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June 9, 2017

Covenant Decision Reversed, Leaving Michigan Providers and Courts Scrambling

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In the wake of a recent Michigan Supreme Court decision holding that Michigan healthcare providers lack standing to sue insurers for personal injury protection (“PIP”) benefits under Michigan’s No-Fault Act, providers and state courts are simply befuddled.

In Covenant v. State Farm Mutual Automobile Insurance Co., Michigan’s high court overruled a series of Michigan Court of Appeals decisions and held that, “the plain language of the no-fault act” does not state “that a healthcare provider possesses a statutory cause of action against a no-fault insurer,” Justice Brian K. Zahra wrote. The impact on Michigan No-Fault claims will be widespread and is favorable for insurers and self-insured companies allowing employees to drive company-owned vehicles.

The opinion, released on May 25, 2017, arises out of a 2011 motor vehicle accident in which State Farm’s insured, Jack Stockford, claimed to have suffered injuries. He was treated at Covenant Medical Center in Saginaw, Michigan, which billed State Farm more than $43,000 for medical services. When State Farm denied coverage for these bills, Covenant sued State Farm. State Farm was already embroiled in a lawsuit with Mr. Stockford, as he had sued for medical and other benefits arising out of the accident. State Farm settled the underlying suit with Mr. Stockford and argued that Covenant’s claim was extinguished as a result of a release signed by Mr. Stockford in connection with that settlement.

After years of litigation and appeals, the state Supreme Court ultimately determined that while the No-Fault Act allows insurers to pay providers directly for services they render to injured patients, it does not give providers a statutory entitlement to payment from the insurers. The result of this decision is that healthcare providers must now obtain payment from their patients, rather than directly from insurers. In other words, while the No-Fault Act allows carriers to directly pay PIP benefits to healthcare providers, it does not impose a duty on carriers to do so.

In the days and weeks following the Covenant decision, many have hailed it as a “win” for insurers, which have argued long and loud that allowing providers to sue insurers directly contributes directly to high auto insurance premiums. The decision also puts insurers in the driver’s seat when it comes to methods for adjudicating claims: while insurers have always had the option of working directly with providers to pay claims, they often have had little leverage for making deals with those providers because the providers had the ability to sue for the full amount of the claim. Now, insurers are liable only to the patient, which should make settling no-fault cases more efficient.

But you can be sure that the plaintiffs’ bar will find creative solutions for the huge problem Covenant has created for their provider-clients. To start, we can expect providers to require patients to assign their right to sue insurance companies for no-fault benefits. After all, the Michigan Supreme Court’s ruling doesn't change no-fault insurers’ obligation to timely pay claims for no-fault benefits.

Bowman and Brooke LLP is committed to assisting its clients in many types of automotive personal injury cases, including claims alleging negligence by an insured or employee-driver and claims involving Michigan No-Fault insurance policies and benefits. For questions regarding Bowman and Brooke LLP’s automobile negligence practice or Michigan’s No-Fault Act, please contact Detroit Partner Liza Favaro.

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