COMMENTARY: Two consecutive court decisions from the state Supreme Court that have insurers scratching their heads

By Karen Libertiny Ludden

The two recent Michigan Supreme Court decisions of Perkovic v Zurich American Ins Co and Covenant Medical Center v State Farm Mut Ins Co — which were argued on the same day but decided six weeks apart — have left Michigan No-Fault insurers wondering what in the world the Court intended. 

This is because Perkovic decided what constituted adequate notice by medical care providers, while the Covenant decision then abolished such direct action suits. So why would the Supreme Court do that? 

The answer may lie beneath the surface, or may merely reflect the sequence of events. Only time will tell.

In Perkovic, which was decided April 14, 2017, the plaintiff was a Michigan resident operating a semi rig in Nebraska when he swerved to avoid hitting another car. 

He crashed into a wall and was treated by the Nebraska Medical Center. At the time of the accident, Citizens provided his PIP insurance, Hudson provided a bobtail policy and Zurich provided workers’ compensation. 

The claimant brought timely PIP claims against Citizens and Hudson, but did not add Zurich until 13 months after the accident. Nebraska Medical Center did, however, timely send Zurich
its invoices, plaintiff’s medical records, a summary of the accident, and the plaintiff’s name and address. 

Zurich denied payment, returned the bills and records and responded “no injury report on file for this person.”

The Michigan No-Fault statute states that a claimant has one year after the date of the accident to file suit “unless written notice of injury as provided herein has been given to the insurer within one year after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury. If the notice has been given or a payment has been made, the action may be commenced at any time within one year after the most recent allowable expense, work loss or survivor’s loss has been incurred ... The notice of injury required by this subsection may be given to the insurer or any of its authorized agents by a person claiming to be entitled to benefits therefor, or by someone in his behalf. 

The notice shall give the name and address of the claimant and indicate in ordinary language the name of the person injured and the time, place and nature of his injury.” MCL 500.3145(1).
In a rare decision joining all but one of the conservative majority with the more liberal judges, the Michigan Supreme Court ruled that, since the correspondence to Zurich included the name and address of the claimant and the time, place and nature of his injury, it satisfied the literal language of the statute’s requirements. 

It further held that the term “by a person claiming to be entitled to benefits therefor, or by someone in his behalf,” meant that a provider could give that notice, even if there was no suit at the time and the provider itself did not ultimately bring the suit. 

The Court reasoned that the statute “contains no temporal requirement that the insured be claiming benefits at the time the notice of injury is transmitted to the insurer.” 

The sole dissent, retiring Justice Young, disagreed on this last point, stating that the person giving notice must in fact be ‘claiming to the be entitled to benefits at the time that person
notifies the insurer.’” (Emphasis in original.)

Then came the Covenant decision on May 25, 2017, just six weeks later. 

There, the Court unequivocally held that there was absolutely no language in the Michigan No Fault Act that created a cause of action for providers to bring direct action suits against insurers for payment of their treatment. 

In a well-reasoned decision, the Court held that “a review of the plain language of the no-fault act reveals no support for plaintiff’s argument that a healthcare provider possesses a statutory cause of action against a no-fault insurer.” 

There, the claimant settled his case with the insurer for a sum certain, executing a broad release of all no-fault expenses including medical bills and “any and all past and present claims incurred through January 10, 2013.” 

The Court held that the medical care provider could not seek payment of its billed expenses in a direct action.

So read together, what do these two cases mean? Why would the Supreme Court issue them sequentially, rather than either joining them, or at least referencing each other to give insurers a roadmap as to how to interpret their combined impact? 

One possibility is that the Court was simply trying to address only the narrow issues specifically raised by each case; in Perkovic, whether another entity in addition to the insured could give notice sufficient to trigger tolling and what constituted proper notice under the statute, and in Covenant, whether direct provider suits were permitted at all. 

A review of Perkovic now that we know what Covenant holds shows telltale markers of this intent. 

First, Perkovic appears to contain a very deliberate discussion of only two issues; who can provide notice on behalf of a claimant and what must that notice contain. Second, it steps very carefully around addressing provider suits. It could do that because there was no provider suit actually involved in that case. 

Only the claimant was bringing suit; the provider’s notice was simply deemed adequate on behalf of the claimant.

Another potential reason might be as simple as the Court’s desire to decide the cases in the order in which they were presented to the Court. 

Perhaps the Court was merely following judicial etiquette and allowing each party its day to be heard, leaving it to insurers to piece together the joint meaning of these decisions, like they are expected to do with all decisions.

Another explanation could be that the Court was articulating in Perkovic what providers would have to do to put a carrier on notice of a lien, so that settlements would not be paid to a claimant while the lien existed. 

While there is no statutory right to such a lien in the No-Fault Act, like there is for a construction lien or a Medicare lien, perhaps the Court was paving the way for a judicial or “charging” lien, much like the common law attorney’s lien recognized by Michigan Courts for decades.

At present, the only thing we do know is that insurers must follow the two decisions as best they can and respond to whatever providers will bring as arguments to circumvent their now limited remedies. 

What is clear from these two decisions is that providers cannot bring direct action suits against insurers, but they can give notice of claims on behalf of the insured if they satisfy all statutory requirements. The rest will be revealed in the next round of cases.
Karen Libertiny Ludden is an attorney and shareholder at Maddin Hauser.