January 25, 2018
In an opinion just issued by the Michigan Court of Appeals, a no-fault insurer was effectively relieved of liability to a medical provider under a consent judgment, entered pre-Covenant, on the basis that, during appellate proceedings on an unrelated issue on which the insurer did not prevail, the Supreme Court’s Covenant decision made clear that the medical provider possessed no right of action in the first place. The Court of Appeals held that, although the consent judgment preserved only the one unrelated issue for appeal, the insurer had not specifically waived the defense of no standing to sue and, accordingly, it remanded the case for entry of judgment in favor of the insurer in light of Covenant.
While the case is only the second published decision endeavoring to clarify the fate of provider actions after Covenant Medical Center v State Farm Mut Auto Ins Co, 500 Mich 191 (2017), and certainly deserves attention, it is a fact specific decision that likely will have precedential value in very few cases.
In VHS Huron Valley Sinai Hospital, d/b/a DMC Surgery Hospital v Sentinel Ins Co, ___ Mich App ___ (1/23/2018), Charles Hendon was involved in a hit-and-run accident caused by a phantom vehicle. He filed suit against Sentinel for UM benefits and settled the claim for $1,500. DMC then filed suit against Sentinel in a separate action during the pre-Covenant melee of provider lawsuits to recover unpaid medical bills. Sentinel challenged DMC’s claim arguing that res judicata barred the provider’s recovery due to the settlement and dismissal of its insured’s UM claim. The trial court disagreed since the subsequent provider action did not involve the same parties, and the case proceeded.
Sentinel and DMC then agreed to entry of a final judgment, with the insurer preserving a right to appeal, under which payment of the agreed upon judgment would be contingent only on the appellate court’s determination of the res judicata issue. It was, in essence, a consent judgment with a narrowly limited right of appeal. The insurer’s argument was rejected by the Court of Appeals, however, and the judgment was affirmed. Sentinel then applied for leave to appeal to the Supreme Court-again, solely on the res judicata issue.
While Sentinel’s application was pending, the Supreme Court issued its Covenant decision, effectively eliminating a medical provider’s right to file a direct, statutory claim against no-fault insurers for the recovery of PIP benefits. After supplemental briefing, the Supreme Court vacated the Court of Appeals’ ruling and remanded the case for further consideration in light of Covenant.
On remand, DMC disputed Sentinel’s right to assert the lack of standing issue. Although Sentinel had included standing in its affirmative defenses, it arguably failed to specifically enumerate and preserve the issue in its motion for summary disposition or on appeal. DMC contended that Sentinel had waived the standing issue by entering into a consent judgment that only permitted it to appeal the limited issue of res judicata.
In a 2-1 opinion, the Court of Appeals ultimately agreed with Sentinel that it never specifically waived its lack of standing defense. In reaching its decision, the Court reasoned that the language in the consent judgment failed to contain a specific provision that would lead to the inexorable conclusion that Sentinel intended to waive its legal position with respect to DMC’s standing to file the provider suit. On this point, the dissenting opinion strongly disagreed.
The Court thus vacated the parties’ consent judgment and remanded the case for entry of judgment in Sentinel’s favor.
In the final analysis, this recent decision is one of many expected to be released in the coming months that may have value to a few fact specific post-Covenant cases. From a defense perspective, this opinion may be utilized in a broader fashion by no-fault insurers to argue that the Covenant defense may be raised at any point in the appellate process to leverage the retroactive application of Covenant where the insurer may not have adequately asserted a medical provider’s lack of standing early in the litigation process.