Lawyers’ Corner: Medical Provider Claims in Dawoud v State Farm Mut Auto Ins Co

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An uncooperative injured party can make collecting medical providers’ no-fault benefits a lot harder. Now a new case says that by not following court orders, a plaintiff can even get your medical provider claims dismissed.

A dismissal with prejudice is the steepest sanction a judge can issue against a plaintiff. It is usually reserved for injured parties who simply refuse to comply with the court’s discovery orders. But when a plaintiff quits mid-stride, it can cause big problems for a doctor’s derivative medical provider claims.

That’s according to the recent opinion published by the Michigan Court of Appeals, Dawoud v State Farm Mutual Automobile Insurance Company. The case blazes a previously unclear trail in no-fault law., But it does so in a way that cuts medical providers claims short without any wrong done by the doctor or hospital.

On November 28, 2012, Kevin Dawoud, Rasha Kamel and Mikho Essa were injured in a motor vehicle accident. Utica Physical Therapy provided treatment and Grace Transportation, Inc., provided transportation to the injured parties during their recovery.

When it was determined no other insurance applied, the plaintiffs applied for no-fault benefits through the Michigan Automobile Insurance Placement Facility. State Farm was assigned to the claims, including the derivative medical provider claims by Utica PT and Grace Transportation.

But then the injured parties jumped ship. They failed to comply with the court’s discovery orders and failed to attend three scheduled depositions. Eventually, their claims were dismissed with prejudice as a sanction.

That left the medical provider claims. State Farm asked that these claims be dismissed too because the policy holders’ dismissals counted as an adverse adjudication on the merits according to MCR 2.504. The auto insurance provider argued that this should bar the medical provider claims because they were derivative in nature.

Derivative Standing on Medical Provider Claims

The medical providers disagreed. They said because Michigan law grants them standing to pursue their own medical provider claims as a separate cause of action, a discovery sanction against another party should not affect their claims.

To support their position, the medical providers relied on MCL 500.3112 and Wyoming Chiropractic Health Clinic PC v Auto-Owners Ins CoIn that case, the court found MCL 500.3112 granted standing to professionals who rendered services “for the benefit of” a person injured as the result of an auto accident.

Standing Doesn’t Render Dismissal Invalid, Court Says

The Michigan Court of Appeals saw it differently. It held that the Wyoming opinion only applied to standing, not the survival of a claim. The court noted that the parties agreed that “if the elements of an injured party’s no-fault act claim fails substantively, based on the merits (for example, if the individual’s injury is not the result of an automobile accident) any providers of services would have no claim against the insurer, because their claims are derivative.” The question in this case was narrower:

“At issue here is whether the same principle applies when the injured party’s no-fault claim ‘fails,’ as it did here, due to the injured party’s failure to attend depositions and otherwise comply with discovery orders and obligations.”

The court refused to treat a dismissal with prejudice due to discovery violations any differently than other “substantive” dismissals on the merits.

Discovery Dismissals as Adjudications on the Merits

The court reached its decision based on MCR 2.313(B)(2)(c), which allows a court to enter “an order striking pleadings or parts of pleadings, staying further proceedings until the order is obeyed, dismissing the action or proceeding or a part of it, or rendering a judgment by default against the disobedient party.” It then referred back to MCR 2.504, which states:

“Unless the court otherwise specifies in its order for dismissal, a dismissal under this subrule or a dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction or for failure to join a party under MCR 2.205, operates as an adjudication on the merits.”

Read together, the court said these court rules allow a discovery sanctions dismissal against an injured party to be used against a medical provider’s derivative claim under the policy.

Expanding Discovery Sanctions to Innocent Parties

MCR 2.313 and the other court rules that impose sanctions are designed to induce cooperation by the parties. When a party continuously ignores court orders, a dismissal is intended to punish “the disobedient party.” But the Dawoud court’s interpretation of the court rules goes further. The decision allows a discovery sanction dismissal to undercut the facially valid claims of an innocent intervening party – the medical provider claims.

The “substantive” failings the court notes would undercut both the injured party’s claims and the medical provider claims. For example, if the injury was unrelated to an auto accident, that would prevent either party from meeting its statutory burden to receive benefits. A dismissal regarding such issues should apply based on Res Judicata – because it is the same issue being litigated in both cases.

But discovery sanctions are different. They are not based on a defect in the medical provider’s case at all. Instead, they are the consequence of an uncooperative injured party. By allowing that behavior to entirely eliminate a medical provider’s claim, the Michigan Court of Appeals has undercut the very purpose of the No-Fault Act. Auto accident cases have suddenly become substantially riskier for medical providers, and it is conceivable that some doctors and hospitals will decide the patients simply aren’t worth the risk.

David Christensen is a medical provider attorney at Christensen Law in Southfield, Michigan. He has been representing doctors and hospitals against auto insurance companies for over 20 years. If you have a client that needs help collecting its no-fault benefits, contact Christensen Law today for a referral.