Michigan Court of Appeals Addresses Third-Party Beneficiary Theory in No-Fault Actions

A recent decision from the Michigan Court of Appeals offers no-fault insurers reassurance in litigating and resolving third-party reimbursement claims.

In Michigan Head & Spine Institute, P.C. v. Blue Cross Blue Shield of Michigan, Bryan Croteau was involved in a serious truck-motorcycle accident in 2009, and was insured by Auto-Owners Insurance Company at the time. Michigan Head & Spine Institute (MHSI) provided surgical care to Mr. Croteau and billed Blue Cross Blue Shield of Michigan (BCBSM) for its services.

Later, Mr. Croteau filed his own separate no-fault action against Auto-Owners, which the parties settled in 2012. Per the terms of the settlement agreement’s partial release, Auto-Owners was to pay Mr. Croteau’s medical providers for treatment rendered. Upon learning of this partial release, BCBSM sent Auto-Owners a demand letter seeking reimbursement for treatment expenses it paid. Auto-Owners refused to reimburse BCBSM, citing the one-yearback rule in MCL 500.3145.

BCBSM then “clawed back” its payments from MHSI, which prompted MHSI to file a breach of contract suit alleging that BCBSM waited too long to repay itself. Auto-Owners was also added as a defendant, as MHSI claimed to be a third-party beneficiary of the settlement agreement reached between Mr. Croteau and Auto-Owners.

MHSI moved for summary disposition against Auto-Owners, arguing that, under the terms of the settlement agreement, Auto-Owners was responsible for paying all claims for medical care owed to medical providers. The trial court granted the motion and ordered Auto-Owners to pay BCBSM’s bills. The court further ruled that if Auto-Owners wanted to preserve its defenses under the No-Fault Act – including the one-year statute of limitations – the terms should have been included in the settlement agreement’s partial release.

The Court of Appeals reversed the lower court’s ruling, finding that while the release may not have explicitly stated that Auto-Owners’ defenses under the No-Fault Act were preserved, the release also did not signal that Auto-Owners agreed to waive all of the defenses that it might have to future claims. The release was silent as to Auto-Owners’ right to assert defenses such as the application of the one-yearback rule or that the medical charges were unrelated, unreasonable, or unnecessary. The Court of Appeals concluded that, under MHSI’s third-party beneficiary theory, MHSI not only accepted the benefits of the contract between Mr. Croteau and Auto-Owners, but MHSI was also bound by the burdens of that agreement. As such, Auto-Owners was able to use the one-yearback rule as a defense against MHSI’s claim.

No-fault insurance carriers will find the Michigan Head & Spine Institute decision comforting. With knowledgeable and thorough settlement agreements, insurance carriers are assured that settlement releases may be drafted in a way that favorably resolves matters and allows them to defend against future claims without having to explicitly state a defense for each specific circumstance that may arise.

Kyle Warwick’s ability to understand and frame complex issues makes him an important part of our Insurance Coverage and Insurance Defense practice groups.