Michigan Court of Appeals; Docket # 322108; Published
Judges M.J. Kelly, Murray, and Shapiro; Unanimous, Per Curiam
Official Michigan Reporter Citation: 313 Mich App 50 (2015); Link to Opinion
On 5/27/2016, the Michigan Supreme Court GRANTED the application for leave to appeal; Link to Order
Service Providers as Payees [§3112(2)]
Release and Settlements
In this unanimous published per curiam Opinion, the Court of Appeals held that a settlement between State Farm and its insured did not prevent a medical provider from seeking reimbursement for the treatment it provided the insured, because the medical provider gave sufficient written notice to State Farm that it intended to seek payment.
Plaintiff, Covenant Medical Center, sent three bills to State Farm for medical services it rendered to State Farm’s insured, who was injured in an auto accident. State Farm responded to the bills and later entered into a settlement agreement with its insured, agreeing to pay $59,000 for being released from liability “regarding all past and present claims incurred through January 10, 2013.” Plaintiff then filed this action against State Farm, seeking payment for the treatment it provided the insured. State Farm moved to dismiss the action, asserting the settlement agreement relieved it of any duty to pay the medical bills. The trial court granted State Farm’s motion and dismissed plaintiff’s claims.
The Court of Appeals reversed, finding that because plaintiff, pursuant to MCL 500.3112, provided written notice to State Farm indicating that it intended to pursue payment of the medical bills on its own, State Farm could not avoid its liability for the bills through the settlement agreement with its insured.
In so holding, the Court of Appeals explained that under §3112, plaintiff protected its right to seek reimbursement by sending written notice to State Farm. The Court noted the plain language of §3112 provides that if the insurer has notice in writing of a third party’s claim, then the insurer cannot discharge its liability simply by settling with an insured. According to the Court:
“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. Instead, the statute requires that the insurer apply to the circuit court for an appropriate order directing how the no-fault benefits should be allocated. That was not done in this case. Accordingly, pursuant to the plain language of the statute, because State Farm had notice in writing of [plaintiff’s] claim, State Farm’s payment to [its insured] did not discharge its liability to [plaintiff].”
The Court of Appeals further rejected State Farm’s argument that the “hold harmless” provision in the settlement release limited plaintiff’s right to reimbursement, such that it could only recover payment for its services from the injured individual. Addressing this argument, the Court said that, when services are rendered and the insured received notice of the provider’s claim before the settlement occurred, then the settlement payment and release do not extinguish the provider’s rights. The Court explained:
“[W]hile a provider’s right to payment from the insurer is created by the right of the insured to benefits, an insured’s agreement to release the insurer in exchange for a settlement, does not release the insurer as to the provider’s noticed claims unless the insurer complies with MCL 500.3112. This is implicitly recognized in the text of the release itself, which provides that [the insured] agreed to ‘indemnify, defend and hold harmless’ State Farm ‘from any liens or demands made by any provider, . . . including, . . . [plaintiff] . . . for payments made or services rendered . . . in connection with any injuries resulting” from the accident.”
Accordingly, the Court of Appeals remanded the case for further proceedings.