May 26, 2017
Volume XXIX, No. 12

 

SUPREME COURT REVERSES
COVENANT MEDICAL

Healthcare Providers Held to Have No Statutory Cause of Action
Against No-Fault Insurers for Recovery of PIP Benefits

By Daniel Saylor

In a highly anticipated opinion issued Thursday, May 25, 2017, the Michigan Supreme Court reversed the Court of Appeals’ much maligned decision in Covenant Medical Center v State Farm Mut Auto Ins Co, not only eliminating the “Covenant motions” that PIP litigants have come to dread, but, stunningly, abolishing independent healthcare provider suits altogether.

The Supreme Court readily acknowledged that the alleged right of healthcare providers to sue no-fault insurers for recovery of PIP benefits was supported by “decades of Court of Appeals caselaw.” The Court then proceeded to demonstrate that not a single one of those several Court of Appeals cases ever closely analyzed the no-fault statutes to discern whether, in fact, any right of action was conferred on healthcare providers:

[T]he Court of Appeals’ decision in this case was premised on the notion that a healthcare provider possesses a statutory cause of action against a no-fault insurer for payment of no-fault benefits. The [Court of Appeals] panel gleaned this notion not from the text of the no-fault act, but from previous decisions of the Court of Appeals that are likewise devoid of the statutory analysis necessary to support that premise. (Opinion, p. 11).

Analyzing several no-fault act provisions itself, the Supreme Court concluded that none expressly or by reasonable implication extend a right of action to healthcare providers. For instance, while section 3107(1)(a) of the act does indicate that benefits are “payable” for reasonable expenses that are “incurred,” the Court observed that healthcare providers are not the ones who incur medical expenses; rather, they are incurred by others (“most commonly patients”).

Nor does the text of §3112, on which Covenant and its attorneys most heavily relied, confer upon providers any right of action against insurers. This section, the Court reasoned, “allows for the common practice of no-fault insurers directly paying healthcare providers,” but it “does not require direct payment of healthcare providers or give providers any right to directly sue a no-fault insurer[.]” (Opinion, p. 15) (emphasis added).

The opinion thus concludes with the holding that, contrary to the very foundation of Covenant’s claim against State Farm, “[a] healthcare provider possesses no statutory cause of action under the no-fault act against a no-fault insurer for recovery of PIP benefits.” Then, as if to soften the rather substantial blow being delivered, the Court hastened to add that its decision “does not mean a healthcare provider is without recourse; a provider that furnishes healthcare services to a person for injuries sustained in a motor vehicle accident may seek payment from the injured person for the provider’s reasonable charges.” (Opinion, pp. 24-25).

This momentous decision of the Michigan Supreme Court unquestionably will change the landscape of current no-fault PIP litigation. No longer will healthcare providers (or any other service providers, for that matter) be able to claim a statutory right to bring suit against no-fault insurers to recover payment for services rendered to injured accident victims. Instead, subject to one caveat, such lawsuits must now be brought solely by the accident victims themselves. The “caveat” is the potential for an assignment of rights.

Importantly, only the statutory basis for a provider’s cause of action is addressed (and rejected) by this decision. As is observed in a footnote near the end of the Court opinion, “our conclusion today is not intended to alter an insured’s ability to assign his or her right to past or presently due benefits to a healthcare provider.” (Opinion, p. 24 n. 40). Accordingly, going forward, a critical part of handling PIP claims and, indeed, defending PIP lawsuits, now must include careful inquiry into the existence and legitimacy of any assignments made by the insured to his or her service providers. As long as the expense has been incurred and the services already provided, the insured person may contractually assign his or her right to benefits to the service provider. Doing so would extinguish the insured’s ability to sue for those benefits by transferring that right to the provider, who would then stand in the shoes of the insured to sue as the assignee.

Thus, while it seems certain that the Covenant opinion will substantially reduce the number of “provider suits” filed, it will not eliminate them altogether. No longer, however, will insurers face the dilemma of confronting concurrent claims for the same expenses asserted by insureds and their providers at the same time. New issues arising out assignment of rights, as well as permissive interventions into insured’s suits “interested parties,” will emerge.

In the meantime, since healthcare providers are now held not to possess any statutory right of action to pursue recovery of benefits from no-fault insurers, immediate consideration should be given to seeking dismissal of pending provider suits on grounds that the plaintiff has failed to state a claim for which relief can be granted. These and other issues are being explored by Garan Lucow Miller.

Dan Saylor is a Shareholder in our Detroit Office and a member of our Appellate Department. He authored an amicus brief in Covenant on behalf of the Insurance Institute of Michigan (now known as Insurance Alliance of Michigan). He can be reached at 313.446.1530 or dsaylor@garanlucow.com

Garan Lucow Miller will be broadcasting a broader discussion on this decision later today.  Stay tuned for the link.  Further updates on this significant decision will also follow next week. In the meantime, if you have any questions about this decision, please feel free to contact Dan Saylor, or any of the attorneys at Garan Lucow Miller and we will be happy to discuss it with you.

Sarah Nadeau, Editor of the Law Fax Publication,

is a Shareholder in our Detroit Office.

Sarah can be reached at 313.446.1530 or snadeau@garanlucow.com

 

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