Covenant Medical Center Inc v. State Farm Mutual Automobile Ins Co
152758
Mich.May 25, 2017Background
- Jack Stockford was injured in a 2011 car accident insured by State Farm; Covenant Medical Center treated him and billed State Farm $43,484.80, which State Farm denied.
- Stockford sued State Farm for no-fault (including PIP) benefits and settled with State Farm for $59,000, executing a broad release covering allowable no-fault expenses through January 10, 2013.
- Covenant (healthcare provider) sued State Farm for payment of its billed services after learning of the settlement; State Farm moved for summary disposition based on the release and lack of a statutory claim by Covenant.
- The Saginaw Circuit Court granted summary disposition for State Farm (C)(7) holding Covenant’s claim depended on the insurer’s obligation to the insured and was extinguished by the release.
- The Michigan Court of Appeals reversed, reasoning that because State Farm had notice of Covenant’s claim (from the bills), the insurer’s settlement with Stockford was not a good-faith payment under MCL 500.3112 and thus did not discharge liability to Covenant.
- The Michigan Supreme Court granted leave, addressed whether the no-fault act creates a statutory cause of action for healthcare providers against no-fault insurers, and ultimately reversed the Court of Appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a healthcare provider has a statutory cause of action against a no-fault insurer to recover PIP benefits | Covenant: MCL 500.3112 and related provisions allow insurers to pay "for the benefit of" an injured person and thus providers have an independent right to sue for those benefits | State Farm: The no-fault statute does not create any provision authorizing providers to sue insurers; providers can seek payment only from the insured or by assignment | Held: No statutory cause of action exists; the no-fault act permits insurers to pay providers for the benefit of the insured but does not give providers a direct statutory right to sue insurers |
| Whether an insurer’s settlement with an insured can discharge insurer liability to a provider who gave notice | Covenant: Settlement did not discharge State Farm because insurer had written notice of Covenant’s claim, so payment was not in good faith under MCL 500.3112 | State Farm: Settlement and release with insured discharged insurer liability to extent of payment | Held: Court did not decide the release question on the merits because providers lack a statutory cause of action; remanded to grant summary disposition to State Farm |
| Whether prior Court of Appeals precedent recognizing provider suits is controlling | Covenant: Relied on Court of Appeals line of cases treating providers as able to sue insurers | State Farm: Those cases misread and failed to analyze the statute; Supreme Court not bound by them | Held: Supreme Court overruled Court of Appeals decisions to the extent inconsistent with holding that no statutory cause of action exists |
| Whether statutory terms like "payable," "claimant," and priority provisions create provider rights | Covenant: Terms (e.g., "payable to or for the benefit of") imply providers can enforce payment; limitation and attorney-fee provisions using "claimant" support provider suits | State Farm: Those terms do not create a cause of action; "incurred" refers to liability by injured persons; priority provisions contemplate claims by injured persons, not providers | Held: The text does not confer an enforceable right on providers; terms permissibly allow direct payment to providers but do not create a statutory right to sue |
Key Cases Cited
- LaMothe v. Auto Club Ins. Ass'n, 214 Mich. App. 577 (Court of Appeals) (early Court of Appeals discussion suggesting providers might sue insurers but not deciding statutory question)
- Munson Med. Ctr. v. Auto Club Ins. Ass'n, 218 Mich. App. 375 (Court of Appeals) (addressed scope of coverage and customary charges; did not analyze a provider cause of action)
- Lakeland Neurocare Ctrs. v. State Farm Mut. Auto. Ins. Co., 250 Mich. App. 35 (Court of Appeals) (assumed provider had right to sue; litigation focused on attorney fees and penalties)
- Belcher v. Aetna Cas. & Surety Co., 409 Mich. 231 (Michigan Supreme Court) (discussed entitlement and priority provisions for injured persons and dependents under no-fault scheme)