The question in this case is whether an insured employee whose employer pays his insurance premiums is entitled to a cash payout owed to policyholders when the insurance company converts from a mutual insurance company to a stock insurance company.
Mutual insurance companies are owed by their policyholders. Stock insurance companies, by contrast, are owned by stockholders. Mutual insurance companies can convert to stock insurance companies but, if they do, they must buy the policyholders out of their interest in the company. (This process is called “demutualization.”) The payout is established by statute based on the amount of premium the policyholder paid and the amount of premium that the insurer received in total.
In 2016, Medical Liability Mutual Insurance Company (MLMIC) followed this demutualization process. One of its policy-holders was Marcel Hinds, an obstetrics/gynecology physician employed by Columbia Memorial Hospital. Although Hinds was the policy-holder, the hospital paid the premiums and administered the policy as a benefit for Hinds while he worked at the hospital. So when MLMIC sought to pay out over $400,000 to Hinds as part of the demutualization, the hospital claimed that it was entitled to the funds. The hospital asked Hinds to assign his interest in the payout to the hospital, but Hinds refused and the hospital sued.
Supreme Court held that Hinds was entitled to the payout, and the Third Department affirmed. In reaching its decision, the Third Department declined to follow the First Department’s decision in Matter of Schaffer, Schonholz & Drossman, LLP v Title, 171 A.D.3d 465 (1st Dep’t 2019), and instead relied on its own earlier decision in Schoch v Lake Champlain OB-GYN, P.C., 184 A.D.3d 338 (2020), which held that a policyholder is entitled to a demutualization payout, regardless of who pays the policy premiums. Hinds could assign his interest to the hospital, the court observed, but he did not do so and was thus entitled to the payout in this case.
The Court of Appeals granted leave to appeal.