June 8, 2017
Volume XXIX, No. 14

 

COVENANT V STATE FARM – SPECIAL EDITION

WHAT PIP INSURERS SHOULD KNOW ABOUT DEPARTMENT OF INSURANCE & FINANCIAL SERVICES BULLETIN NO. 92-03

 By Christian Huffman

Recently the Michigan Supreme Court dealt a significant blow to so-called “provider suits” by holding in Covenant Medical Center, Inc v State Farm Mut Auto Ins Co, that “healthcare providers do not possess a statutory cause of action against no-fault insurers for recovery of personal protection insurance benefits under the no-fault act.” Healthcare providers and their attorneys are now scrambling to find some way to circumvent the Supreme Court’s holding.

Many have sought to assume the injured person’s right to sue the no-fault insurer by obtaining an assignment from the injured person. These healthcare providers and their attorneys are now facing the fact that many policies contain provisions which arguably preclude such assignments.

Other healthcare providers and their attorneys have taken a different tactic. Rather than seek an assignment from the injured person in order to sue the no-fault insurer for payment of their bills, they have instead threatened to file suit against the injured person. They back this threat with their assertion that Department of Insurance & Financial Services Bulletin No. 92-03 obligates a no-fault insurer to defend and indemnify the injured person against such a lawsuit. The end result, they hope, is that no-fault insurers are effectively left in exactly the same position as before the Supreme Court issued its ruling in Covenant – defending lawsuits brought by healthcare providers. But, we at Garan Lucow Miller believe their threat lacks merit.

1. What is Bulletin 92-03?

Bulletin 92-03 was issued on October 23, 1992 by then-Commissioner of Insurance David J. Dykhouse in response to so-called “balance-billing” situations. This occurs when a healthcare provider renders treatment to a person injured in a motor vehicle accident, and the healthcare provider’s charge for such treatment is more than what the no-fault insurer believes to be reasonable. Based on MCL 500.3107(1)(a), the no-fault insurer does not pay the entire bill, but instead pays only what the no-fault insurer believes constitutes a reasonable charge. The healthcare provider then seeks to collect the “balance” from the injured person under a contract or quasi-contract theory.

In Bulletin 92-03, the Insurance Commissioner stated his belief that MCL 500.3107(1)(a) requires no-fault insurers “to provide insureds and claimants with complete protection from economic loss for benefits provided under personal protection insurance.” The Commissioner went on to opine that, among other things, such “complete protection” includes defending and indemnifying injured persons against a “lawsuit as a result of a dispute between the health care provider and the insurer,” i.e., balance-billing lawsuits filed by healthcare providers.

2. Is Bulletin No. 92-03 binding authority?

No.

First of all, it must be kept in mind that Bulletin No. 92-03 only states the Insurance Commissioner’s interpretation of MCL 500.3107(1)(a) as to balance-bill situations. It does not equate to a statement by the Insurance Commissioner that no-fault insurers are statutorily obligated to provide a defense in any other situation. For instance, it does not address situations where the no-fault insurer has denied the payment of PIP benefits based on the results of an IME opining that the purported injury did not arise out of the motor vehicle accident; that the treatment rendered by the healthcare provider was not reasonable or necessary to the injured person’s care, recovery, or rehabilitation; or that the injured person has reached maximum medical improvement.

More importantly, even with respect to balance-bill situations, the Insurance Commissioner’s opinion regarding the requirements of MCL 500.3107(1)(a) is not binding upon insurers or the Courts.

Although the Insurance Code of 1956 grants the Insurance Commissioner the authority to promulgate rules and regulations to effectuate, execute, and enforce the provisions of the no-fault statute and other insurance acts (see MCL 500.210), Bulletin No. 92-03 is not an administrative rule or regulation. Thus, it does not have the force of law, and the Commissioner of Insurance cannot enforce it against no-fault insurers. This is expressly stated in MCL 24.232(5) of the Administrative Procedures Act of 1969, which provides:

A guideline, operational memorandum, bulletin, interpretive statement, or form with instructions is not enforceable by an agency, is considered merely advisory, and shall not be given the force and effect of law.[[1]](Emphasis added)

Thus, the Department of Insurance & Financial Services cannot sanction a no-fault insurer for declining to provide a defense to their insured against a balance-bill lawsuit filed by a healthcare provider.

