Michigan Court of Appeals Holds that an Anti-Assignment Provision in a Settlement Agreement Is Valid and Enforceable

Michigan Court of Appeals Holds that an Anti-Assignment Provision in a Settlement Agreement Is Valid and Enforceable


Since the Michigan Supreme Court released Covenant Med Ctr, Inc v State Farm Mut Auto Ins Co, 500 Mich 191; 895 NW2d 490 (2017), the assignment of no-fault benefits to medical providers has been an area of contention. Previously, many insurance carriers included anti-assignment clauses in their policies. But in 2018, the Michigan Court of Appeals issued Jawad A. Shah, MD, PC v State Farm Mut Auto Ins Co, 324 Mich App 182, 200; 920 NW2d 148 (2018). That case held that a clause in an insurance policy prohibiting the assignment of a post-loss, accrued claim to payment was unenforceable, further opening the gates for medical providers to file assignment-based suits against insurance carriers.

However, a recent published opinion by the Michigan Court of Appeals recognizes that insurance carriers can stop their insureds from assigning benefits by including anti-assignment language in their settlement agreements. In Mich Ambulatory Surgical Ctr v Farm Bureau Gen Ins Co of Mich (Docket No. 349706), the Court distinguished Shah, holding that anti-assignment language in a settlement agreement was valid and enforceable.

Background on Mich Ambulatory Surgical Ctr

In 2015, Farm Bureau’s insured, Terry Tracy, sustained injuries in a motor vehicle accident. She sued Farm Bureau, seeking to recover unpaid no-fault benefits. The litigation resulted in a settlement agreement, under which Tracy released her right to past and present no-fault benefits in exchange for $7,500. The agreement recognized that Tracy may accrue additional no-fault benefits related to the 2015 accident in the future. It also stated that she would not assign any of her rights to medical benefits to a provider without Farm Bureau’s written consent.

After the settlement, Tracy continued to receive treatment from various providers, including Plaintiff Michigan Ambulatory Surgical Center. She signed an assignment of benefits, and Michigan Ambulatory sued Farm Bureau for reimbursement of unpaid medical bills.

Farm Bureau moved for summary disposition on the ground that Michigan Ambulatory’s assignment was invalid under the anti-assignment language in the settlement agreement. In response, Michigan Ambulatory relied on Shah, 324 Mich App 182, arguing that the anti-assignment clause was unenforceable as against public policy. Farm Bureau, however, argued that Shah didn’t apply in this case because the anti-assignment language was in a settlement agreement, not a no-fault insurance policy.

The trial court agreed with Michigan Ambulatory and denied Farm Bureau’s dispositive motion. Farm Bureau appealed.

Court of Appeals’ Analysis

The Court of Appeals vacated the trial court’s order in a 2-1 decision.

The Court’s analysis centered on whether the anti-assignment clause in the settlement agreement was invalid under Shah. The majority held that it was valid, reasoning that an anti-assignment provision in a settlement agreement is distinct from an anti-assignment clause in an insurance policy.

In its reasoning, the majority first explained that the relevant statute in the no-fault act, MCL 500.3143, does not prohibit agreements not to assign benefits.

Next, the majority explained that Shah only held that “an anti-assignment clause contained within an insurance policy was unenforceable to prohibit an assignment of an accrued claim because such a prohibition violates Michigan public policy.” Mich Ambulatory, slip op at 4. Shah and the authority on which it relied “concluded that public policy compelled a judicial redrafting of the terms of the respective insurance policies because doing so would not increase an insurer’s liability . . . .” Id.  However, the instant case presented different public policy concerns because the assignment at issue was related to a claim that accrued under a settlement agreement, which was separate from Tracy’s no-fault insurance policy. Invalidating the anti-assignment clause in the settlement agreement may not increase Farm Bureau’s liability under the insurance policy, but it may increase Farm Bureau’s liability under the settlement agreement. Thus, the majority held that Shah did not control the analysis in this case.

Next, the majority declined to extend Shah to the facts before it because “public policy favors freedom of contract and encourages settlements between litigants . . . .” Id. at 5. As a result, holding that the anti-assignment clause was unenforceable would go against public policy. The majority also reasoned that MCL 500.3143’s silence regarding agreements not to assign benefits shows that “parties are free to contract according to their wishes.” Id. at 5-6. Thus, the majority concluded, “Because the anti-assignment provision at issue here does not violate law or public policy identified in our jurisprudence, and because Shah does not apply to the facts of this case, the trial court erred when it concluded that Shah required denial of defendant’s motion for summary disposition.” Mich Ambulatory, slip op at 6.

Judge Brock Swartzle authored a dissent. While he agreed with the majority’s opinion from a philosophical perspective, he believed that the material facts in Shah were indistinguishable from this case. As a result, he concluded that Shah was controlling under the principle of stare decisis, meaning that the ant-assignment clause in the settlement agreement was unenforceable.

What Mich Ambulatory Surgical Ctr Means for No-Fault Insurers

This ruling protects insurance carriers’ ability to control future personal protection insurance (PIP) litigation after a settlement. By including an anti-assignment clause in a settlement agreement, an insurer can have peace of mind knowing that an insured’s ability to recover future benefits will not open the door to multiple provider suits. This will limit the potential cost of future litigation to only one possible claimant: the insured.



If you have questions about the effect of anti-assignment provisions in settlement agreements, please feel free to contact the author, Zabbia N. Alholou. More information about Collins Einhorn’s General and Automotive Liability Practice Group is available here.


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