Kim E. Schoch, Appellant, v Lake Champlain OB-GYN, P.C., Respondent.
529615
Appellate Division, Third Department, New York
Decided on June 18, 2020
2020 NY Slip Op 03444
Published by New York State Law Reporting Bureau pursuant to
Decided and Entered: June 18, 2020
529615
Calendar Date: May 20, 2020
Before: Garry, P.J., Egan Jr., Mulvey, Devine and Colangelo, JJ.
Nolan Heller
Dreyer Boyajian LLP, Albany (James R. Peluso of counsel), for respondent.
Appeal from a judgment of the Supreme Court (Crowell, J.), entered June 17, 2019 in Saratoga County, which, among other things, issued a declaration in defendant‘s favor.
Plaintiff, a certified nurse midwife and obstetrics/gynecology nurse practitioner, was employed by defendant from June 2007 to at least June 2014.1 One of the terms of the parties’ employment agreement required defendant to maintain and pay the premiums for a professional liability insurance policy. Defendant satisfied that term by obtaining from Medical Liability Mutual Insurance Company (hereinafter MLMIC) a malpractice policy that listed plaintiff as the sole insured. Plaintiff signed a form designating defendant as the policy administrator of the MLMIC policy, thereby appointing defendant as her agent and giving defendant the right to, among other things, make changes to the policy and receive dividends. Defendant paid all the premiums on the MLMIC policy covering plaintiff.
In July 2016, MLMIC applied to the Department of Financial Services (hereinafter DFS) for permission to file a plan to convert from a mutual insurance company to a stock insurance company. In accordance with
Thereafter, plaintiff commenced this declaratory judgment action asserting that, as the policyholder with a membership interest in MLMIC and absent an assignment of her membership interest to defendant, she is entitled to receive the cash consideration. Defendant raised affirmative defenses and
Plaintiff contends that, pursuant to statute, the conversion plan, DFS‘s decision approving the plan and under the common law, she is entitled to the cash consideration because she was the policyholder with a membership interest in MLMIC. Defendant argues that these same sources entitle it to receive the cash consideration because it paid the premiums and had control over the policy. Alternatively, defendant argues that plaintiff would be unjustly enriched if she were to receive the cash consideration.
Before the conversion, MLMIC was a mutual insurance company, meaning that it was owned by, maintained and operated for the benefit of its members. By statute, “[e]very policyholder shall be a member of such corporation” (
By statute, a plan for conversion from a mutual insurance company to a stock insurance company
“shall . . . provide that each person who had a policy of insurance in effect at any time during the three year period immediately preceding [a specified date] 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. 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 [those] three years . . . bears to the total net premiums received by the mutual insurer from such eligible policyholders” ( Insurance Law § 7307 [e] [3] ).
The first quoted sentence of this statute explains who is entitled to receive the consideration, whereas the second quoted sentence explains how the consideration for each eligible person is to be calculated. Consideration is owed to anyone who had a policy of insurance in effect during the relevant time period. Under MLMIC‘s conversion plan, the consideration is payable to eligible policyholders or their designees. Designee is defined to mean someone who a policyholder specifically designated to receive the proceeds from demutualization; an ordinary designation as policy administrator does not convey the right to receive the cash consideration. The conversion plan defines member of the corporation as a policyholder, which is further defined as the person identified on the policy‘s declarations page as the insured. Plaintiff was the named insured on the relevant MLMIC policy. Hence, per the relevant statute and the conversion plan‘s definitions, plaintiff was entitled to the cash consideration (see Maple-Gate Anesthesiologists, P.C. v Nasrin, 182 AD3d 984, 985 [2020]).
Defendant‘s designation as policy administrator gave it no greater right to the cash consideration, and plaintiff did not explicitly assign that right to defendant and declined to do so (see Maple-Gate Anesthesiologists, P.C. v Nasrin, 63 Misc 3d 703, 709 [Sup Ct, Erie County 2019], affd 182 AD3d 984 [2020]). Although the conversion plan gives a policy administrator the right to object if it believes that it has a legal right to the cash consideration, the right to object carries no rights, in and of itself, to the consideration, and the objector must prove its claimed legal right thereto. Defendant has failed to provide any proof in that regard, as it has not demonstrated that plaintiff assigned it that right through a designation form or contractual arrangement.