Moreover, while the Courts may give some consideration to the fact that Bulletin No. 92-03 reflects the Insurance Commissioner’s understanding of MCL 500.3107(1)(a), the Courts are not bound to follow the Insurance Commissioner’s interpretation.[2] In other words, Bulletin No. 92-03 is akin to an unpublished opinion of the Court of Appeals, a decision from a Court of another state, or a passage in the Restatements – it is at best a persuasive authority, but definitely not a binding authority.

3. Is Bulletin No. 92-03 a correct interpretation of MCL 500.3107(1)(a)?

We think not.

Keep in mind that MCL 500.3107(1)(a) limits a no-fault insurer’s potential liability. It does this by restricting “allowable expenses” only to “reasonable charges incurred for reasonably necessary products, services, and accommodations for [the] injured person’s care, recovery, or rehabilitation.”

To the extent that a jury determines that the balance of the healthcare provider’s bill represents an unreasonable charge for the service rendered to the injured person, the no-fault insurer would of course have no duty to indemnify the injured person. Nor would the no-fault insurer have any duty to bear the litigation costs incurred by the injured person to defend against the healthcare provider’s lawsuit. To the extent that Bulletin No. 92-03 implies that a no-fault insurer is obligated to reimburse the insured for litigation costs in such a situation, we believe the Insurance Commissioner’s opinion is clearly contradictory to MCL 500.3107(1)(a).

If a jury determines that the balance of the healthcare provider’s bill does represent a reasonable charge for the services rendered to the injured person, MCL 500.3107(1)(a) may obligate the no-fault insurer to indemnify the injured person for that balance. But, the no-fault insurer’s duty to indemnify the injured person would of course be subject to the one-year back rule and other limitations contained within the no-fault act. Remember, a no-fault insurer’s duty to pay PIP benefits runs only to the injured person, and is limited by provisions other than MCL 500.3107(1)(a). Thus, to the extent that Bulletin No. 92-03 implies that a no-fault insurer would be liable to indemnify the injured person for the entire balance of the healthcare provider’s bill without consideration of the no-fault act’s limitations upon the insurer’s obligation to pay PIP benefits, we believe the Insurance Commissioner’s opinion is again in error.

Moreover, even where the healthcare provider’s suit against the injured person is successful, we again believe that Bulletin No. 92-03 is erroneous to the extent that it implies that a no-fault insurer would be obligated by MCL 500.3107(1)(a) to bear the cost of defending the insured against such a balance-bill lawsuit. While the cost of legal services have in some instances been found to be compensable as PIP benefits under MCL 500.3107(1)(a), this only applies where such legal services are “directly related” to ensuring that the injured person receives the care needed for their accident-related injuries. In re Geror, 286 Mich App 132, 136 (2009); compare Kowalski v Auto Club Ins Assn, unpublished opinion per curiam of the Michigan Court of Appeals, decided May 29, 2014 (Docket No. 314189). Such is not the case in a balance-bill situation. Indeed, the injured person has already received the needed care. Thus, such litigation costs are not incurred for a product, service, or accommodation for the injured person’s care, recovery, or rehabilitation as a result of an injury arising out of the motor vehicle accident. Rather, such litigation costs are incurred by the injured person in defense of a claim by the healthcare provider that the injured person is obligated, contractually or otherwise, to pay the healthcare provider more for such care than the no-fault insurer has already paid.

4. Regardless of Bulletin No. 92-03, should PIP insurer’s nonetheless defend their insureds against balance bill lawsuits filed by healthcare providers?

Maybe.

While we do not believe that no-fault insurers are legally required to defend their insured’s against balance-bill lawsuits filed by healthcare providers, there are some practical considerations why no-fault insurers may want to voluntarily do so in certain cases.

Keep in mind that if the jury finds that the healthcare provider’s entire charge represented a reasonable fee, the insured may still be entitled to indemnification from the no-fault insurer if there are no one-year back or other defenses available to the no-fault insurer. Thus, the no-fault insurer may wish to assume the injured person’s defense for tactical reasons.

One such reason would be so that the no-fault insurer can ensure that the case is defended by an attorney that the no-fault insurer knows is competent, experienced, and can be trusted to zealously advocate that the balance of the healthcare provider’s bill is unreasonable. By assuming the injured person’s defense, the no-fault insurer can also ensure that the challenge to the reasonableness of the healthcare provider’s charge is supported by pertinent and well qualified experts.

