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GWarren For Business & Nonprofits
GWarren For Business & Nonprofits, Attorney
Category: Business Law
Satisfied Customers: 355
Experience:  30 yrs Counsel, AVP Corp Governance Fortune 100 finance/ins, Nonprofit Bds, law firm. OH NJ license
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Hi, and thanks for your opinion on the following... I am an

Customer Question

Hi, and thanks for your opinion on the following... I am an associate of an orthopedic group. I am paid a salary, and have a benefit package that pays for my medical malpractice as one of my benefits. I have worked for this group for 6 years. I was a policy holder of the med mal company before joining this group. The med mal company, PICA, is owned in part by the policy holders. They were recently bought out, and are making a disbursement called a "cash consideration" to the policy holders/members. The check arrived for $11,000, made out to me, the policy holder and member. My group states that they feel the money should go to them because they make the payments on my policy. I feel it should go to me because I am the member, not them, the check is made out to me as a result, and most importantly, it is my benefit, which is part of my package and payment for working there. So far my atty agrees with me, and theirs with them. :) What is your opinion?
Submitted: 8 years ago.
Category: Business Law
Expert:  GWarren For Business & Nonprofits replied 8 years ago.
Thank you for contacting justanswer.

Your situation is no different that those involving mutual insurance companies and credit union memberships. The resolution of the issue could also depend upon how the IRS would treat the distribution to members as I explain below.

Typically the question is "who is the member for purposes of the distribution?" Even though your benefit package may include the payment of the insurance premiums, you are the member for purposes of insurance coverage and any other relationship aspects with PICA. Please review PICA's membership agreement for its definition of "member" (I am unable to access the policy benefits online as that area is restricted to members.)

Typically a member is considered to be those recorded as holding an ownership/policyholder interest. As the company would typically be considered an insurance reciprocal due to its ownership by its policyholder doctors et al, those owners would have the membership rights in the medical malpractice insurance company (governance, voting rights, etc.) not the individual that pays the premium (consider other situations, for example, where others pay for insurance coverages, however, are not insureds or members. Another example, many companies pay or reimburse memberships in organizations, however, the individuals are the members of those professional organizations.)

You may be able to resolve the matter with your group and its attorney by referring them to the following three (3) sources:
1. The PICA policy and its definition of "members" (supported by the fact that the distribution check was issued to you as the member)
2. IRS determination - you, not the group will receive the special dividend Form 1099 distribution from PICA and the IRS will look to you for any tax payment on the long term capital gains.
3. Florida insurance law regarding reciprocal insurance will also help them understand the member relationship to PICA. I am providing a direct link to that portion of the Florida law with its many references to "members":

Although this is necessarily a brief review, I hope it is responsive to your question and that the information provides you with sufficient details to make your case with the group and its attorney. If you would like further clarification, please let me know.
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Customer: replied 8 years ago.
Thank you for your reply. I am the designated member, no question, and I appreciate the method you outlined to establish that. The IRS considers me as the person to send the W9 form, and I am responsible for the capital gains tax.
Not in dispute:
1. I am the member. (I just found out they had tried, but failed to be designated member some time in the past)
2. The IRS considers me totally responsible for the gains. (My group has offered to reimbuse me for the taxes owed when I sign the check over to them. Sure. Nice of them, huh?)

In Dispute:
Should they get the monies? They feel this is due them for being "nice" and paying some 45K over the last 5 years that the cash consideration was calculated over. I was a member before even joining the group. They seem to have a very narrow view, and no question exists that the right thing to do is to sign over the 11k. I have an opposite perspective. I want to check my compass with you to make sure I am not guilty of what I consider them to be guided by. I.e., self-serving greed.
Expert:  GWarren For Business & Nonprofits replied 8 years ago.
Thank you for reply and the further details. I instruct business ethics and see no ethical clash with your perspective. (For example, would all members of the practice group be tendering PICA distribution checks to the group? just those that received them?)

The distribution likely could not have been anticipated, was found money and could not be considered reimbursement of premium for the period the orthopedic group paid your premiums. It does not appear that it was a premium rebate, refund or even a dividend distribution based on favorable coverage or rating results. (It is unlikely the IRS would consider the distribution simply as a refund of premiums paid.) Therefore, it was a resulting buyout of the members' interests (voting rights, ownership, investment) in the PICA Group as a mutual owned member based company. Further only current members as of a certain date typically receive the distribution (not all present and former members.

Adding to my earlier comments I find that PICA Group was a mutual insurance company and was acquired through a demutualization process. Perhaps PICA can assist you in your dilemma with the practice group.

The following Florida insurance law may be helpful to explain the member distribution process following a voluntary dissolution of a mutual company:

Even though PICA appears to have been incorporated in Tennessee (and I can provide you with that state's mutual member definition if it will be helpful to you), the company was authorized in 47 states and the laws regarding mutual members are similar.

As you indicate, the further supporting argument to your case and claim to the distribution would be that you were a member prior to your association with your current orthopedic group. (Even if you were to "kindly" gift your distribution check to the orthopedic group, it appears there were years of premium that the group did not pay.) Best wishes.

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