In recent months, unanimous decisions rendered by five-judge Appellate Division panels in both the Third and Fourth Departments have shifted the momentum in the battle over who is entitled to the proceeds from the sale and demutualization of New York’s largest medical malpractice carrier, the Medical Liability Mutual Insurance Company (MLMIC). Both of these recent appellate decisions determined that the sale proceeds belong to the insured policyholders rather than to their employers who may have paid their malpractice premiums and/or acted as their Policy Administrator. These two rulings rejected the rationale underlying an earlier appellate decision in the First Department (Matter of Schaffer, Schonholz & Drossman v. Title, 171 A.D.3d 465 (1st Dept. 2019) (Schaffer)), which determined that whichever party paid the malpractice premiums was entitled to the sale proceeds.
Even though the precedential value of Schaffer has been questioned,[1] many health care employers who paid the premiums for their employees’ malpractice policies with MLMIC and/or acted as their employees’ Policy Administrator, have nevertheless cited Schaffer in numerous lawsuits throughout New York state (in an effort to force their employees to assign over to them their MLMIC sale proceeds). A number of courts have ruled against the insured policyholders in reliance on Schaffer because it was the only appellate court decision on the subject at the time. That situation has now changed with these two recent appellate court decisions.
