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Shah v State Farm Mut Auto Ins Co (COA – PUB 5/8/2018; RB #3747)


Michigan Court of Appeals; Docket # 340370; Published
Judges Borrello, Shapiro, and Tukel; written by Borrello
Official Michigan Reporter Citation: Not Applicable; Link to OpinionLink to Concurrence and Dissent

One-Year Back Rule Limitation [§3145(1)]

Intervention by Service Providers and Third Party Payors in PIP Claims
Medical Provider Standing (Post-Covenant)

In this 2-1 decision written by Judge Borrello, the Court of Appeals reversed the trial court’s grant of summary disposition regarding the validity of an anti-assignment clause in a no-fault policy issued by Defendant State Farm Mutual Automobile Insurance Company (“State Farm”). The Court reversed the trial court because it found that anti assignment clauses in no-fault contracts were against public policy under the Michigan Supreme Court’s precedent of Roger Williams Ins Co v Carrington, 43 Mich 252; 5 NW2d 303 (1880). The Court then found that the application of the one-year-back rule applied when the assignment of benefits occurred because an assignment of benefits was a supplemental pleading.

Plaintiff Jawad A. Shah, M.D., PC (“Shah”), provided medical services to George Hensley (“Hensley”). Shah and others alleged that State Farm (Hensley’s no-fault insurer) refused to pay for the medical services when it was required to do so. Shah brought an action to recover payment from State Farm. During the pendency of the trial, the Michigan Supreme Court decided Covenant Med Ctr, Inc v State Farm Mut Auto Ins Co, 500 Mich 191; 895 NW2d 490 (2017), which denied medical providers an independent statutory cause of action against no-fault insurance providers. Shah and other medical providers obtained an assignment of benefits from Hensley on July 11, 2017. However, the language in the Hensley-State Farm no-fault contract contained an anti-assignment clause. On July 20, 2017, State Farm moved for summary disposition based on Covenant and the anti-assignment clause. The trial court found that the anti-assignment clause barred Hensley’s assignment of benefits to Shah and therefore issued summary disposition for State Farm. Shah appealed.

The Court found that anti-assignment clauses in no-fault contracts are barred by public policy. The Court explained that no-fault policies are contracts that are subject to ordinary contract principles. Citing to Rory v Continental Ins Co, 473 Mich 457, 461; 703 NW2d 23 (2005), the Court explained that an ordinary contract principle is that a contract is unenforceable if it violates the law or if it is against public policy. Finally, the Court explained that the Michigan Supreme Court declared that anti-assignment clauses in insurance contracts were against public policy in Roger Williams. The Court applied ordinary contract principles to the no-fault contract and found that under Roger Williams the anti-assignment clause violated public policy. Because the anti-assignment clause violated public policy it was unenforceable and State Farm could not foreclose the assignment of benefits to Shah.

“Our Supreme Court in Roger Williams essentially held that an accrued cause of action may be freely assigned after the loss and that an anti-assignment clause is not enforceable to restrict such an assignment because such a clause violates public policy in that situation. Roger Williams, 43 Mich at 254. Here, there similarly was an accrued claim against his insurer that was held by Hensley for payment of health care services that had already been provided by plaintiffs before Hensley executed the assignment. Under Roger Williams, any contractual prohibition against the assignment of that claim to plaintiffs was unenforceable because it was against public policy. Id.”

The Court next found that the one-year-back rule applied to when the assignment for benefits occurred, and it did not relate back to the original action. The Court explained that a motion to amend a complaint will typically relate back to the original action; whereas, a supplemental pleading will not. Here, the Court found that the assignment was an “event” that occurred after the filing of the original complaint and provided the only means by which Shah had standing. Therefore, the Court reasoned that Shah’s motion was in fact a supplemental pleading, not an amendment. The motion thus related back to the date of assignment only. Because the date of assignment was July 11, 2017, Shah could only recover benefits from one year prior. Thus, the one-year-back rule partially barred part of Shah’s claim.

“Therefore, through the assignments in this case, plaintiffs did not obtain the right to pursue no-fault benefits for any portion of the loss incurred more than one year before July 11, 2017, because that is the pertinent point of reference for purposes of the one-year-back rule. A supplemental pleading predicated on the July 11, 2017 assignments could not relate back to the date of the original pleading.”

Concurrence/Dissent by Judge Shapiro
Judge Shapiro concurred in part and dissented in part. Judge Shapiro concurred with the majority decision that the anti-assignment clause was prohibited by public policy. Judge Shapiro dissented from the majority’s contention that the one-year-back rule applied to the date of assignment. Judge Shapiro argued that the statute provides that benefits may not be recovered “for any portion of the loss incurred more than one year before the date on which the action was commenced.” MCL 500.3145(1). Judge Shapiro did not believe that an addition of an allegation to create standing, in fact created a new action. Judge Shapiro believed that the language of the statute should control the application in this case. Finally, Judge Shapiro argued that the Court was incorrect in applying Covenant retroactively.

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