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Lawyers’ Corner: Provider Privity in Michigan Head & Spine Institute v State Farm

Medical provider attorneys know well that their doctors and hospitals have an independent claim for no-fault benefits against an insurance provider. But how independent is that claim? A recent unpublished Michigan Court of Appeals decision says provider privity could put an end to your First Party case.

One of the biggest decisions when representing a medical provider is whether to intervene in the injured motorist’s First Party case or file one on your own. Sometimes, timing makes that decision for you. When it does, or when you choose not to intervene for other reasons, a recent decision suggests you could set your client up for a race to the jury.

In Michigan Head & Spine Institute, P.C. v State Farm Mutual Auto Insurance Companythe Michigan Court of Appeals determined whether a there was privity between an injured motorist and the medical provider that treated his injury.

Ashford Garley was injured in a motor vehicle accident on December 15, 2011. He received services from MHSI between March 22, 2012 and May 23, 2012. Garley and MHSI each filed a lawsuit against State Farm based on Garley’s wife’s no-fault insurance policy. In June 2014, Garley’s case went to trial.

The jury determined that Garley had sustained bodily injury in an auto accident resulting in allowable expenses, but that State Farm didn’t owe Garley any money. The jury form explained:

“[W]e think all bills related to the accident have been paid an no more money is owed.”

State Farm took that verdict back to the MHSI case, where it filed for summary disposition based on res judicata and collateral estoppel. The insurance company claimed that MHSI and Garley were in privity, and that any claim MHSI may have had was concluded with the jury verdict in Garley’s First Party lawsuit.

MHSI objected, stating it was not a party to the Garley lawsuit, and that Garley had not specifically requested repayment of MHSI’s bills. While the medical records were admitted into evidence, Garley did not submit MHSI’s outstanding bills to the jury.

Res Judicata

Res judicata is designed to “relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resource, and by preventing inconsistent decisions, encourage reliance on adjudication.” MHSI at *2 (quoting Pierson Sand & Gravel, Inc v Keeler Brass Co, 460 Mich 372, 380 (1999)). To do so, Michigan courts will grant summary disposition and dismiss a case that has already been litigated in another lawsuit.

Michigan applies res judicata broadly, barring “every claim arising from the same transaction that the parties, exercising reasonable diligence, could have raised but did not.” MHSI at *3 (quoting Adair v State, 470 Mich 105, 121 (2004)). For res judicata to apply:

  1. The prior action must have been decided on the merits;
  2. There must be a final decision in the prior action;
  3. The matter contested in the second action was or could have been resolved in the first action; and
  4. Both actions involved the same parties or their privies.

The parties in MHSI v State Farm agreed that Garley’s lawsuit was decided on the merits and resulted in a final decision. The question was whether the medical provider was in privity with the injured motorist.

Privity

Privity means a party is “so identified in interest with another party that the first litigant represents the same legal right that the later litigant is trying to assert.” MHSI at *3 (quoting Adair at 122). The court acknowledged a prior Michigan Supreme Court decision, TBCI, PC v State Farm, 289 Mich App 39 (2010),  which says:

“A healthcare provider seeking payment under a no-fault insurance policy, stands in privity with an injured party who previously brought a lawsuit attempting to claim no-fault benefits under the same policy.”

The court ruled that both the injured party and the medical provider shared a common identity of interests – in enforcing the no-fault act and receiving benefits under the injured party’s policy.

The court recognized a medical provider’s independent standing to bring suit directly against a no-fault provider, but found that the interdependence between the claims of the parties made the healthcare provider’s eligibility dependent on the injured party’s eligibility for no-fault benefits under the policy. This shared interest created privity between medical provider and injured motorist.

Intervening v Independent Lawsuit

MHSI v State Farm isn’t a revolutionary case. Its conclusions regarding privity simply bring together and give authority to arguments the insurance companies have been using against medical providers for some time. However, by giving the insurance industry one case that sums up the argument, MHSI does affect medical provider attorneys’ strategic decision making. The court stated:

“Given that the claims at issue clearly arise from the same operative facts, Garley plainly could have sought payment of MHSI’s medical bills during his trial and, if MHSI felt its interests were not being adequately protected, MHSI could have intervened in Garley’s lawsuit to protect its rights.”

Intervention or independent lawsuit is a strategic decision in many cases. Sometimes, a medical provider will not learn of an injured party’s lawsuit until it is too late to intervene, but there are other reasons not to intervene as well.

Under MHSI, the decision to file an independent lawsuit just got more difficult. By filing a claim based on your medical provider’s independent standing, you put them in a race against the injured party. If settlement is not possible, whichever case goes to the jury first will decide the fate of both claims. Most of the time, diligent trial attorneys will want a hand in that verdict. MHSI has made the case for intervening much more compelling and puts medical provider attorneys on notice: sue at your own risk.

David Christensen is a medical provider attorney at Christensen Law in Southfield, Michigan. He represents medical providers and injured parties against no-fault insurance companies. If your medical provider clients need help collecting their medical billing, contact Christensen Law today for a referral.