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Case closed? Not quite

Case closed? Not quite

July 27
12:23 2017

Case closed? Not quite

On June 20, 2011, Jack Stockford was injured in a motor vehicle accident. His no-fault insurer was State Farm Mutual Automobile Insurance Company. Stockford was treated on at least three occasions by Covenant Medical Center, a healthcare provider. Covenant sent State Farm bills on July 3, August 2, and October 9, 2012, for medical services it provided to Stockford. It was undisputed that State Farm received the bills, which totaled $43,484.80. State Farm denied coverage on or about November 15, 2012, and refused to pay the bills.

On June 4, 2012, Stockford filed suit against State Farm for no-fault benefits, including personal insurance protection benefits. Stockford settled with State Farm on April 2, 2013, for $59,000. As part of the settlement, Stockford executed a broad release that encompassed all allowable no-fault expenses, including medical bills, and “any and all past and present claims incurred through January 10, 2013[.]”

Covenant sued State Farm on April 25, 2013, seeking payment of its billed expenses. Covenant asserted that it learned of the settlement and release when State Farm answered its complaint in May 2013. In September 2013, State Farm moved for summary disposition under Michigan laws that govern dismissal due to release and failure to state a claim. State Farm maintained that Covenant’s claim for benefits was derivative of Stockford’s claim, which was extinguished by the release. Therefore, State Farm argued, Covenant no longer possessed a claim against it.

On May 15, 2014, the court granted summary disposition to State Farm, pursuant to the law that governs dismissal due to release. The court agreed with State Farm that Stockford’s release was dispositive, holding that any claim Covenant might have had against Stockford’s insurer was “dependent on the insurer being obligated to pay benefits to the provider on behalf of its insured” and that the “release end[ed] the insurer’s obligation to pay benefits to or on behalf of its insured under its contract of insurance.” Covenant appealed.

The court reversed the circuit court’s decision, concluding that State Farm’s liability to Covenant could not be discharged by State Farm’s settlement with Stockford because State Farm had received written notice of Covenant’s claim before the settlement, presumably from the bills that Covenant mailed to State Farm. The court opined that, in this situation, the settlement could not constitute a good faith payment covering the third-party claim.

The court reversed the circuit court’s order granting summary disposition in favor of State Farm and remanded the case for further proceedings.

Covenant Medical Center, Inc., vs. State Farm Mutual Automobile Insurance Company-Supreme Court of Michigan-May 25, 2017- 2017 WL 2303337.

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