Supreme Court, Orange County, January 16, 2020

Fox Rothschild LLP (Matthew Schenker of counsel) for plaintiffs.

McCausland Keen & Buckman (Glenn S. Gitomer of counsel) for David Cornell, defendant.

Rivkin Radler LLP (Michael Versichelli and Catalina E. De La Hoz of counsel) for Medical Liability Mutual Insurance Company and another, defendants.

Plaintiffs move for summary judgment on their first and eighth causes of action or, in the alternative, on their fifth and eighth causes of action against the defendants and to dismiss defendant David Cornell's counterclaim:

In this action, the single legal issue is whether the physician employee, defendant David Cornell, or the employer, Orange Regional Medical Center together with GHVHS Medical Group, P.C. (the provider), is entitled to a distribution payment made by Medical Liability Mutual Insurance Company (MLMIC). MLMIC is a medical malpractice insurance company that issued a policy covering Cornell that was paid for as part of the employment contract, by the provider as his employer. The parties seek, in essence, a declaratory judgment resolving this one central issue.

GHVHS Medical Group, P.C. (the P.C.) is affiliated with two not-for-profit hospitals, one of which is plaintiff Orange Regional Medical Center (ORMC) located in Orange County, New York. ORMC is an acute care hospital licensed to operate 383 beds in Middletown, New York. Pursuant to the employment agreement effective October 22, 2013, between Cornell as employee and ORMC as employer, Cornell served as medical director for ORMC's trauma program. The agreement was later assigned to the P.C. on December 1, 2014. Cornell was employed by the P.C. until September 10, 2015. The agreement{**69 Misc 3d at 613} details Cornell's compensation [*2]and other party obligations. It specifies that the employer is to provide medical malpractice coverage to the physician at the employer's expense (agreement ¶ 5). There is no dispute that plaintiff/provider was designated by Cornell to serve as his agent for the purpose of administering the policy, the coverages, the reporting requirements, and the payment of the premium.

The policy insuring Cornell was issued by MLMIC. At the time the insurance policy was issued, MLMIC was a mutual insurance company owned by its policyholders, one of whom was Cornell. Thereafter, MLMIC negotiated a sale of its business to a subsidiary of Berkshire-Hathaway, which formed a stock company, and paid MLMIC $2.5 billion for the MLMIC assets. This demutualization plan (the plan) was approved by the New York State Department of Financial Services pursuant to Insurance Law § 7307. The plan includes the methodology for the pro rata distribution of the proceeds of the sale to parties in interest. As for Cornell's policy, the amount for the distribution allotted to the policy is $197,539.89 (the payment—$181,104.82 related to Cornell's employment with ORMC and $16,435.07 related to his employment with the P.C.). The question presented here is whether Cornell or plaintiffs are entitled to the payment.

Defendants MLMIC and Computershare respond to the instant motion without taking a position as to the merits. MLMIC admits that on October 4, 2018, due to a "misclassification," MLMIC issued the allocable share of cash consideration related to Cornell's employment with ORMC in the amount of $181,104.82 directly to Cornell. Thus, based upon the disagreement of the parties, only a portion of the payment is being held in the MLMIC escrow account pending resolution of the dispute. The escrow amount is $16,435.07. MLMIC sent a letter to Cornell on January 7, 2019, demanding return of the distributed cash consideration, but despite such demand, Cornell has not returned the funds.

The amended complaint asserts eight causes of action including, inter alia, declaratory judgment, breach of contract and unjust enrichment. The answer of Cornell includes a counterclaim for declaratory judgment in his favor. Plaintiffs now move for summary judgment, in essence seeking a declaration that they are entitled to the payment.

Plaintiffs ask the court to follow the recent decision of the Appellate Division, First Department in Matter of Schaffer, {**69 Misc 3d at 614}Schonholz & Drossman, LLP v Title (171 AD3d 465 [2019]), decided April 4, 2019. Plaintiffs argue that it is dispositive of the issues raised in this matter.

In Matter of Schaffer, the parties, pursuant to CPLR 3222 (b) (3), filed directly with the appellate court a statement of stipulated facts, together with their briefs. The statement of facts included a section entitled "Controversy Presented" asking the Court to "issue a declaratory judgment determining whether SS&D or Dr. Title is entitled to the Disputed Amount" (NY St Cts Elec Filing [NYSCEF] Doc No. 1 at 8, submission of controversy, in Matter of Schaffer, Schonholz & Drossman, LLP v Title, Sup Ct, NY County, index No. 160215/2018).

A review of the facts in Matter of Schaffer reveals that the litigation, like this action, involved a physician named as an insured on an MLMIC policy. The doctor's employer, similar to the provider, purchased the policy and paid all of the premiums and costs related to the policy. Like Cornell, the doctor acknowledged that she did not pay any of the premiums or any of the other costs related to the policy. Further, like Cornell, the doctor designated her employer as the "Policy Administrator." In both the case at hand and the case in Schaffer, plaintiffs argue that as policy administrator, they had the right to receive return premiums, including dividends when due. Both doctors Title and Cornell acknowledged that they did not [*3]bargain for the benefit of the demutualization proceeds, but then neither did the hospital/provider. Under the facts of Schaffer, the Court held that "[a]warding [the doctor] the cash proceeds of MLMIC's demutualization would result in her unjust enrichment." (Matter of Schaffer, 171 AD3d at 465 [citations omitted].) Similar to Matter of Schaffer, the named employer here purchased and paid all of the premiums on the medical professional insurance policy covering the physician who now seeks the distribution payment based on the policy.

