Author(s): Caryn Gordon

THE MICHIGAN SUPREME COURT HOLDS THAT FOR PURPOSES OF THE ONE YEAR BACK RULE, LOSSES ARE INCURRED AT THE TIME THE MEDICAL SERVICE IS RENDERED

In Law Fax Article, Vol. XIX, #8, dated February 19, 2007, we advised you of an unpublished Michigan Court of Appeals decision which held that a genuine issue of material fact existed regarding whether the Plaintiff’s claim for first party no fault benefits was barred by the one year back rule of the No Fault Act, MCL 500.3145(1). Community Resource Consultants v Progressive Michigan Ins Co, No. 269726, unpublished opinion of the Court of Appeals, (February 1, 2007). In that article, we opined that the Michigan Court of Appeals erred in determining that an issue of material fact existed, since the case presented a pure question of law regarding when a loss is incurred under MCL 500.3145(1).

The Michigan Supreme Court, however, has peremptorily reversed that Court of Appeals decision and concluded that for purposes of the one year back rule, an expense is “incurred” at the time the medical treatment or service is rendered. Community Resource Consultants, Inc, v Progressive Michigan Ins Co, No. 133416, Order of the Michigan Supreme Court (March 7, 2008).

In Community Resource Consultants, the Plaintiff filed suit seeking payment for case management services provided to Defendant’s insured, Richard Fero. Defendant argued that its records indicated that a portion of the claimed amount plaintiff sought for services were provided more than a year before the suit was filed and, therefore, were barred by the one year back rule. MCL 500.3145(1).

Defendant relied on Plaintiff’s own accounting records to establish that the disputed amount was for services provided before the one year back cut off date. Plaintiff, however, argued that a course of dealing had been established by the routine of invoicing and payment that the parties followed. Over the course of dealing, Plaintiff submitted several invoices and Defendant then issued one check, which identified which invoices each check was intended to cover. Defendant only partially paid some invoices because some of the items on the invoice lacked proper substantiation. Although Defendant identified which invoice each check was intended to cover, Plaintiff applied the incoming payment to the outstanding invoices aged longest.

The majority (Justice Taylor, Justice Corrigan, Justice Young, and Justice Markman) of the Michigan Supreme Court recognized, however, that Plaintiff failed to meets its burden under MCR 2.116(C)(10) to produce evidence that either refuted Defendant’s evidence or demonstrated Defendant’s assent to Plaintiff’s accounting practices. Defendant had produced evidence that it explicitly allocated payments to specific invoices, leaving specific portions unpaid.

The Michigan Supreme Court noted that Plaintiff’s remedy for Defendant’s refusal to pay is provided by statute. A payment is overdue “if not paid within 30 days after an insurer receives reasonable proof of the fact and of the amount of loss sustained”. MCL 500.3142(2). Plaintiff was required to file an action for the overdue payments within one year of when the losses were incurred. MCL 500.3145(1). The Supreme Court recognized that in Proudfoot v State Farm, 469 Mich 476, 484 (2003), the Court concluded that “incurred” means “to become liable or subject to, [especially] because of one’s own actions.” Moreover, the Court noted that generally, one becomes liable for the payment of services once those services have been rendered.

Ultimately, the Michigan Supreme Court ordered that for purposes of the one year back rule, the expenses for medical services are incurred when the services are rendered.

Justice Cavanagh would have denied leave to appeal. Justice Weaver dissented and would deny leave to appeal because she was not persuaded the Court of Appeals judgment should be peremptorily reversed.

Dissenting separately, Justice Kelly concluded that in peremptorily reversing the Court of Appeals judgment, the majority failed to address the trial court’s conclusion that open accounts are commonly used in many commercial contexts. Justice Kelly further opined that the majority’s suggestion that plaintiff should file a lawsuit whenever full payment is delayed in order to protect its claim ignores the practical benefits of having an open account for continuing services. Rather than granting peremptory reversal, Justice Kelly would recommend granting leave to appeal to further consider when losses are incurred in the context of continuing medical services.

This Order of the Michigan Supreme Court unequivocally establishes that under the one year back rule an expense is incurred when the medical service or treatment is rendered.

Ms. Gordon is an associate in the Firm’s appellate department and represented Progressive Michigan Insurance Company in this appeal.