Settlement Update with Medical Malpractice Insurer MLMIC
December 22, 2020
In 2019, medical malpractice insurer MLMIC was bought out by Warren Buffet's Berkshire Hathaway for over 42.5 billion dollars. It is important to note that MLMIC was at that time a mutual insurance company - meaning the policyholders were the owners and the buyout went to the policyholders proportionally, much like the dividend payments. Who were the policyholders? Well, according to the policy documents, it was the doctors who maintained policies as the insureds. Or so the NYS Insurance Department and MLMIC believed and agreed to in the conversion plan.
However, many medical practices had a different idea. After all, according to the practices, they were the ones that had been paying the policy premiums. Not surprisingly, litigation ensued. At first, the practices saw a major win in a case known as Shaffer. In that case, the 1st Department held that the practices were entitled to the payout under an unjust enrichment argument. In the short run, this decision resulted in many doctors, with the advice of counsel, accepting defeat and settling their disputes for pennies on the dollar or even abandoning their actions outright. At that time, Alexander Paykin did not believe that Shaffer got it right or was even applicable to the majority of cases. Instead, our office field motions to dismiss on behalf of two doctors, arguing that the unjust enrichment causes of action asserted by their employer were inapplicable and that it was the doctors, as the policyholders, that were entitled to the payout.
The practices' victory in Shaffer was short-lived. It was only a matter of time until the remaining departments disagreed with the holding in Shaffer and the tide turned in favor of the doctors. First, the 4th Department ruled in favor of the doctors in Maple-Gate. Workin with that precedent, our firm pushed forward with our motions to dismiss, having won one on behalf of one of the two doctors, with the Court declaring that he was entitled to the proceeds. Curiously, in the second identical action, a different judge did not agree with our arguments, denying our motion. But we were not defeated and intended to fight on.
Then the 3rd Department followed the 4th Department and ruled in favor of the doctors in both Schoch and Shoback. Relying on this new precedent, as well as the decision we had obtained in a similar action before a different judge, our office made a motion to renew and reargue the motion to dismiss. On renewal and reargument, the Court saw the points raised in a new light and dismissed the second case. Of course the medical practice appealed in both actions and the appeals are now pending before the 2nd Department.
As a result, unlike those doctors who listened to advice to settle early, our clients got to keep the entirety of the demutualization proceeds.
With our appeals still pending, the 2nd Department had the opportunity to address the issues recently in a similar case (Maple-Med) and has already made its ruling, siding with the 3rd and 4th Departments in holding that the funds belong to the doctor and not the practice.
At this point, the 1st Department also realizes that the holding in Shaffer is flawed, or should at least be highly limited. As such, the 1st Department has agreed to hear a new case, Dworkin, where it will have the opportunity to overrule or limit Shaffer and we expect that that is precisely what the 1st Department will do.
The Law office of Alexander Paykin, P.C. stands ready to represent doctors throughout New York State in asserting their rights and fighting off all claims to the demutualization proceeds. However, there are much more curious claims that doctors may have against their practices, which are only coming to light as a result of the MLMIC litigation.
Many practices asserted, as part of their arguments for why they should keep the demutualisation windfall, that it would be consistent with the dividend payouts, which are also paid to the policyholders but which they (the practices) have been pocketing for years. While that seems to have (correctly) fallen on deaf ears when it comes to being considered a viable legal argument for them keeping the demutualization proceeds, it also (sadly) fell on deaf ears in those situations where the lawyers for the doctors did not immediately spot a claim that their clients' have against the practices.
In effect, we argue that since the Courts now clearly hold that the policyholder is the doctor and is entitled to all payouts, by the practice's own arguments, the doctor is also entitled to all of the dividends paid. Normally, the statute of limitations would limit the recovery to at most 6 years, on a breach of contract claim. So, a doctor who was aware of the practice can only sue to recover the last 6 years of dividends. However, where the practice simply pocketed the money and never mentioned to the doctor that a dividend payment ever existed, the recovery would be based on a concealed fraud, and the cause of action would be for the entire period of the dividend payments, provided it is commenced within 2 years of discovery of the fraud.
So, as a result of the MLMIC litigation, the medical practices have not only solidified the position that the doctors are entitled to the proceeds but further exposed themselves (and often flat out admitted) claims against themselves for conversion, unjust enrichment and even fraud. Our office is already handling two such cases. In fact, given this new line of argument, even if you, as a doctor, were not insured with MLMIC (perhaps PRI or one of the other carriers that paid dividends), you may now have a cause of action against your present (or past) employer.
If you are (or were) a policyholder (doctor), holding a policy with MLMIC and facing a distribution dispute, or have been employed by a practice which has been providing you with an insurance policy and not distributing the dividends to you, you may have rights and should discuss the possibility of taking action with qualified counsel. Feel free to contact Alexander Paykin, Esq. directly to discuss. You can schedule a free initial telephone consultation by calling our office at 212-858-9112, 516-464-6446, or 855-NYC-ATTY. You can also self-schedule on our website at www.paykinlaw.net/schedule.
Alexander Paykin is a graduate of Benjamin N. Cardozo School of Law, has been a commercial & real estate litigator and complex transactions attorney with a substantial amount of his practice dedicated to medical practices and doctors. While in law school, Mr. Paykin worked directly for the General Counsel of Physicians' Reciprocal Insurers, New York's second largest medical malpractice insurance carrier.
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