March 20, 2013
In Michgan Head & Spine v State Farm, ____ Mich App ___ (2013), the Court of Appeals held that an insured’s release bars a health care provider’s independent cause of action for “allowable expenses” for medical services rendered to the insured after a release was executed by the insured.
On January 20, 2008, Pellumbesha Biba was injured in a motor vehicle accident and was insured under a no-fault policy with State Farm. On July 30, 2009, in exchange for $35,000.00 and to settle ongoing litigation against State Farm, Biba executed a release, which stated in pertinent part:
For the sole consideration of the amount of $35,000.00, Pellumbesha Biba … does hereby release and discharge [defendant] … from any and all claims and demands for no-fault insurance benefits, of any kind whatsoever, for any and all expenses incurred to date and/or which may be incurred at any time in the future by or on behalf of Pellumbesha Biba arising out of [the] accident…
On February 26, 2010, more than six months after executing the release, Biba began treating with the Plaintiff, Michigan Head & Spine, allegedly for injuries she sustained in the accident. State Farm denied Michigan Head & Spine’s claim for PIP benefits on the basis of the release. The medical provider then filed suit. Remarkably, both the district court and the circuit court, on appeal, held in favor of the Plaintiff.
Michigan Head & Spine argued that the release did not bar its independent cause of action against State Farm pursuant to MCL 500.3112, which provides, in relevant part:
Personal protection benefits are payable to or for the benefit of an injured person or, in case of his death, to or for the benefits of his dependents. Payment by an insurer in good faith of personal protection insurance benefits, to or for the benefit of a person who it believes is entitled to the benefits, discharges the insurer’s liability to the extent of the payments unless the insurer has been notified in writing of the claim of some other person.
In other words, Michigan Head & Spine argued that because it had an independent cause of action and was not a party to the release contract, the terms of the release were not applicable to it.
The Court of Appeals examined the release language, which specifically stated the scope of the release. It stated that Biba released and discharged State Farm “from any and all claims and demands for no-fault insurance benefits, of any kind whatsoever, for any and all expenses incurred to date and/or which may be incurred at any time in the future by or on behalf of” Biba arising out of the accident. Thus, the plain language demonstrated an intent by the parties to discharge State Farm’s liability altogether, now and forever. In particular, the Court of Appeals noted that the release contained language similar to that contained in MCL 500.3112, i.e. “or on behalf of” to be indicative of the parties’ intent that the release include health care providers’ claims for reimbursement.
The Court of Appeals also noted that Michigan Head & Spine was not without remedy, as Ms. Biba signed a form which stated, “I agree to pay in full any and all charges for medical services provided to me by Michigan Head & Spine not otherwise covered by my Medicare, insurance company or carrier, or other payor.” Thus, Michigan Head & Spine has a cause of action against Biba for payment of its charges.
Finally, the Court of Appeals noted that upholding the lower court decisions would have had a chilling effect on settlements of claims involving future no-fault benefits because the decisions effectively nullified Biba and State Farm’s settlement.
Can an insurer apply setoffs to UIM coverage, including a setoff for the insured’s settlement with a tortfeasor?
Katz v State Farm Mutual Insurance Company
965 N.E.2d 636 (Ill. App. 2012)
CONTRIBUTOR – GREGORY BOKOTA
On February 26, 2008, Katz was involved in an automobile accident. At that time, he was a named insured on three automobile policies issued by State Farm. Each of the policies had identical underinsured motorist benefit coverage limits of $250,000 per person. However, at the time of the accident, he was driving a vehicle owned by his employer and insured by Sentry Select Insurance Company. The underinsured motorist coverage under the Sentry policy included coverage limits of $50,000 per person. The other vehicle involved in the accident, driven by Greg Belt, was also insured by State Farm and contained a primary liability limit of $100,000 per person. Although Katz had three State Farm policies, there is no issue as to stacking as that was not provided for in the policy.
Katz sued Belt. State Farm, on behalf of its insured Belt, tendered its policy limits of $100,000. Of the $100,000, 60% went to Katz and 40% to Katz’s spouse in compensation for her loss of consortium claim. Katz also received a worker’s compensation benefit of which $47,654 was paid to Katz and was available for setoff. There was no dispute that the worker’s compensation amount was available for setoff. The only dispute was which company was able to apply the setoff. Sentry paid $2,345.92 (the difference between its UIM limits of $50,000 and the worker’s compensation benefit Katz received).
