Opinion
Index 526143/2018
03-23-2022
Wyckoff Imaging Services, P.C, Plaintiff, v. Salomon Blutreich and MLMIC Insurance Co., Defendants. NYSCEF Doc. No. 91
HON. LANY D. MARTIN, JUDGE
Unpublished Opinion
DECISION & ORDER
HON. LANY D. MARTIN, JUDGE
Plaintiff Wyckoff Imaging Services, P.C. (Wyckoff Imaging) provides medical services to Wyckoff Heights Medical Center (Wyckoff Heights), a hospital that serves predominantly Brooklyn and Queens. In the ordinary course, plaintiff purchased medical malpractice insurance (the ''Policy')with Medical Liability Mutual Insurance Company (MLMIC) for its then employee, defendant Dr. Salomon Blutreich. Though employee Dr. Blutreich was the policyholder, plaintiff employer paid the Policy's premiums (the "Premiums'') and was its administrator.
Dr. Blutreich designated plaintiff as "Policy Administrator" (Policy Designation, NYSCEF Doc 35).
Since a mutual insurance company is ow11ed by and operated for the benefit of its policyholders, pursuant to a conversion from a mutual insurance company to a stock insurance company (i.e. demoralization), MLMIC agreed to buy out the ownership interest in each policy (''Cash Consideration"). Plaintiff sued for declaratory judgment as to its rightful be11eficiary, arguing that; since it alone paid the Premiums, and retained virtually exclusive co11ttol over the Policy, awarding the Cash Consideration to Dr, Blutreich would unjustly enrich him or, .11 alternatively, be breach his employment agreement (the ''Agreement") (Comp 1, NYS CEF Doc 1).
Section VI of the Agreement supplies that plaintiff would "maintain policies of professional liability insurance" to insure Dr. Blutreich for "any claim for damages arising by reason Of personal injury or death" in the course of his employment (Agreement, NYSCEF Dog 33). Separately, Schedule A of the Agreement enumerates among other things, Dr. Blutreich's compensation and supplies that "The compensation and benefits as expressly provided in [] Schedule A shall be the sole and exclusive compensation and benefits to be provided to the Physician in consideration for all of: the services rendered or to be rendered by the Physician and all of the Physician's obligations under this Agreement'' (Id. 10).
Since a mutual insurance company is credited by and operated for the benefit of its policyholders, pursuant to a conversion froth a mutual insurance company to a stock insurance company (.e., demineralization), MLMIC agreed to buy out the ownership interest in each policy ("Gash Consideration"). Plaintiff sued for declarator judgment as to its rightful beneficiary, arguing that, since it alone paid the: Premiums and retained virtually exclusive control over the Policy, awarding the Cash Consideration to Dr, Blutreich would unjustly enrich him or, alternatively, be breach his employment agreement (the "Agreement") (Compl, NYSCEF Doc 1). plaintiff initially proved for summary judgment as to its unjust enrichment and breach of contract claims and sought an order directing MLMIC to disburse the Cash Consideration to it (Mot Seq 1, NYSCEF Doc 30). In denying the motion, this Court (Reginald A. Boddie, J.) cited Maple Medical, LLP v Scott, 191 A.D.3d 81, 138 N.Y.S.3d 61 (2d Dept 2020) ("Scott'') for the proposition that, since the Conversion Plan "makes clear" that policyholders are the ones entitled to the Cash Consideration "unless there has been a specific designation to an identified policy administrator," plaintiff has no cognizable unjust enrichment claim on the basis of having paid the Premiums (Decision & Order, NYSCEF Doc 78 [ emphasis added]).
Dr. Blutreich now moves pursuant to CPLR 3212 for (i) summary judgment as to his entitlement to the Cash Consideration, (ii) dismissal of plaintiff's complaint and affirmative defenses, and (iii:) attorney fees (Mot Seq 2, NY S CEF Doc 81). In opposing, plaintiff argues that the facts here are distinguishable from those in Scott since, there, the employer paid the Premiums as part of the employee's compensation where as, here, the compensation section of the Agreement, which sets forth Dr. Blutreich's ''sole and exclusiV6 compensation," does not include medical malpractice insurance and payment of the Premiums. Plaintiff charges that this is "crucial distinction," as recognized by this Court (Leon Ruchelsman, J.) in Wyckoff Heights Medical Center v Monroe, 2020 NY Slip Op 32580(U) (Sup Ct, Kings Cty 2020) (''Monroe;').
STATUTORY/REGULATOR FRAMEWORK AND THE CONVERSION PLAN
Insurance Law § 7307 governs the conversion process from a mutual insurance company to a stock insurance company and requires the insurer to apply to the Superintendent of the Department of Financial Services (DFS) for permission to convert (see Insurance Law § 7307[b]).