Instead, defendant relies on its payment of premiums, as well as language in the conversion plan, DFS‘s decision approving the plan, and the statute stating that the amount of the cash consideration is based partly on the amount of premiums that “such policyholder has properly and timely paid
Having determined who is legally entitled to receive the cash consideration, we must now address defendant‘s alternate argument, namely, whether plaintiff would be unjustly enriched if she received the cash consideration as required by the statute and MLMIC‘s conversion plan (see Urgent Med. Care, PLLC v Amedure, 64 Misc 3d 1216[A], 2019 NY Slip Op 51188[U], *7 [Sup Ct, Greene County 2019] [noting that an employee who was a policyholder had “legal title to the proceeds” of MLMIC‘s demutualization, but requiring further proceedings based on possible unjust enrichment]). To recover under a theory of unjust enrichment, defendant must show (1) that plaintiff was enriched, (2) at defendant‘s expense, and (3) that it is against equity and good conscience to permit plaintiff to retain what is sought to be recovered by defendant (see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 [2011]; New York State Workers’ Compensation Bd. v Program Risk Mgt., Inc., 150 AD3d 1589, 1594 [2017]). “The essence of such a cause of action is that one party is in possession of money or property that rightly belongs to another” (Clifford R. Gray, Inc. v LeChase Constr. Servs., LLC, 31 AD3d 983, 988 [2006] [citations omitted]). “Generally, courts will look to see if a benefit has been conferred on the [plaintiff] under mistake of fact or law, if the benefit still remains with the [plaintiff], if there has been otherwise a change of position by the [plaintiff], and whether the [plaintiff‘s] conduct was tortious or fraudulent” (Paramount Film Distrib. Corp. v State of New York, 30 NY2d 415, 421 [1972] [citation omitted], cert denied 414 US 829 [1973]; accord Goel v Ramachandran, 111 AD3d 783, 791 [2013]; Clark v Daby, 300 AD2d 732, 732 [2002], lv denied 100 NY2d 503 [2003]). An allegation that the other party “received benefits, standing alone, is insufficient to establish a cause of action to recover damages for unjust enrichment” (Goel v Ramachandran, 111 AD3d at 791 [internal quotation marks and citation omitted]).
Here, the parties’ employment agreement provided that plaintiff would perform professional services for defendant. In exchange, defendant would pay her a stated salary and provide specified benefits including, as relevant here, obtaining and paying the premiums for professional liability insurance covering plaintiff. The record indicates that defendant purchased, controlled and maintained such a policy from MLMIC in
Defendant contends that it would be unjust for plaintiff to receive the cash consideration because defendant paid all the premiums on the MLMIC policy upon which the consideration is based. Plaintiff argues that she was the policyholder and the employment agreement provided the insurance policy as an employment benefit, so she is entitled to the cash consideration for her membership in MLMIC based on that policy. Although “[a] party may not recover in unjust enrichment where the parties have entered into a contract that governs the subject matter” (Pappas v Tzolis, 20 NY3d 228, 234 [2012] [internal quotation marks, ellipsis and citation omitted]), the parties’ employment agreement did not specifically address demutualization proceeds (see Sergeants Benevolent Assn. Annuity Fund v Renck, 19 AD3d 107, 112 [2005]). The lack of discussion in the contract on this topic is understandable, inasmuch as “no rights to demutualization proceeds arise until the demutualization is announced, absent a clear earlier agreement” (Bank of New York v Janowick, 470 F3d at 274), and MLMIC‘s demutualization was unexpected, as it was the first for a professional liability insurance company in this state.
Defendant asserts that the cash consideration would be a windfall to plaintiff. While true, the converse is also true; the consideration would be a windfall to defendant if defendant were to receive it. “Demutualization has been referred to as a ‘windfall’ in some cases because it is often unclear if parties knew the ownership stake even existed prior to the demutualization plan” (Urgent Med. Care, PLLC v Amedure, 64 Misc 3d 1216[A], 2019 NY Slip Op 51188[U] at *4 [citations omitted]; see Columbia Mem. Hosp. v Hind, 65 Misc 3d 1205[A], 2019 NY Slip Op 51508 at *5). The reality is that neither party here bargained for the demutualization proceeds. Moreover, neither party actually paid for them, because membership interests in a mutual insurance company are not paid for by policy premiums; such rights are “acquired . . . at no cost, but rather as an incident of the structure of
Looking at the circumstances that the Court of Appeals listed for courts to consider when evaluating a claim of unjust enrichment (see Paramount Film Distrib. Corp. v State of New York, 30 NY2d at 421), the benefit of the cash consideration would be paid to plaintiff based on the statute and the conversion plan — a correct reading of the law, rather than a mistake. No factual mistake exists, other than the parties’ mutual failure to consider the potential for demutualization when negotiating their employment agreement. Furthermore, both parties benefitted from defendant‘s fulfillment of its contractual obligation to provide malpractice insurance and pay for the premiums, inasmuch as the insurance provided coverage to protect the liability interests of plaintiff both individually and as an employee of defendant.4 Neither party changed its position based on demutualization and plaintiff‘s conduct was neither tortious nor fraudulent. Hence, we conclude that defendant failed to meet its burden to establish its affirmative defense and counterclaim alleging unjust enrichment. Based on our analysis, we decline to follow Matter of Schaffer, Schonholz & Drossman, LLP v Title (171 AD3d 465 [2019], supra), which
Garry, P.J., Egan Jr., Devine and Colangelo, JJ., concur.
ORDERED that the judgment is reversed, on the law, with costs, defendant‘s cross motion denied, plaintiff‘s motion granted, and it is declared that plaintiff is solely entitled to the $74,747.03 cash consideration from Medical Liability Mutual Insurance Company‘s demutualization, plus interest for the time the proceeds were in escrow, and defendant‘s claim thereto is invalid.