In other words, in a balance-bill situation the no-fault insurer will undoubtedly have strong evidence that the healthcare provider’s full charge was unreasonable. By assuming the injured person’s defense, the insurer gets to ensure that all of that evidence is properly put before the jury, thus decreasing the likelihood that the healthcare provider will obtain a verdict against the injured person. As the Michigan Supreme Court stated in Nasser v Auto Club Ins Ass’n, 435 Mich 33, 55 n 10 (1990):

We question, in any event, the . . . apparent conclusion that if the insurer is not made liable for even unreasonable and unnecessary expenses it will inevitably fall to [the injured person] to pay those expenses. To the extent that [the injured person] has any liability for these expenses in the event his insurance does not pay, it is presumably contractual. It seems unlikely that [the injured person] would have an express agreement with [the doctor] or the hospital to pay unreasonable and unnecessary medical expenses, and equally unlikely that he would have an implied contractual duty to do so.

Of course, by establishing that the healthcare provider’s charge was unreasonable, the no-fault insurer not only prevents a judgment against the injured person but also insulates itself from the potential of a later indemnification action by the injured person.

Another reason that no-fault insurers may choose to provide injured persons with a defense in some cases is that, realistically, once sued by the healthcare provider the injured person will in many instances simply file a third-party complaint against the no-fault insurer seeking indemnification. Effectively this will mean that the no-fault insurer will still have to incur defense and other litigation costs; the only difference is that they will be spent defending against the insured instead of defending the insured. If those costs are to be borne, it may be more prudent to bear them defending the injured person. For one, as discussed above it will likely give the no-fault insurer a better ability to ensure that the healthcare provider’s claim is aptly defended against.

But more importantly, it may put the no-fault insurer in a position to challenge the reasonableness of the healthcare provider’s bill that is more favorable to jurors. No longer will the no-fault insurer be the “big insurance company” seeking to detriment the unfortunate victim of a motor vehicle accident by declining to pay the entire cost of medical care. Instead, the matter of insurance should realistically not be mentioned in front of the jury at all. And even if it is, the no-fault insurer will instead be viewed as simply aiding an injured person who an overzealous healthcare provider is attempting to gouge for medical services. Indeed, as aptly pointed out by the Michigan Court of Appeals in LaMothe v Auto Club Ins Ass’n, 214 Mich App 577, 585-586 (1995):

[I]n circumstances where the health care services provider felt that the reasonability determination of the insurer was flawed, it is also unlikely that the provider would be so impolitic as to sue the insured . . . . Again, the reason is the very practical one of the provider placing itself on the wrong side of a David and Goliath match-up.

See also McGill, supra at 406. There is one final point that no-fault insurers may want to consider with respect to the “David and Goliath match-up” analogy mentioned in LaMothe. Right now there are legions of healthcare providers seeking assignments from injured persons in the hope of salvaging their provider suit or filing a new one. If the healthcare provider obtains an assignment, the healthcare provider may be back on the “right side” of the David and Goliath match-up if the policy anti-assignment clause argument is rejected by the courts.

But what leverage will healthcare providers and their attorneys use to induce injured persons to grant them assignments? Undoubtedly it will be the assertion that if the assignment is withheld the healthcare provider will file suit against the injured person. However, if the injured person is assured that the no-fault insurer will defend and indemnify them against such suit if it is in fact filed, does not the injured person’s incentive to make the assignment dissipate?

If the injured person is disinclined to grant an assignment, the healthcare provider will remain stuck on the “wrong side of a David and Goliath match-up.” As soon as healthcare providers and their attorneys figure that out, their threats to file suit against the injured person may very well evaporate.

[1] See also MCL 24.207(h), providing that an administrative “rule” “does not include . . . [a] form with instructions, an interpretive statement, a guideline, an informational pamphlet, or other material that in itself does not have the force and effect of law but is merely explanatory”; accord McGill v Automobile Ass’n of Michigan, 207 Mich App 402, 407 n 1 (1994), noting that although Courts generally give deference to administrative agency interpretations of the laws they are charged with carrying out, such a Bulletin “does not have the full force or effect of law.” McGill cited to the definition of “guideline” in former MCL 24.203(6), now MCL 24.203(7). A “guideline” is technically different from a “bulletin” since a “guideline” refers to “an agency statement or declaration of policy that the agency intends to follow . . . and that binds the agency . . .” (i.e., an internal rule). Nonetheless, McGill‘s conclusion that a bulletin does not have the force or effect of law is correct based on MCL 24.232(5).

[2] Ins Institute of Michigan v Commr of the Dept of Ins & Financial Svcs, 486 Mich 370, 384-385 (2010); Szabo v Ins Comm’r, 99 Mich App 596, 598 (1980).

Chris is a Shareholder in our Ann Arbor Office.

He can be reached at 734.930.5600 or chuffman@garanlucow.com

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