Covenant Update: Michigan Court of Appeals Holds Anti-Assignment Language in Insurance Policy Unenforceable

In a recent published opinion, the Michigan Court of Appeals held that a medical provider is entitled to pursue no-fault PIP claims against an insurer based on an assignment of rights from a patient.

The court also held that an anti-assignment provision in an insurance policy is unenforceable because it is against public policy, but any claims asserted by a medical provider on the basis of an assignment are barred if they were incurred more than one year before the assignment.

In Jawad A. Shah, M.D., P.C., et al. v State Farm Mut Auto Ins Co, four medical providers filed suit to recover payment for services rendered to George Hensley, State Farm’s insured, for injuries allegedly sustained in a motor vehicle accident. State Farm asserted that the medical providers lacked a statutory cause of action under the Michigan Supreme Court’s prior decision in Covenant v State Farm Mut Auto Ins Co.  After the Covenant opinion was released, however, the medical providers obtained an assignment of rights from Hensley and sought leave to file an amended complaint asserting the assignment of rights as the basis for their claims.

State Farm opposed the motion, arguing that the anti-assignment clause in its policy rendered the assignment void.  State Farm also argued that even if the assignment was valid, the medical providers’ claims (or at least a portion of the claims) would be barred by the one-year-back rule in MCL 500.3145(1) because the relation-back doctrine would not apply to the proposed amended complaint, as the assignment did not exist at the time the providers filed the original complaint.

The Court of Appeals provided clarity to a number of legal issues raised in the wake of Covenant.  First, the court affirmed that Covenant applies retroactively.  Second, relying upon the precedent of Roger Williams Ins Co v Carrington, a Michigan Supreme Court case from 1880, the court held that the anti-assignment clause in the State Farm policy was void because it was against public policy.  The court reaffirmed the principle that an accrued cause of action after a loss has occurred can be assigned by an insured.  The court reasoned that the medical providers obtained an assignment from Hensley after he received the medical treatment at issue, which then became an accrued a cause of action against State Farm.

Finally, the Court of Appeals addressed the relation-back issues raised by State Farm.  The court held that Hensley could only assign the rights available to him on the date the assignment was executed. Because Hensley would be barred from recovering any benefits incurred more one year prior to any suit that he might file against State Farm, so too were the medical providers precluded from claiming any portion of benefits that were incurred more than one year before the date of the assignment from Hensley to the providers.

The binding precedential effect of the court’s opinion will bring consistency to no-fault medical provider litigation and to the divergent approaches previously taken by different district and circuit courts.

Danielle DePriest is dedicated to effectively and efficiently achieving the best possible results in the insurance defense cases she handles.

Danielle’s interest in public policy led her to the practice of law. She earned a Bachelor of Arts from the University of Michigan’s Gerald R. Ford School of Public Policy, and served as Vice Chair of American Movement for Israel and Chair of the Programming Board for Michigan Hillel.