Under the policies it issued to Katz, State Farm paid him $161,876 in underinsured motorist benefits ($88,124 less than State Farm’s UIM limits of $250,000). Katz sued State Farm in a Dec Action, characterizing his policies with State Farm as an excess “underinsurance” policy. He characterized Sentry as the primary underinsurance policy. Since Katz argued Sentry had already paid its benefits, Katz sought from State Farm the remaining $88,124 arising out of the occurrence.
The State Farm UIM coverage policy language stated as follows:
Subject to Item One above, any coverage applicable under this policy
State Farm filed a Motion for Summary Judgment arguing that Katz did not have an underinsured motorist policy claim under Sentry because the primary limit on Belt’s car in the underlying lawsuit was more than Sentry’s underinsured motorist limits. Therefore, State Farm argued under the Sentry policy, Katz did not have a claim for underinsured motorist coverage. State Farm cited to Sentry’s policy language that defined a UIM vehicle as a vehicle with limits less than the limits of this coverage. State Farm argued further that Sentry awarded Katz a windfall of $2,345.92, but claimed that State Farm’s policy is the only UIM policy applicable.
Further, under its UIM policy with Katz, State Farm argued that it was entitled to the setoff for the worker’s compensation benefits claimed by Sentry. Finally, State Farm sought setoff for the entire $100,000 paid by State Farm under Belt’s policy as the primary liability coverage for the tortfeasor. Therefore, State Farm alleged that Katz was only entitled to receive $102,345.92 under its UIM policy with him, after subtracting both the $100,000 Katz received from Belt, and the $47,654.08 in worker’s compensation benefits. Finally, State Farm argued that since it had already paid Katz $161,876, it owed Katz nothing.
Katz claimed he could stack the Sentry limits with the State Farm limits for total UIM limits of $300,000. State Farm also argued in response that Katz’s calculation of the applicable setoff from Belt disregarded the $40,000 of the Belt settlement allocated to Katz’s spouse. State Farm argued that the consortium claim was derivative and, therefore, State Farm was entitled to the entire $100,000 setoff. The trial court agreed with State Farm and entered judgment accordingly. Katz appealed.
The Court of Appeals noted that when reviewing an insurance policy, it utilizes principles of contract interpretation because an insurance policy is a contract. “When interpreting an insurance policy, the Court must determine and give effect to the intent of the parties as expressed in the policy language.” Ambiguity will be construed against the insurer and in favor of the insured. However, unambiguous language, unless it violates the public policy, will be applied. The Court went on to note that the legislative purpose behind the underinsured motorist coverage is to place the insured in the same position the insured would have occupied if the tortfeasor had carried adequate insurance (See, 215 ILCS 5/143(a)).
State Farm’s policy, which provided $250,000 in uninsured motorist coverage, was the primary coverage, not the excess, providing coverage for the insured’s injuries from the automobile accident while driving his employer’s vehicle. Thus, State Farm, in calculating Katz’s benefits, was not precluded from applying setoffs for Katz’s worker’s compensation award and also the tort settlement with Belt. The Court held that Sentry did not provide any UIM coverage for the accident, and its payment of UIM benefits to the insured did not affect coverage under State Farm’s policy with Katz. Since Katz’s employer’s insurance policy provided $50,000 in UIM coverage, and Belt had $100,000 in coverage, Belt was not an underinsured motorist. (215 ILCS 5/143(a)-2).
Further, the Court of Appeals held that State Farm could apply the setoff of $100,000 for Belt’s settlement with Katz, even though $40,000 of that settlement went to Katz’s wife. Katz’s wife’s claim derived from Katz’s bodily injury and was subject to the per person limitations of the policy, which provided that bodily injury to one person included all injuries and damages to others resulting from the bodily injury and that the limits of liability will not increase because more than one person is insured at the time of the accident.
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Attendant Care Claims Post Douglas v Allstate
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Life After “McCormick” Surveillance and “The Pay Off”
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