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Michigan Court of Appeals Finds Covenant Is Retroactive, Barring Many Provider Lawsuits Filed Before Its Release

A recent opinion from the Michigan Court of Appeals may clear up much of the ambiguity surrounding the applicability of the Michigan Supreme Court’s 2015 decision in Covenant Med Ctr, Inc v. State Farm Mut Ins Co.

In W.A. Foote Memorial Hospital v. Michigan Assigned Claims Plan, Zoie Bonner was allegedly insured while a passenger in a vehicle driven by her boyfriend, Philip Kerr. The vehicle was owned by Ms. Bonner’s aunt or uncle and insured under an automobile insurance policy issued by Citizens Insurance Company of the Midwest (Citizens). The plaintiff hospital provided emergency services to Ms. Bonner after the accident. Although Citizens was the carrier responsible for paying no-fault benefits under MCL 500.3114(4), it was not identified within the one-year period as required by MCL 500.3145 and was dismissed from the case. Because there was a carrier in priority for payment of benefits under MCL 500.3114(4), the Michigan Assigned Claims Plan (MACP) refused to assign an insurer and Foote commenced litigation against MACP.

While the W.A. Foote case was pending, the Michigan Supreme Court decided Covenant, finding that the Michigan No-Fault Act did not provide medical providers with a separate cause of action against no-fault insurers, such that they could not file suit on their own behalf to recover benefits. In W.A Foote, the Court of Appeals ultimately did not address the underlying issue as to whether or not the MACP had a duty to assign the claim presented to an insurer, but held that by pleading the affirmative defenses of “Plaintiff failed to state a claim upon which relief could be granted,” “Plaintiff lacked standing to sue,” and “Plaintiff did not ‘incur’ the benefits owed,” the MACP had preserved for appellate review the issue of whether the Covenant decision applied retroactively or prospectively. Because the issue was preserved, the need to rule on the MACP’s duty to assign an insurer was rendered moot. The W. A. Foote court chose to resolve the controversy based on the Michigan Supreme Court’s ruling in Covenant.

The W.A. Foote Court engaged in an extensive and detailed analysis of federal and state law regarding Covenant’s prospective vs. retroactive applicability. The Court of Appeals stated that in federal jurisprudence this issue is clear: Harper v. Virginia Dept. of Taxation holds that Supreme Court interpretations of federal law are fully retroactive. The Court of Appeals went on to note that, under Harper, for matters of state law interpretation (such as the Michigan No-Fault Act), state courts could decide for themselves whether to prospectively or retrospectively apply new rulings.

Though it had never officially adopted Harper, the Michigan Supreme Court ruled similarly to, and commented favorably on, Harper in Spectrum Health v. Farm Bureau. The W. A. Foote Court found the rule of Spectrum to be controlling, relying on Spectrum‘s logic:

“The general principle is that a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation and the effect is not that the former decision is bad law, but that it never was the law.”

The W.A. Foote court held that the Michigan Supreme Court in Spectrum “essentially adopted the rationale of the United States Supreme Court in Harper relative to the retroactive applicability of its judicial decisions of statutory interpretation to ‘all cases open on direct review.’” As the Covenant ruling was clearly one of statutory interpretation, the W.A. Foote court found Covenant binding, retroactive, and preserved.

Therefore, the Court of Appeals dismissed Foote’s claims with prejudice as Foote had no direct statutory cause of action to pursue against Defendants.

As a published decision of the Court of Appeals, W.A. Foote will be binding on other Court of Appeals panels and lower courts in Michigan. If a defendant no-fault carrier has properly preserved standard affirmative defenses surrounding a medical provider’s standing to sue and failure to state a claim, then it is clear that the Covenant decision applies regardless of whether it was filed before or after the ruling in Covenant.

Defense attorneys should take this case as instructive to always file affirmative defenses based on what the law could become, and not only what the law currently is, as the Court of Appeals left open whether unpreserved issues would be subject to the recent Covenant decision since that issue was not before the court.

Author: Nicholas A. Tselepis

Nicholas A. Tselepis

Nick Tselepis strives to be the litigator’s litigator by combining his knowledge and fascination of the law, courtroom advocacy talents, and big-picture thinking.

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