Once such permission is obtained, the parties to the proposed transaction must prepare a plan of conversion--the operative document governing equalization that must be approved by the Superintendent (see· Insurance Law §. 7 307 [d], [e]),
MLMIC's plan of conversion provided that, as a result of its demoralization, the "amount distributable to each Eligible Policyholder shall be paid directly to such Eligible Policyholder unless such Eligible Policyholder has affirmative designated a Policy Administrator to receive such amount on its behalf (Conversion Plate, Art, ; 6.3(f), NYSCEF Doc. 38). "If a Policy Administrator .., has not been specifically designated to receive the Cash Consideration allocated to an Eligible Policyholder, but [] believes that it has a legal right to," such Policy Administrator reserves the right to object and Instigate the matter (Conversion Plan, Schedule I).
In September 2018, DFS issued a decision approving the Conversion Plan and affirming that the Cash Consideration. was to be paid to "Eligible Policyholders or their assignees pursuant to explicit written consents or assignments" (DFS Decision ·https://www.dfs.ny.gov/systein/files/ documents/2019/0l/mhnic_decision_20180906.pdt). In accordance with which, in a January 2019 order, DPS clarified that "whether funds are held in escrow has no effect on the respective legal rights of the parties to such funds" (DFS Order, https://www.drs.ny.gov/system/files/documents/2019/0 I /mimic_ order_ 1-14-19_0. pdf).
APPELLATE DIVISION'S SPLIT AUTHORITIES
Following the DFS Order, a number of health care employers and employees have litigated the issue of who: should receive the Cash Consideration pursuant to MLMIC's demoralization, and, like this Court, the Appellate Division appears to be split on the question. In 2019, the First Department found for the employer (see Schaffer, Schonholz & Drossman, LLP v Title, 171 A.D.3d 465 (''Schaffer'']). The following year, ;the Fourth, Third, and Second Departments found for the employees (see Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984 [4th Dept 2020] [Maple-Gate"] Schoch v Lake Champlain Ob-Gyn, P.C, 1S4 A.D.3d 33S [3d Dept 2020] [''Schoch'']; Scott, supra).
In Schqffer; the First Department found that, si11ce the employer ''purchased the policy and paid all the premiums on it," awarding the Cash Consideration to the employee would unjustly enrich her because she did not "bargain for the benefit of the demoralization proceeds" (id. at 465).
In Maple-Gate, an analogous ease, the Fourth Department opined that the "mere fact" that the employer "paid the annual premiums on the polities ... does not entitle it the demoralization payment" (id. at 984). There, although the employer; paid the: employees' premiums "as part of their compensation," the Court's reasoning rested on it he Conversion Plan, which states that the "cash distribution would be made to the policyholder unless he or she designated a Policy Administrator to receive such amount on his or her behalf (Id., [emphasis added]).
Likewise, in Schoch, the parties' employment agreement required the employer to pay its employee's premiums (id. at 343). There, the Third Department did not mince words: "No distinction is made between a policyholder who pays the premium out of his own pocket versus a policyholder whose employer pays the premium as part of an employee compensation package. Insurance Law § 7307 does not confer an ownership interest: in the stock or to the to the cash consideration to anyone other than the policyholder" (id.).
In Scott, the trial court addressed "the same single legal issue'' at "the heart of all of the actions"—"whether the physician employee or the employer partnership is entitled to"- the Cash Consideration and found for the employer (id:, at 81), In reversing, the Second Department made clear where it stands: "We agree with purl colleagues in the Third and Fourth Departments that the funds belong to the physician-policyholder and respectfully do not agree with our colleagues in the First Department that the funds should be paid coyer to the medical practice-employer" (id, ). There, under the parties' employment agreement, the employees' compensation included payment of the Premiums, This Department unequivocally held that the "plain language of Insurance Law § 7307, the plan of conversion, and the DFS decision make clear that the policyholder is entitled to the consideration paid in connection with the MLMIC demutualization" (id.).
Given the split, the Court of Appeals has agreed to hear several of these cases, including Scott The parties are therefore directed to submit final memorandum of law narrowly addressing the import, if any, of payment of the Premiums as part of ail employee's compensation. Iii so doing, the parties should address this Court's decisions: here (Boddie J.) and Monroe (Ruchelsman, J.), and the opinions issue id m Scott, Schaffer, Shoback and Maple-Gate Such fact-specific briefs should be concise, clear, and may include any arguments on contract construction and interpretation, including, but not limited to, the patrol evidence rule.
See, e, g.. Colombia M&m. Hospital v Hinds, 188 A.D.3d 1337 (3d Dept 2020), Iv to appeal granted, 36 N.Y.3d 904, 136 N.Y.S.3d 830 (2021).
See also Wyckoff Heights Medical Center v Olivier (Sap Ct, Kings Cty), No. 526152/2018,
Conclusion
Accordingly, it is hereby ORDERED that plaintiffs motion (Mot Seq 2, NYSCEF Doc 8]) for summary judgment is granted solely to the extent of affording all parties leave to serve and file the foregoing final briefs no later the April 22, 2022.