It’s not often that you see doctors sue their hospitals or practices, or the practices or hospitals sue them. So the cases stand out.
As it happens, some recent ones have a common thread: last fall’s $2.5 billion acquisition of the largest medical malpractice insurer in New York by a unit of Warren Buffett’s Berkshire Hathaway.
The deal involved what is known as demutualization, since the insurer, Medical Liability Mutual Insurance Co., as its name implies, was a mutual insurance company owned by its policyholders.
To get to a sale, state regulators first had to evaluate the transaction and then policyholders had to give their blessing.
In return for the latter, the policyholders received a share of the purchase price – a “cash consideration” – from buyer National Indemnity Co.
While the deal was much more complicated than that simple explanation, it was the cash back – based on premiums paid – that sent doctors, hospitals, practices and others to court.
That’s because the premiums often were paid by the policyholders’ employers, and they were hopping mad they might not see any of the demutualization cash.
In Warren County, for instance, a practice sued five of its former certified nurse midwives for not agreeing to turn over what the women, as policyholders, were due – in all, more than $368,000.
The practice viewed it as a simple fairness issue: The five needed malpractice insurance to deliver babies in hospitals and the practice paid the premiums for the coverage.
“If defendants are permitted to retain the [cash] distributions, defendants will be unjustly enriched at the sole expense [of the practice],” the lawsuit states.
In answering papers, though, the women contend the insurance was part of their benefits package, listed among items like paid time off, a 401(k) plan and cellphone stipend in their hiring documents.
For now, the disputed $368,000 is being held in escrow by MLMIC Insurance Co., as the malpractice insurer now is known.
As of Jan. 10, $112.5 million remained in escrow, according to the state, representing just 4.5 percent of the cash due from the deal that has not been distributed.
The Department of Financial Services, which oversaw the demutualization, knew from comments received about the plan that some of the payouts would be disputed. While the money by law had to go to policyholders, they in turn were allowed to sign it over to the designated policy administrator – usually the employer that paid the premium.
The state had MLMIC set up a dispute resolution mechanism to help work out the kinks, recognizing, too, that remedies could be pursued through arbitration and the courts.
No matter the route, the state set May 15 as the date when an “active dispute resolution notice” must be filed with MLMIC to keep money in escrow. Otherwise, it will be ordered released to policyholders.
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]