis added]; see E.J. Brooks Co., 31 NY3d at 455). The “doctrine is a narrow one; it is ‘not a catchall cause of action to be used when others fail‘” (E.J. Brooks Co., 31 NY3d at 455, quoting Corsello, 18 NY3d at 790). Here, the employees were entitled to the cash consideration under the insurance law; the medical practices/employers could have written agreements assigning the demutualization benefits to themselves had they so chosen and their failure to do so does not render the outcome inequitable.
IV
In sum, we hold that when an employer pays premiums to a mutual insurance company to obtain a policy of which its employee
For Nos. 36 and 37 (in each case):
Order affirmed, with costs. Opinion by Judge Wilson. Chief Judge DiFiore and Judges Rivera, Garcia, Singas, Cannataro and Troutman concur.
For Nos. 38-43 (in each case):
Order affirmed, with costs, and certified question not answered as unnecessary. Opinion by Judge Wilson. Chief Judge DiFiore and Judges Rivera, Garcia, Singas, Cannataro and Troutman concur.
Decided May 19, 2022