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Old Law, New Precedent: Court of Appeals Invalidates Non-Assignment Clauses and Clarifies
the "One-Year-Back Rule"
In Jawad Shah, M.D. P.C., et al. v State Farm Mut Auto Ins Co, ___ Mich App ___ (2018), Plaintiffs (various healthcare providers) sought to recover medical expenses from a no-fault insurer for services rendered to the injured-insured, George Hensley. Mr. Hensley was injured in a motor vehicle accident and was insured by the Defendant, State Farm. Defendant initially succeeded on a Motion for Summary Disposition, pursuant to Covenant Med Ctr, Inc v State Farm Mut Auto Ins Co, 500 Mich 191; 895 NW2d 490 (2017), which held that "healthcare providers do not possess a statutory cause of action against no-fault insurers for recovery of personal protection insurance benefits under the no-fault act." Id. at 196. However, the Court of Appeals recently reversed the trial court's decision and, in doing so, issued an opinion favorable to healthcare providers seeking payment of medical expenses under the No-Fault Act.
Court of Appeals Invalidates Non-Assignment Clauses for Post-Accident Benefits
The No-Fault litigation landscape changed dramatically last May when the Supreme Court issued its ruling in Covenant. When the court eliminated a medical provider's independent right to file suit against an insurer for No-Fault benefits, it unleashed a wave of new issues and complications to be litigated. The largest of these ongoing legal issues are assignments of benefits. Although, the Court of Appeals affirmed that medical providers could file suit under an assignment theory in Bronson Healthcare Group v. MACP, several insurers relied upon non-assignability clauses in their respective policies.
The non-assignability clause typically functions as a prohibition of an insured's right to assign any benefits under the policy without the prior written consent of the insurer. Previously, trial courts throughout Michigan interpreted the competing case law with terms of the policy in a myriad of ways. The predominant treatment by the courts of anti-assignment clauses in litigation typically upheld the clause but limited its application to named insureds only by borrowing the reasoning from Shelton v. Auto Owners.
The Court of Appeals upended that treatment in a published decision in Jawad A. Shah, MD PC v. State Farm. The Court reached into the dustbin of history to apply an 1880 Supreme Court Case, Roger Williams Ins. Co. v. Carrington. The Supreme Court in Roger Williams held that a provision of an insurance policy that prevented the assignment of insurance benefits after they have been incurred violated public policy and were thus void. In Roger Williams, a fire at a livery stable caused extensive damage. The insured in that matter sold his interest in the insurance proceeds to a third party for immediate value in lieu of waiting for the insurance investigation. Although many of today's litigants derisively refer to the age of the case, there is palpable authority in a decision that has stood unblemished for 138 years. As such, the Court of Appeals concluded they were bound by its precedent and invalidated all non-assignment clauses for post-accident benefits.
Although we are not privy to the further strategy of the litigants in this matter, it is our considered legal opinion that this is likely far from the final word on this issue. Assuming this matter, or a similar one, is appealed to the Supreme Court, there are several considerations that would support a reversal. Primarily, Roger Williams is a relic of a different era in Michigan, the law and the human condition. Since Roger Williams, insurance contracts have grown increasingly complex, the legislature enacted the No-Fault Act, and motor vehicles were invented. However, we believe the most pertinent change is the evolution of the legal philosophy of the court and the legal world at large. The introduction and influence of formalism in the legal community has pushed the judiciary away from findings of public policy. As many jurists now argue, the determination of the appropriate public policy in a given situation is a matter best suited for the legislature. We believe this is further indicated by the Court of Appeals dicta in Jawad Shah essentially inviting the insurer to appeal the issue to the court that can change the precedent. Further, the Michigan Supreme Court has telegraphed over the last decade that one its primary philosophies and aims is the reduction of litigation by streamlining case law and statutes in a manner that reduces the amount of claims to be litigated statewide. The Court's decision in Covenant clearly evidences this judicial paradigm. The Court effectively went out of its way to address the right of independent standing of medical providers in a case that did not require the court to reach that determination. The Court's decision further shows some legalistic acrobatics to reach a decision, which is raised by Justice Bernstein's dissent.
