MLMIC Premium Litigation
Much litigation has been generated surrounding the “demutualization” of Medical Liability Mutual Insurance Company (MLMIC), formerly a mutual insurance company, that issued professional liability insurance policies to many physician groups and practices. After MLMIC demutualized and was acquired by National Indemnity Company in October 2018, MLMIC sought to distribute $2.502 billion in cash consideration to eligible policyholders. For many practices, the premiums for those policies were paid by the employers, not the individual physicians directly.
Litigation ensued between the individual physicians and their employers as to who was entitled to be reimbursed for the premiums that were previously paid for the coverage of the physicians.
After various decisions were rendered in the lower courts, in May 2022, the New York Court of Appeals conclusively resolved the issue in Columbia Mem. Hosp. v. Hinds, 38 NY3d 253 (2022). In Hinds, the Court of Appeals ruled that even when the employer pays premiums to a mutual insurance company to obtain a policy for its employee, and the insurance company demutualizes, “absent contrary terms in the contract of employment, insurance policy, or separate agreement, the employee, who is the policyholder, is entitled to the proceeds” of the returned premiums.
Hinds did not, however, conclusively resolve all of the issues surrounding this scenario. … Enter the great and powerful species of fraud claims.
In Cordaro v. AdvantageCare Physicians, P.C., 2022 NY Slip Op 05267 (1st Dep’t Decided Sept. 27, 2022), the Appellate Division, First Department was tasked to decide an open issue: What if the “contrary terms” of the “separate agreement” in which the physicians relinquished their right to be reimbursed was challenged and claimed to be unenforceable? How would the reimbursement be handled there? In a decision that provides a comprehensive laundry list of plaintiff-friendly authority for fraud claims, the First Department reversed the dismissal of the physicians’ claims, rejecting every form of defense attempted by the employer.
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