In the instant case, defendant Cornell attempts to distinguish the facts from the facts in Matter of Schaffer alleging that he specifically bargained for the right to obtain and receive his own MLMIC professional liability insurance policy and all benefits that flowed from such policy including the right to any demutualization proceeds. Cornell acknowledges that he agreed to designate plaintiff as a "policy administrator" but that designation said nothing about demutualization proceeds. Cornell submits the policy administrator change form in support of this argument. This form states in part,{**69 Misc 3d at 615}

"The Policy Administrator is the agent of all Insureds herein for the paying of Premium, requesting changes in the policy, including cancellation thereof and for receiving dividends and any return Premiums when due. By designating a Policy Administrator each Insured gives us permission to release information about each such Insured, your practice or any other information that we may have to such Policy Administrator." (NYSCEF Doc No. 35 [emphasis added].)

Nowhere in this form does it mention proceeds of demutualization.

In support of his claim to have bargained for the benefit of the payment, Cornell submits an affidavit in which he acknowledges the employment agreement which requires that the provider provide the physician with malpractice "coverage," from a company of the provider's choice, including self-insured plans. There was no requirement that the physician be provided with a policy from a mutual insurer featuring ownership benefits. Cornell further argues that this medical coverage was an employment incentive—"was part of my compensation" (Cornell aff ¶ 9)—and that this contract was carefully negotiated with his attorney. Cornell makes no allegation that the agreement is ambiguous in any way and does not allege that demutualization was discussed at all, simply that neither party anticipated the demutualization event.

Cornell further argues that the First Department's decision in Matter of Schaffer is not binding on this court as this case was filed in the Second Department. Cornell further contends that, in any event, the First Department's determination based on the principles of unjust enrichment was in error because the issue was not properly argued to the appellate court.

While it is true that courts are bound by the doctrine of stare decisis to apply precedent established in another department until a contrary rule is established by the Appellate Division in its own department or by the Court of Appeals (see Phelps v Phelps, 128 AD3d 1545 [4th Dept 2015]; D'Alessandro v Carro, 123 AD3d 1 [1st Dept 2014]; Mountain View Coach Lines v Storms, 102 AD2d 663, 664-665 [2d Dept 1984]), caution must be applied in some cases. (See People v Hobson, 39 NY2d 479, 489-490 [1976] [which recognized that conclusory assertions should be carefully scrutinized].) In this instance, the First Department's two paragraph decision summarily concludes{**69 Misc 3d at 616} that it would be an unjust enrichment to award the proceeds to the doctor.

In the facts of this case, the parties agreed upon an extensive employment contract. It is clear from the terms of the contract that the cost of medical malpractice insurance would be additional compensation for the doctor as it was being paid by the provider. Neither party [*4]anticipated or bargained for the demutualization, and there are no terms in the contract which suggest how the profits should be disbursed. Applying the clear law of contracts to the case at bar, two contract principles are present in this case. First

"[a] contract is to be construed in accordance with the parties' intent, which is generally discerned from the four corners of the document itself. Consequently, 'a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms' (MHR Capital Partners LP v Presstek, Inc., 12 NY3d 640, 645 [2009], quoting Greenfield v Philles Records, 98 NY2d 562, 569 [2002])." (Legum v Russo, 133 AD3d 638, 639 [2d Dept 2015].)

Moreover, this court is mindful of the fact that "courts may not by construction add or excise terms, nor distort the meaning of those used and thereby 'make a new contract for the parties under the guise of interpreting the writing.' (Heller v. Pope, 250 N. Y. 132, 135 ; Friedman v. Handelman, 300 N. Y. 188, 194.)" (Morlee Sales Corp. v Manufacturers Trust Co., 9 NY2d 16, 19-20 [1961].) Applying this law to this employment contract, there are no terms which address proceeds of demutualization.

A review of the Superintendent's decision approving the demutualization plan orders that the proceeds shall go to the "eligible policyholders," or their "assignees" unless an objection is timely filed, in which case the proceeds are to be held in escrow until the dispute is resolved. (Matter of the Plan of Conversion of Med. Liab. Mut. Ins. Co. and the Acquisition of Control of Med. Liab. Mut. Ins. Co. by Natl. Indem. Co., slip op at 2 [Sept. 6, 2018], available at https://www.dfs.ny.gov/system/files/documents/2019/01/mlmic_decision_20180906.pdf; NYSCEF Doc No. 24.) Insurance Law § 7307 (e) (3) defines the group of persons who are eligible to receive the proceeds of demutualization as "eligible policyholders." There is no dispute that Dr. Cornell is the "eligible policyholder." This definition does not differentiate between who pays the premiums and who does not. In fact, because every situation/employment contract is different, a{**69 Misc 3d at 617} process was set up to put disputed funds in escrow until the dispute is resolved by the courts or arbitration. In the instant case, Dr. Cornell, the eligible policyholder, chose not to assign the proceeds to the provider and is contesting their right to the same.

