The question in this case is whether an insured employee whose employer pays her insurance premiums is entitled to a cash payout owed to policyholders when the insurance company convert from a mutual insurance company to a stock insurance company.
Mutual insurance companies are owed by, maintained, and operated for the benefit of their policyholders. Stock insurance companies, by contrast, are owned by stockholders. New York’s Insurance Law allows mutual insurance companies to convert to stock insurance companies. To achieve a conversion (or “demutualization”), the insurance company must buy the policyholders out of their interest in the company. Insurance Law § 7307(e)(3) provides the buyout formula: the insurance company must make a cash payout to “each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date” that the company’s directors resolved to convert to a stock insurance company. The payout amount is based on the proportion of the policyholder’s insurance premiums to the overall premiums that the insurer received during the three-year period.
In 2016, Medical Liability Mutual Insurance Company followed this demutualization process. One of its policyholders was Kim Schoch, a nurse practitioner who worked for Lake Champlain OB-GYN, P.C., and who was the sole holder of a malpractice-insurance policy that Medical Mutual insured. In Schoch’s employment contract, Lake Champlain agreed that it would pay the premiums for Schoch’s Medical Liability policy. Upon its conversion, Medical Liability planned to pay Schoch $75,000, as required by Insurance Law § 7307(e)(3). But Lake Champlain objected. It claimed that its premium payments entitled it to the $75,000.
Schoch sued Lake Champlain, seeking a declaratory judgment that the $75,000 belonged to her. Supreme Court agreed, and the Third Department affirmed. The Third Department rested its decision on the statutory language and the terms of Medical Liability’s conversion plan. Under Insurance Law § 7307(e)(3), the cash payout belongs to “each person who had a policy of insurance in effect” during the relevant three-year period before conversion. And Medical Liability’s conversion plan stated that the cash payout belonged to “eligible policyholders or their designees.” “Policyholders” were in turn “defined as the [people] identified on the policy’s declarations page as the insured,” and “designee” was defined “to mean someone who a policyholder specifically designated to receive the proceeds from demutualization.” Here, Schoch was identified as the insured, and she did not name a designee. So the payout belonged to her.
In reaching that holding, the Third Department rejected Lake Champlain’s argument that Schoch would be unjustly enriched if she kept the payout. Although Schoch would receive a windfall if the cash went to her, the same would be true if it went to Lake Champlain. That is because the parties had not contemplated demutualization, and thus had not bargained for it. The court also determined that Lake Champlain had not shown remaining elements of unjust enrichment: a change in a party’s position based on demutualization and fraudulent or otherwise tortious conduct. This unjust-enrichment ruling, the Third Department recognized, parted ways with the First Department’s holding in Matter of Schaffer, Schonholz & Drossman, LLP v. Title, which held that the cash payout from Medical Liability’s demutualization belonged to an employer that paid the premiums.
The Court of Appeals granted leave to appeal.