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Lawyers’ Corner: Medical Provider Claims in Covenant Medical Center v State Farm

When you represent medical providers, a lot hinges on what the injured party does in his or her lawsuit. Now, a brand new published Court of Appeals case has eased that worry a little – ruling a injured party’s settlement doesn’t necessary cut off a medical provider claim.

On October 22, 2015, the Michigan Court of Appeals released its published opinion in Covenant Medical Center Inc v State Farm Mutual Automobile Insurance Company. The decision is a big break for medical provider attorneys, helping to separate doctors’ and hospitals’ claims from the claims of the injured parties they serve.

In 2011, Jack Stockford was hurt in an auto accident. He was later treated by Covenant Medical in 2012. The medical provider promptly provided written notice of its $43,000 claim by sending State Farm bills in July, August, and October of 2012. Then in 2013, Stockford settled his case for little more than the medical bill. The settlement included a release where he agreed to:

“‘[I]ndemnify, defend and hold harmless’ State farm ‘from any liens or demands made by any provider, . . . including, . . . Covenant Medical . . . for payments made or services rendered…'”

Covenant Medical sued anyway. State Farm objected, filing a motion for summary judgment based on the prior release.

But the Court of Appeals disagreed. It cited MCL 500.3112, which says in part:

“Payment by an insurer in good faith of personal protection insurance benefits, to or for the benefit of a person who it believes is entitled to the benefits, discharges the insurer’s liability to the extent of payments unless the insurer has been notified in writing of the claim of some other person.”

Covenant Medical, was one such “other person.” Because it sent its written claim for compensation for services rendered for the benefit of an injured party before Stockford and State Farm reached their settlement, the claim was preserved. The court ruled:

“However, the plain text of the statute provides that if the insurer has notice in writing of a third party’s claim, then the insurer cannot discharge its liability to the third party simply by settling with its insured. Such a payment is not in good faith because the insurer is aware of a third party’s right and seeks to extinguish it without providing notice to the affected third party.”

If State Farm had wanted to include Covenant Medical’s claim in the settlement, it should have requested that the circuit court apportion the settlement. Because it didn’t do that, the insurance company had to face the medical provider’s independent claim for no-fault benefits.

This case opens the door for medical providers to receive full compensation, or enter into better settlements, by giving them more control over their own legal destiny. By cutting ties between an injured person’s settlement and a medical provider’s claim, the court has given power back to the doctors to resolve cases on their own terms.

David Christensen is a medical provider attorney at Christensen Law in Southfield, Michigan. If your clients need help recovering a medical bill, contact Christensen Law for a referral today.