October 30, 2015
In a newly issued, published (and therefore binding) opinion, the Court of Appeals has held that where a PIP insurer received independent written notification of a provider’s claim for payment of its bill before the accident victim signed a complete release for PIP benefits, that release will notbar the provider’s claim. Rather, the provider must be given notice and an opportunity to participate in distribution of the settlement funds.
Since its inception, the No-Fault Act has included a provision that assures the PIP insurer that any payment of benefits issued in good faith to a person believed to be the one entitled to the payment will have the effect of discharging the insurer’s liability with respect to that payment. MCL 500.3112. But the provision contains a caveat. The insurer’s liability will be discharged by such a payment — “unless the insurer has been notified in writing of the claim of some other person.”
In Covenant Medical Center, Inc v State Farm Mut Auto Ins Co, __ Mich App __ (No. 322108, October 22, 2015), this “unless” clause was held to permit the plaintiff hospital to sue State Farm for payment of its bill (plus penalties, interest and costs) despite the insurer having already settled with the injured person with a comprehensive release. Since State Farm already had been “notified in writing” of the hospital’s “claim” (i.e., the hospital had billed State Farm $43,484.80 for its services), State Farm could not extinguish the hospital’s rights merely by settling directly with the insured. According to the Court of Appeals, the statute requires an insurer in such circumstances to apply to the circuit court for an order equitably apportioning the funds among the interested persons.
The relevant text of the statute reads as follows:
Personal protection insurance benefits are payable to or for the benefit of an injured person or, in case of death, to or for the benefit of his dependents. Payment by an insurer in good faith of personal protection benefits, to or for the benefit of the 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. If there is doubt about the proper person to receive the benefits or the proper apportionment among the persons entitled thereto, the insurer … may apply to the circuit court for an appropriate order. The court may designate the payees and make an equitable apportionment, taking into account the relationship of the payees to the injured person and other factors as the court considers applicable. [MCL 500.3112]
State Farm’s insured, Jack Stockford, was injured in a motor vehicle accident in 2011. Covenant provided medical services and eventually sought payment from State Farm in the amount of $43,484.80 by submitting bills in July, August and October of 2012. State Farm responded in writing, but did not issue payment. Subsequently, on April 2, 2013, State Farm settled directly with Stockford, exchanging payment of $59,000 for a full and final release of all PIP claims to date. The release thus encompassed the Covenant bills. It even put the onus on Stockford to pay Covenant, as it contained a promise by Stockford to indemnify, defend and hold State Farm harmless from any liens or demands asserted by Covenant. Nevertheless, Stockford apparently never paid Covenant.
When Covenant sued State Farm for payment of its $43,484.80 bill the trial court granted State Farm’s motion for summary disposition, holding that the release barred Covenant’s claim. Based on the “unless” clause of MCL 500.3112, however, the Court of Appeals reversed, holding that State Farm’s liability for the bill had not been discharged by its payment to Stockford due to Covenant’s prior written notification of its claim:
[T]he plain text of the statute provides that if the insurer has notice in writing of a third party’s claim, then the insurer cannot discharge its liability to the third party simply by settling with its insured. Such payment is not in good faith because the insurer is aware of a third party’s right and seeks to extinguish it without providing notice to the affected third party. … [B]ecause State Farm had notice in writing of Covenant Medical’s claim, State Farm’s payment to Stockford did not discharge its liability to Covenant Medical.
Court of Appeals’ opinion, pages 2-3. As guidance for how to proceed properly, the Court referred to the statute’s grant of authority to the circuit court to “make an equitable apportionment” among potential payees: “[T]he statute requires that the insurer apply to the circuit court for an appropriate order directing how the no-fault benefits should be allocated.”
In an earlier case in which a provider sued a PIP insurer after the accident victim had signed a full and final release, the Court of Appeals ruled in favor of the insurer and held the provider’s claim barred by the release. Michigan Head & Spine Institute, PC v State Farm Mut Auto Ins Co, 299 Mich App 442 (2013). That case, however, was different. As explained by the Court in Covenant, the at-issue treatment in Michigan Head & Spine was not rendered until after the insured had executed the release, and the insurer, of course, had not yet received the provider’s bill when the settlement occurred. Accordingly, §3112 was not implicated. The statute did apply to the circumstances in Covenant, however, because the relevant services were rendered and the insurer received written notice of the provider’s claim before settlement.
In short, the Covenant Court concluded that “an insured’s agreement to release the insurer in exchange for a settlement does not release the insurer as to the provider’s noticed claims unless the insurer complies with MCL 500.3112.” Covenant Medical, page 3. Garan Lucow Miller’s attorneys are analyzing an insurer’s options in light of this new decision, and will be able to recommend ways to protect its interests when settling PIP claims. Please feel free to contact any one of our attorneys for guidance and with any questions you might have.
NICHOLAS T. DRAUGELIS UP & COMING LAWYER – 2015
Garan Lucow Miller, P.C., is proud to announce that Michigan Lawyers Weekly selected Nicholas Draugelis, an associate in our Detroit Office, as an UP & Coming Lawyer for 2015!
The Honorees were selected by a committee and met the following criteria: established a name for themselves, have gone above and beyond, and display the ambition, drive, determination and accomplishments that set them apart among their peers, in the first 10 years of practice. Nick and the other recipients will be honored at a luncheon at the Marriott in Troy in December, and will also be featured in a special supplement of the Michigan Lawyers Weekly publication.