To prevail on a theory of unjust enrichment, the court must consider "whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered." (Betz v Blatt, 160 AD3d 696, 701 [2d Dept 2018], citing Goel v Ramachandran, 111 AD3d 783, 791 [2013], quoting Paramount Film Distrib. Corp. v State of New York, 30 NY2d 415, 421 [1972].) A court should "look to see if a benefit has been conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant, if there has been otherwise a change of position by the defendant, and whether the defendant's conduct was tortious or fraudulent." (Betz v Blatt, 160 AD3d 696, 701 [2d Dept 2018] [citations omitted].) When considering the above test, there are no allegations of fraud or tortious conduct. Moreover there was no mistake of fact or law as neither party was even aware of this benefit at the time the employment contract was signed. A close reading of the Department of Financial Services decision reveals that plaintiffs' claims were considered during the demutualization process, but they did not change the language of what constitutes an "eligible policyholder," even though plaintiffs and others made objections at the public hearing. (See Matter of the Plan of Conversion, slip op at 23-25; NYSCEF Doc No. 24.) Accordingly there is no unjust enrichment if the defendant doctor receives the money in this case.

In rendering this decision, the court has considered its prior ruling in the case of GHVHS Med. Group, P.C. v Arthurs (2019 NY Slip Op 33988[U] [Sup Ct, Orange County 2019]) under Orange County index No. EF001609-2019 wherein this court found that the rightful owner of those funds was the policyholder, Gilly Arthurs. Although the Second Department has not addressed one of these cases thus far, many similar cases have been filed in Orange County. To rule that the providers should receive the money in every case would unjustly enrich the providers who never bargained for this windfall. Furthermore, it may open the floodgates to every type of profession which negotiated the payment of malpractice insurance as part of the employment contract. This court believes the issue is fact specific, and turns on the language of each individual{**69 Misc 3d at 618} contract of employment. Plaintiffs argue the catchall phrase of "unjust enrichment" to support a finding that this windfall profit should go to them. However, factually no one knew that this company would be demutualized and there were no contract terms addressing the situation. This court finds that when a contract fails to state the terms specifically, a ruling must be against the drafter of the contract, which in this case is the provider. (See e.g. Mejia v Trustees of Net Realty Holding Trust, 304 AD2d 627, 628 [2d Dept 2003].)

The court has considered the additional contentions of the parties not specifically addressed herein. To the extent any relief requested by either party was not addressed by the court, it is hereby denied. Accordingly, it is hereby ordered, adjudged and decreed that plaintiffs' motion, made pursuant to CPLR 3212, for an order granting plaintiffs summary judgment on the first and eighth causes of action in the complaint for a declaratory judgment as against all defendants is denied; and it is further ordered, adjudged and decreed that plaintiffs' motion for an order granting summary judgment on the fifth and eighth causes of action in the complaint as against all defendants is denied. There has been no unjust enrichment because plaintiff agreed to pay the premiums as part of the employment agreement offered to Dr. Cornell. While Dr. Cornell may be enriched by receiving this profit, he is not being enriched at the expense of the plaintiff. Plaintiff fully expected to pay all the insurance premiums, without repayment, as part of the compensation to defendant, when the employment contract was signed. No one anticipated that MLMIC would be demutualized with a profit paid to the policyholders. Therefore defendant's enrichment is not at plaintiff's expense, but rather an unforeseen benefit of the bargain; and it is further ordered, adjudged and decreed that the second, third, fourth, sixth and seventh causes of action in the complaint are dismissed as moot; and it is further ordered, adjudged and decreed that defendant David Cornell's counterclaim for a declaratory judgment in his favor is granted. This court declares that the "eligible policyholder" is David Cornell and he is entitled to both the $181,104.82, already disbursed, as the amount of the ORMC payment, and the escrowed amount of $16,435.07 as the amount of the P.C. payment, as his share of the sale and demutualization as determined by the plan. The plan approved by the Department of Financial Services allowed for the policyholder to assign the benefits if they chose to do so, further{**69 Misc 3d at 619} illustrating that the rightful owner of the proceeds would be the policyholder, Dr. Cornell, and no one else. However, defendant Dr. Cornell chose not to assign the proceeds; therefore he is entitled to the distribution; and it is further ordered, adjudged and declared that defendant, David Cornell, M.D., is entitled to the receipt from the escrow agent currently holding funds due it in the amount of $16,435.07 plus accrued interest, if any, as to said amount representing the pro rata amount [*5]assigned to the account of David Cornell, which amount shall be paid to defendant, David Cornell, within 15 days of the service of this order, with notice of entry, upon the escrow agent; and it is further ordered, adjudged and decreed that upon compliance with this order, namely payment of the amounts due defendant, the action shall be dismissed with prejudice.