Court of Appeals Decision Provides Guidance on No-Fault Assignments, Sets Stage for Potential Supreme Court Review
By: Steven M. Couch
The question whether no-fault insurers had the right to prevent their insureds from executing assignments of their no-fault benefits to health care providers – and when those assignments are effective – have been significant points of dispute in the wake of the Michigan Supreme Court’s decision in Covenant Med. Ctr., Inc. v. State Farm Mut. Auto. Ins. Co., 500 Mich. 191 (May 25, 2017). Insurers have attempted to enforce anti-assignment clauses in their policies, while medical providers have looked to case law that long pre-dates the No-Fault Act to argue that such provisions are unenforceable as a matter of law. Faced with these disputes, trial courts throughout Michigan have reached differing results as some have upheld anti-assignment clauses, while others have found them to be unenforceable. Similarly, as medical providers have used those assignments to bring suit to collect no-fault benefits, the date on which an assignment is executed has been a sticking point as providers attempt to maximize their recoveries, even if the bills in dispute were incurred more than one year before an assignment is executed.
The Michigan Court of Appeals provided guidance on both of these issues in Jawad A. Shah, M.D., P.C. v. State Farm Mut. Auto. Ins. Co., ___ Mich. App. ___ (No. 340370) (hereafter “Shah”), a published opinion issued on May 8, 2018. In doing so, the divided panel may have set the stage for further review of these issues by the Michigan Supreme Court next year.
In Shah, the Plaintiffs were a group of medical providers who brought suit in February, 2017, before the Covenant decision was issued. After Covenant, the plaintiffs apparently anticipated State Farm’s motion for summary disposition and obtained assignments of benefits from their patient, George Hensley, on July 11, 2017. When State Farm filed its motion for summary disposition later that month, the plaintiffs relied on these assignments in their response to the motion and in a motion to amend their complaint. Plaintiffs argued, in summary, that the Court should not enforce the anti-assignment clause in State Farm’s policy and that the amended complaint should relate back to the original date of filing. In response, State Farm asserted that the anti-assignment clause should be enforced and, if not, then the amendment should not relate back because what plaintiffs proposed was a supplemental pleading, which never relates back to the original complaint. The trial court granted the motion for summary disposition and found that the amendment would be futile. The appeal ensued.
Writing for the majority, Judge Stephen Borrello first addressed the question whether Covenant had retroactive effect. Judge Borrello noted that Plaintiffs had not raised the argument in the court below that Covenant should be given prospective effect. Indeed, Plaintiff’s had relied upon Covenant’s retroactivity in bringing their motion to amend the complaint. Accordingly, the majority applied the recent decision of W.A. Foote Mem. Hosp. v. Mich. Assigned Claims Plan, 321 Mich App 159, 168 (2017), which had held that Covenant applies retroactively.
Turning to the policy’s anti assignment clause, the panel’s majority underscored the age of the guiding precedent, Roger Williams Ins. Co. v. Carrington, 43 Mich. 252 (1880). According to the Court, the issue was not one of reasonableness, but rather one of long-existing public policy:
Our decision is not based on any determination that the anti-assignment clause is somehow “unreasonable.” Rather, we have simply concluded that enforcing the anti-assignment clause in this circumstance to prohibit an assignment of an accrued claim after the loss has occurred is against Michigan public policy as stated by our Supreme Court one hundred and thirty-eight years ago in Roger Williams.
Shah, slip op. at p. 9. In referencing other courts’ application of Roger Williams in “two relatively recent opinions,” the accompanying footnote pointed out that “[w]hile we recognize that case from 1993 and 2003 are not exactly recent in the ordinary sense, they certainly are recent when compared to a case from 1880.” Id. at n. 9. The majority insisted that its hands were tied by the precedential effect of Roger Williams because they were bound to follow Supreme Court decisions “except where those decisions have clearly been overruled or superceded.” Id. at p. 10. Thus, they held, “if the continued validity of Roger Williams is to be called into question, it will have to be by our Supreme Court.” Id.
The majority then looked to the Plaintiffs’ motion to amend their complaint as it concerned the assignments that were executed in July 2017. Although Plaintiffs attempted to relate the claims back to the filing of the original complaint, the majority observed that “plaintiffs could not obtain any greater rights from Hensley on the date of the assignments – July 11, 2017 – than Hensley himself possessed on that date.” Id. at 11. If Hensley had filed suit himself that day, he could not have claimed medical expenses incurred more than one year before then. Plaintiffs’ position could be no better. Further, because the assignments were sought after the filing of the complaint, the effect was that the amendment was actually a supplemental pleading, which does not relate back to the original complaint. Thus, plaintiffs had no right to pursue medical expenses incurred more than one year prior to the date of the assignment.
Judge Douglas Shapiro concurred with the majority as to the anti-assignment clause and dissented from the majority’s decision on the effective date of the assignments. In his concurrence, Judge Shapiro cast the Roger Williams decision as one point in a long line of authority that, he argued, permitted claimants to assign their rights to insurance proceeds. In doing so, he cited to several authorities for the proposition that assignments in the State of Michigan are generally permissible for all contracts except those for personal services. Id. dissenting opinion at p. 2-4. He also asserted that the assignment of benefits is consistent with the no-fault system’s purpose of providing “assured, adequate, and prompt reparation for certain economic losses.” Id. dissenting opinion at 4 (quoting Shavers v. Kelley, 402 Mich. 554, 579 (1978) (emphasis added)). Further, in a strongly worded footnote, Judge Shapiro suggested that the Michigan Supreme Court revisit the “freedom to contract” set forth in Rory v. Continental Ins. Co., 473 Mich 457 (2005), which Judge Shapiro argued is illusory in practice.
In his dissent from the portion of the Court’s decision concerning the July 2017 assignments, Judge Shapiro sharply disputed the majority’s analysis. He argued that “the triggering of the one-year-back statute does not depend upon whether there was a ‘right’ to file suit, but only on the date suit was filed.” Id. dissenting opinion at 6. In this instance, where the Plaintiffs sought to address the standing problem and amend the complaint before the action was dismissed, Judge Shapiro opined that the one-year-back statute does not bar the action on those bills. Thus, he would have held that the one-year-back period ran from the filing of suit, not the date on the assignment acquired afterward.
Lastly, Judge Shapiro articulated his view that Covenant should be applied prospectively and that W.A. Foote Mem. Hosp. was wrongly decided. In doing so, he argued that “a prospective application would merely allow health care providers that provided services based upon the law as it was universally understood, to be paid for those already-provided services.” Id. dissenting opinion at 7-8.
In an instance like this one, where the Court of Appeals was so divided on the substance of this case and where the law at issue is of such importance to the administration of justice throughout the state, there is a good chance that the Michigan Supreme Court will review at least part of the Shah decision. At present, Covenant’s effect is retroactive; anti-assignment clauses contained within no-fault insurance policies are unenforceable; and an assignment obtained from an insured after a provider’s complaint is filed is only valid for dates of services within one year prior to the assignment’s execution. While the Supreme Court may take up one or more of these issues in the next term, the Court of Appeals decision is binding on the trial courts now. Regardless of any Supreme Court review, insurers would be well-advised to examine the execution dates of assignments that have been presented in support of providers’ suits to determine whether the one-year-back statute bars any portion of disputed claims.
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