Court of Appeals Holds Anti-Assignment Clauses Unenforceable, but Healthcare Providers Can Only Recover Benefits One-Year-Back from Date of Assignment


On May 8, 2018, the Michigan Court of Appeals issued a published opinion addressing two legal issues that have been hotly contested in the wake of last year’s Covenant v State Farm decision, which held that healthcare providers do not have a statutory basis to sue no-fault insurers for personal protection insurance (“PIP”) benefits under the Michigan No-Fault Act.

In Shah v State Farm Mut Auto Ins Co, (Docket No. 340370), the plaintiffs were a group of medical providers that filed suit against State Farm on February 24, 2017, seeking to recover PIP benefits for services they had rendered to State Farm’s insured, George Hensley, allegedly necessitated by injuries he had suffered in a motor vehicle accident.

The Supreme Court issued the Covenant opinion on May 25, 2017, and on July 20, 2017, State Farm brought a motion for summary disposition, arguing that under Covenant the plaintiffs had no basis to bring a suit for PIP benefits. Anticipating this motion, the providers had obtained an assignment of rights from Hensley on July 11, 2017. In response to State Farm’s motion, the providers sought leave to amend their complaint to reflect that their claims were being brought pursuant to the assignment.

State Farm argued that the assignment was void because of the anti-assignment clause in the insurance policy it had issued to Hensley, which stated that “No assignment of benefits or other transfer of rights is binding upon [State Farm] unless approved by [State Farm].” The providers argued that the anti-assignment clause was unenforceable because it was against public policy.

State Farm further argued that even if the anti-assignment clause was unenforceable, the providers’ claims based on the assignment from Hensley would be limited to benefits incurred in the year prior to July 11, 2017, (the date the assignment was executed) because of MCL 500.3145, commonly known as the “one-year-back” rule. This statute provides that a “claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced.”

The providers argued that the amendment to add the assignment should relate back to the filing date of their original complaint because it was intended to support their previously filed claims for benefits that arose out of the same transaction or occurrence, i.e. Hensley’s injuries sustained in the motor vehicle accident. In response, State Farm argued that because the assignment did not exist on the date of the original complaint the providers were not actually seeking to amend their original complaint, pursuant to MCR 2.118(D), rather they were attempting to supplement their complaint to allege new claims based on the subsequently acquired assignment, pursuant to MCR 2.118(E).

The Trial Court ruled in State Farm’s favor on both issues, holding that the assignment was void under the anti-assignment clause in the underlying policy, and that even if the assignment had been valid the providers’ claims under it would not relate back to the filing date of their original complaint.

The Court of Appeals reversed as to the first issue, holding that the anti-assignment clause in the State Farm policy was void because it was against public policy. The Court acknowledged that Michigan appellate courts had previously recognized the enforceability of anti-assignment clauses in other contexts, so long as they were clear and unambiguous. But the Court concluded that it was bound by Roger Williams Ins Co v Carrington, 43 Mich 252; 5 NW 303 (1880), in which the Supreme Court held that an anti-assignment clause in an insurance policy was unenforceable, so far as it applied to an accrued cause of action, because it was against public policy. In other words, an anti-assignment clause cannot prevent the transfer of a claim under an insurance contract where the assignment is executed after the loss giving rise to that claim has already occurred.

In response to State Farm’s arguments about the continued validity and applicability of this 138-year-old case, the Court of Appeals noted that the Roger Williams decision had never been clearly overruled or superseded, and was therefore still binding precedent. The Court of Appeals seemed to set the issue up for the likely appeal of this decision, stating that “if the continued validity of Roger Williams is to be called into question, it will have to be by our Supreme Court.”

As to the one-year-back issue, the Court of Appeals ruled in State Farm’s favor. It is a well-established principle that a party receiving an assignment cannot acquire any greater rights that the party making the assignment possessed. So on the date the assignment was executed, Hensley only had the right to bring a claim for benefits incurred one-year-back from that date. The Court further reasoned that the execution of the assignment was an event that occurred after the filing of the original complaint, and that event provided the sole basis for the providers to bring their claims against State Farm. Accordingly, the providers’ motion for leave to amend was actually a motion for leave to file a supplemental pleading, which do not relate back to the filing date of the providers’ original complaint. The Court of Appeals concluded that the date the assignment was executed, July 11, 2017, was the correct reference point for applying the one-year-back rule.

As noted above, an application for leave to appeal this decision will almost certainly be filed with the Michigan Supreme Court. But for the time being, Shah v State Farm is the law of the land in Michigan. Anti-assignment clauses are unenforceable as to post-loss assignments, which in the no-fault context would be assignments executed after an injured person has incurred expenses for which benefits are payable under MCL 500.3107. On the other hand, healthcare providers cannot avoid application of the one-year-back rule by filing a placeholder complaint before they have obtained an assignment from their patients.

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