Covenant Medical Center v. State Farm: A Disastrous Destabilization of Michigan’s Auto No-Fault System

By:  CPAN Legal Team

On May 25, 2017, the Michigan Supreme Court issued a landmark decision in the case of Covenant Medical Center, Inc., v. State Farm Mutual Automobile Insurance Company.  In a 5-1 decision, the Court took away significant legal rights of healthcare providers who care for auto accident victims.  The Court held that healthcare providers do not have a right under the No-Fault Act to sue no-fault insurers for services rendered to patients.  As the Court stated:  “We therefore hold that healthcare providers do not possess a statutory cause of action against no-fault insurers for recovery of personal protection insurance benefits under the no-fault act.”

The Covenant decision marks a radical departure from over 20 years of case law from the Michigan Court of Appeals, who repeatedly held that healthcare providers had a statutory cause of action against no-fault insurers.  Yet the Covenant Court called such longstanding decisions “unconvincing” and “devoid of the statutory analysis necessary to support that premise.”

Unfortunately, the Covenant decision begs more questions than it answers.  The Court offered little or no guidance on critical issues surrounding the implementation of the holding, including the following:

  • Retroactivity v. Prospectivity: The Court did not address whether its decision is retroactive (i.e., applying to all cases currently in litigation) or prospective (i.e., applying to cases filed after the decision).  The answer to this question will have enormous financial implications for healthcare providers who have pending lawsuits that relied on the established case law that Covenant overruled, and it could therefore result in hundreds of millions of dollars in unpaid medical expenses.  Unfortunately, the Court has left the answer to this question to the trial courts – a process that will result in significant delay, confusion, and inconsistency.
  • Assignments of Benefits from Patient to Provider: In an important footnote, the Court stated: “[O]ur conclusion today is not intended to alter an insured’s ability to assign his or her right to past or presently due benefits to a healthcare provider.”  Yet Section 3143 of the No-Fault Act prohibits the assignment of future  There will thus be great uncertainty over how to handle cases involving assignments, particularly when a provider continues to render treatment to an injured person while litigation is pending.

One result is clear: Covenant puts the injured person in the cross-hairs of litigation.  The Court held that a healthcare provider’s sole recourse is to “seek payment from the injured person for the provider’s reasonable charges.”  Thus, healthcare providers will now be forced to sue their patients for unpaid balances.  This will mean more auto accident victims retaining more lawyers and more lawsuits filed – all of which our no-fault system was designed to avoid.

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