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May 11, 2018

Continued Covenant Fall-Out: Anti-Assignment Clauses Held Inapplicable to Assignments Executed After Treatment

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In the wake of Covenant v. State Farm Mutual Automobile Ins. Co., 500 Mich. 191 (2017), which held that medical providers have no statutory right to bring claims for PIP benefits, providers have largely responded by obtaining assignments from their insureds. But many insurance policies contain anti-assignment provisions, which if enforced give insurance companies another basis to seek dismissal of provider claims. In a highly anticipated decision, the Michigan Court of Appeals held in Shah v. State Farm Mutual Automobile Ins. Co., (Docket No. 340370) that certain anti-assignment provisions in insurance policies are void as against public policy. 

The plaintiffs in Shah consisted of a group of medical providers who treated State Farm’s insured, which they alleged was necessary as a result of injuries sustained in a motor vehicle accident. The Shah case was filed while Covenant was pending; following the Michigan high court’s decision, State Farm brought a motion for summary disposition. As a result of Covenant, the providers obtained an assignment from their insured, which State Farm argued and the trial court held was ineffective based on language in an anti-assignment provision in the insurance policy stating that, “No assignment of benefits or other transfer of rights is binding upon [State Farm] unless approved by [State Farm].”  

The Court of Appeals reversed and held that the anti-assignment clause was void as against public policy. In its reasoning, the court relied upon an 138-year-old case, Roger Williams Ins. Co. v. Carrington, 43 Mich. 252 (1880), in which the Michigan Supreme Court held that an anti-assignment clause in an insurance policy is unenforceable when applied to an accrued cause of action.  

While it is likely that this decision will find its way to the Michigan Supreme Court, in the meantime, not all is lost. The decision is limited to assignments executed after an injured person has incurred expenses payable under the No-Fault Act. Thus, assignments executed before the injured person obtains treatment may be barred by anti-assignment clauses, meaning that such clauses should remain in insurance policies for the carrier’s protection. In addition, the court in Shah held that providers holding valid assignments may only bring claims incurred one-year-back from the date of the assignment.