Court of Appeals Holds that "One Year Back Rule" Applies to the Date of Assignment Regardless of the Active Suit
The Court also discussed the application of the "one-year-back" rule to assignments obtained by healthcare providers. MCL 500.3145 contains two rules that place limitations on actions for recovery of PIP benefits. MCL 500.3145(1) states that claimants "may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced." This is separate from the one year statute of limitations rule in MCL 500.3145(2) which requires an action for PIP benefits be filed within one year of the date of the accident (unless the claimant properly notifies the insurer of the injury or the insurer makes a payment of benefits). However, even where the one year statute of limitations is extended under the notice of injury or payment of benefits exceptions, a claimant can only recover benefits for losses incurred within one year prior to the commencement of the action. Significantly, the Court has interpreted the one-year-back rule to mean that healthcare provider claims based on services provided more than one year before the date of the assignment are barred from recovery.
This case presents an unusual situation with respect to the one-year-back rule because the Plaintiffs filed their case on February 24, 2017, pre-Covenant, but sought to amend their complaint to bring a claim based on an assignment obtained after the Covenant decision was issued (the assignment was dated July 11, 2017). In other words, Plaintiff's standing to bring suit against the insurer changed in the middle of the case. In February, Plaintiffs could sue the insurer directly. After Covenant, Plaintiffs' standing to bring suit was gone. Anticipating this, Plaintiffs obtained assignments from the injured insured, thereby allowing them to continue their suit against the insurer, only on different procedural grounds. The assignment was the only way the Plaintiffs could maintain a direct action against the defendant-insurer for recovery of no-fault benefits in this case. Most healthcare provider cases filed post-Covenant now include assignments when the complaints are filed, along with specific assignment-related claims.
In this case, the Court held that the date of the assignments, not the date of the original complaint, is the correct date for purposes of the one-year-back rule. This is because the action based on the assignment was a supplemental pleading, not an amended pleading, as plaintiffs argued. See MCR 2.118(D) and (E). The Court also cited Burkhardt v Bailey, and explained that through an assignment, healthcare providers only obtain the rights the insured actually held at the time of the assignment, and healthcare providers cannot rely on the "relation-back doctrine" to gain a greater right to recovery.
This potentially reduces some exposure for insurers, specifically for any services provided within one year of the filing of the complaint but more than one year before the date of the assignment. To illustrate, Plaintiffs' recovery in this case is limited to costs incurred after July 11, 2016 (one year before the assignment). Any costs incurred between that date and February 24, 2016 (one year before the complaint was filed) are newly barred from recovery along with any older claims. Accordingly, defendant-insurers should take advantage of this ruling and move for dismissal of any claims that predate the relied-upon assignment by more than one year, even if the claims were within one year of the original complaint.
Additionally, it is noteworthy that the Court's opinion describes the date of the assignment as a limit of the rights the provider is obtaining. This means that, under different circumstances, for example where a plaintiff-provider obtains an assignment and then files a complaint (or an amended complaint), the applicable date for the one-year-back rule in MCL 500.3145(1) is the date of filing of the complaint that includes the assignment, not the assignment itself. The Court's ruling that the date of the assignment in this case is the "pertinent point of reference for purposes of the one-year-back rule" appears to be tailored to the specific facts of this case, where the original complaint was filed prior to the Covenant decision.
While this part of the holding is a small silver-lining for defendant-insurers in an otherwise unfavorable opinion, it does have far-reaching effects that could muddy the waters of other arguments against assignments. For example, it will now be more difficult to argue that a provider's claims should be dismissed when the assignments are obtained after the original complaint is filed, as held in Standard Rehab., Inc. v. Grange Ins. Co. of Michigan, Docket No. 331734, (Mich. Ct. App. Sept. 5, 2017). However, skilled defense attorneys will be able to distinguish these cases and effectively defend the rights of insurers in an arena that increasingly favors plaintiffs.
As of now, the holding in this case is the law of the land. For the aforementioned reasons, we would anticipate this to be a temporary situation. In the meantime, make sure you confer with your panel counsel to ensure they are preserving your anti-assignment clause arguments for an eventual appeal if the Supreme Court does take up this matter. If you would like our presentation on the current state of Covenant jurisprudence, please reach out to Marcy Tayler (313) 965-2863, Mark Sesi (586) 493-4427, or Tim Brady (313) 965-7406.
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