Medical professional policyholders (not their employers who paid the policy premiums) are entitled to a cash payout when their mutual insurance company demutualizes

New York


United States


In Columbia Mem'l Hosp. v. Hinds, 2022 NY Slip Op 3306 (N.Y. 2022), Medical Liability Mutual Insurance Company (“MLMIC”), formerly a mutual insurance company, issued professional liability insurance policies to medical professionals. The premiums for those policies were paid by the medical professionals’ employers. In October 2018, MLMIC demutualized. Pursuant to its "Plan of Conversion,” MLMIC sought to distribute $2.502 billion in cash consideration to "Eligible Policyholders." Both the employer and the medical professionals claimed that they were entitled to the cash consideration.

The Statute

The New York Court of Appeals Court explained that MLMIC's conversion from a mutual insurance company to a stock insurance company is governed by Insurance Law § 7307 (e) (3) which provides 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.

In this case, it was undisputed that each medical professional/employee was the sole named policyholder of a professional liability insurance policy issued by MLMIC and that no contract of employment, insurance policy language, or separate agreement purported to assign the employee/policyholder's rights in the demutualization consideration to anyone. Therefore, the Court held that the medical professional and not the employer were entitled to the cash consideration.

The New York Court of Appeals rejected the employer’s position that the statutory language governing the method by which the total demutualization proceeds are to be allocated reflects a legislative intent to award the consideration to whomever actually paid the premiums.

Unjust Enrichment

The New York Court of Appeals also rejected the employer’s claim that the medical professionals/employees would be unjustly enriched if they were entitled to the cash consideration. The Court noted that the test for unjust enrichment requires a litigant to show: (1) the other party was enriched; (2) at that party's expense; and, (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered. The employer failed on each factor.

First, employees were 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.

Under the second factor, the employees would not receive the cash consideration "at their employers' expense." The employers did not pay the insurance premiums gratuitously, rather, 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.

Third, there was 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 in the event of demutualization.

June 15, 2022
Columbia Mem'l Hosp. v. Hinds, 2022 NY Slip Op 3306 (N.Y. 2022)
Author: Carli Kadish
New York Courts