EXPLANATIONS OF REVIEW ARE NOT "FORMAL DENIALS" AS CONTEMPLATED UNDER MCL 500.3145(3)

Paul M. Kittinger

The 2019 amendments to the No Fault Act included the addition of a tolling provision to the one year back rule. Before the 2019 amendments, a plaintiff could not recover benefits incurred more than a year before the complaint was filed. This had been how the one year back rule had been interpreted since a 2005 Michigan Supreme Court case called Devillers v Auto Club Ins Assn, 473 Mich 562 (2005). Devillers expressly rejected any tolling as outside the statutory text and overruled a line of cases that held otherwise. The amended MCL 500.3145 includes a tolling provision–pausing the one year clock when a claim to the insurer is made, and not restarting it until the insurer formally denies the claim.

But what does it mean to “formally deny” a claim? In a recent published opinion by the Michigan Court of Appeals, Encompass Healthcare PLLC v Citizens Ins Co, __ NW2d __ (2022), the Court answers this question.

In Encompass, the underlying claimant was involved in a motor vehicle accident in December 2017. Plaintiff, a healthcare provider, sought reimbursement from the claimant’s PIP carrier, Citizens, for over $900,000 in treatment rendered between June and October 2018. Citizens paid less than $180,000 on the bill. In November 2019, more than a year after the services were rendered, plaintiff filed a provider suit seeking to collect the balance. Notably, all the sought-after expenses were incurred before the 2019 amendment, although the suit was no filed until after the amendment.

Citizens sought summary disposition based on the one year back rule in the amended MCL 500.3145, arguing that Encompass’s complaint was filed more than one year after the losses at issue were incurred. Encompass argued the amended version of 3145 applied such that the one year back rule was tolled until Citizens formally denied its claims. Citizens argued the circumstances of this case did not require tolling. The trial court concluded that Citizens’ Explanation of Review (EOR) forms were sufficient to constitute a “formal denial” and granted Citizens’ motion for summary disposition for all claims denied by EOR prior to November 4, 2018. Encompass appealed.

In a published opinion, the Court of Appeals concluded that the 2019 amendments adding the tolling provision amounted to a legislative reversal of the 2005 Devillers case and impose a tolling exception to the one-year-back provision. The Court seemingly assumed the amended version of 3145 applied in this case. Having so assumed, the Court then stated that to constitute a “formal denial,” the insurer must be “explicit and direct” and “unequivocally impress upon the insured the need to pursue further relief in court”. The Court noted that an insurer may end the tolling period by “explicitly indicating that the insurer is denying all liability in excess of what it has paid.”

In reviewing Citizens’ EORs, the Court noted that they only contained language regarding which claims were allowed versus reduced, without much additional detail. Some contained comments and some even requested additional information. For bills where additional information was requested, the Court found that Encompass could “not reasonably infer that the EORs were denials.” But even where no additional information was requested, the Court found insufficient indicia that Citizens was denying all liability in excess of what it had paid.

Notably, all EOR forms contained general boilerplate language that the bill was evaluated against billing practices for other providers in the geographic area and was subject to adjustment on this basis. The EORs also noted that the bill was subject to adjustment pursuant to any applicable statute or policy of insurance. The Court found these general disclaimers as not sufficient to indicate an “explicit and unequivocal denial of benefits” or otherwise “convey a need for [Plaintiff] to seek redress in court” that would be needed to constitute a formal denial.

So as a practical point, insurers (either directly or through the utilization of bill review services) should update their forms to include explicit language denying all liability in excess of the amount(s) authorized for payment.

It is important to note that, on the same day the Court of Appeals released the published Encompass opinion, it also released an unpublished opinion in Spine Specialists of Michigan, PC v Memberselect Ins Co, unpublished per curiam opinion of the Michigan Court of Appeals, decided November 17, 2022 (Docket. No. 358296). There, the Court of Appeals held that claims accruing before the June 11, 2019 amendments to MCL 500.3145 are subject to the pre-amendment version of the statute (which contains no tolling provisions). In other words, the date a claimed expense was incurred determined which version of 3145 should apply, not the date an action was filed. Garan Report readers should take notice that no fault claims which were incurred/accrued before June 11, 2019 should be subject to the pre-amendment version of MCL 500.3145 (which contains no tolling provisions).

It would appear that the Encompass Court applied the wrong version of the statute, but may not have been presented that question. As in Spine Specialists, the claims in Encompass accrued between June and October 2018 so the version of MCL 500.3145 in effect at the time the benefits accrued would apply. And that was the pre-amendment version which contained no tolling. Encompass does include a footnote that concludes, without analysis, that the complaint is governed by the amended statute simply because it was filed after the amendment, presumably not considering the effect of MCL 500.3110(4) which provides PIP benefits accrue not when the injury occurs but as the expense or loss is incurred.