Grimmett v. Encompass Indemnity Company et al
MEMORANDUM AND ORDER DENYING DEFENDANTS MOTION TO DISMISS (Doc. 97), DENYING DEFENDANTS MOTION TO DISMISS (Doc. 98), AND DENYING DEFENDANTS MOTION FOR JUDGMENT ON THE PLEADINGS (Doc. 99).. Signed by District Judge Avern Cohn. (MVer)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
ESTATE OF TONA GRIMMETT,
MICHIGAN AMBULATORY SURGICAL CENTER,
SOUTHEAST MICHIGAN SURGICAL HOSPITAL, LLC,
OAKLAND MRI, LLC,
Case No. 14-14646
HON. AVERN COHN
ENCOMPASS INDEMNITY COMPANY,
MICHIGAN AMBULATORY SURGICAL CENTER,
OAKLAND MRI, LLC,
ESTATE OF TONA GRIMMETT,
MEMORANDUM AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS
(Doc. 97), DENYING DEFENDANT’S MOTION TO DISMISS (Doc. 98), AND
DENYING DEFENDANT’S MOTION FOR JUDGMENT ON THE PLEADINGS (Doc.
INTRODUCTION AND PROCEDURAL HISTORY
This is an automobile no-fault insurance case involving personal protection
benefits. Plaintiff Brian Grimmett is the personal representative of the estate of Tona
Grimmett (Grimmett),1 who was injured in a motor vehicle accident on March 4, 2013. At
the time of the accident, Grimmett was insured under a no-fault policy issued by
Defendant Encompass Indemnity Company (Encompass) in accordance with
Michigan’s No-Fault Act, M.C.L. § 500.3101, et seq. (No-Fault Act). Grimmett sued
Encompass in the Wayne County Circuit Court (14-005777-NF) because Encompass
refused to cover her medical expenses (Doc. 8).
Plaintiff Michigan Ambulatory Surgical Center, LLC (MASC) also sued
Encompass in the Wayne County Circuit Court (15-014301-NF) for expenses it incurred
performing a lumbar spine fusion surgery on Grimmett following the accident (Doc. 49).
Encompass removed both cases to federal court, where they were consolidated into the
present case (Doc. 27).2
Southeast Michigan Surgical Hospital, LLC (Southeast) intervened as a plaintiff at
the state level (Doc. 1), seeking to recover from Encompass expenses related to a
cervical spine fusion surgery that Southeast performed on Grimmett following the
Oakland MRI, LLC (OMRI) intervened as a plaintiff after the case was removed to
federal court (Doc. 21), seeking to recover from Encompass expenses related to an MRI
scan that OMRI performed on Grimmett following the accident.
On May 25, 2017, the Michigan Supreme Court decided in Covenant Med. Ctr.,
Inc. v. State Farm Mut. Auto. Ins. Co., 500 Mich. 191 (2017) that medical service
Grimmett died on February 25, 2017, for reasons unrelated to the claim in this case
MASC’s case number before consolidation was 15-14249.
providers have no statutory cause of action to collect personal protection insurance
benefits from no-fault insurers under the No-Fault Act. Id. This holding applies
retroactively. W A Foote Mem'l Hosp. v. Michigan Assigned Claims Plan, No. 333360,
2017 WL 3836645, at *14 (Mich. Ct. App. Aug. 31, 2017). In light of Covenant, MASC
and OMRI filed amended complaints (Docs. 93, 94) presenting new theories of recovery
against Encompass. Both parties also brought cross-claims against Grimmett to recover
their expenses. Southeast did not amend its complaint, but has now requested leave to
amend in order to cure any deficiencies revealed by the Court’s ruling on the present
Now before the Court are Encompass’ Motion to Dismiss MASC’s claim pursuant
to Fed. R. Civ. P. 12(b)(6) (Doc. 97), Motion to Dismiss OMRI’s claim pursuant to Fed.
R. Civ. P. 12(b)(6) (Doc. 98), and Motion for Judgment on the Pleadings as to
Southeast’s claim pursuant to Fed. R. Civ. P. 12(c) (Doc. 99). For the reasons that
follow, all three motions are DENIED. Additionally, Southeast is granted leave to amend
A. Fed. R. Civ. P. 12(b)(6)
A Fed. R. Civ. P. 12(b)(6) motion seeks dismissal for a plaintiff’s failure to state a
claim upon which relief can be granted. “To survive a motion to dismiss under Rule
12(b)(6), a ‘complaint must contain either direct or inferential allegations respecting all
the material elements to sustain a recovery under some viable legal theory.’” Advocacy
Org. for Patients & Providers v. Auto Club Ins. Ass’n, 176 F.3d 315, 319 (6th Cir. 1999)
(quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)).
A claim “must be dismissed . . . if as a matter of law it is clear that no relief could be
granted under any set of facts that could be proved consistent with the allegations.”
Neitzke v. Williams, 490 U.S. 319, 327 (1989) (quoting Hishon v. King & Spalding, 467
U.S. 69, 73 (1984)) (internal quotation marks omitted).
B. Fed. R. Civ. P. 12(c)
Fed. R. Civ. P. 12(c) provides that "[a]fter the pleadings are closed—but early
enough not to delay trial—a party may move for judgment on the pleadings." A motion
for judgment on the pleadings under Rule 12(c) utilizes the same standard of review
applicable under Rule 12(b)(6). Wee Care Child Ctr., Inc. v. Lumpkin, 680 F.3d 841, 846
(6th Cir. 2012). Thus, “[f]or purposes of a motion for judgment on the pleadings, all wellpleaded material allegations of the pleadings of the opposing party must be taken as
true, and the motion may be granted only if the moving party is nevertheless clearly
entitled to judgment.” Poplar Creek Development Co. v. Chesapeake Appalachia,
L.L.C., 636 F.3d 235, 240 (6th Cir. 2011).
The most salient among the healthcare providers’ claims are those regarding
assignments and third party beneficiaries, since the Covenant court explicitly left open
the possibility of a provider cause of action based on each theory. MASC and Southeast
argue that Grimmett validly assigned to them her rights to receive payment under her
insurance contract with Encompass. MASC and OMRI argue that they are intended
third party beneficiaries of the contract between Grimmett and Encompass.
The Court will address each claim in turn.
The Michigan Supreme Court explicitly stated in Covenant that “our conclusion
today is not intended to alter an insured's ability to assign his or her right to past or
presently due benefits to a healthcare provider.” Covenant, 500 Mich. at 217 n.40. Thus,
while a health care provider no longer has a statutory cause of action against insurers, it
may still have a contract-based cause of action if there has been a valid assignment of
rights. See Id. at 217 n.39 (acknowledging that contractual causes of action may still
exist). An insurer has standing to “challenge an assignment if that challenge would
render[ ] the assignment absolutely invalid or ineffective, or void.” Conlin v. Mortg. Elec.
Registration Sys., Inc., 714 F.3d 355, 361 (6th Cir. 2013) (quoting Livonia Props.
Holdings, LLC v. 12840–12976 Farmington Rd. Holdings, LLC, 399 F. App’x 97, 102
(6th Cir. 2010)) (internal quotation marks omitted). Here, Encompass has standing to
challenge the assignments because it argues that the assignments are invalid.
In its amended complaint, MASC alleges that the assignment of rights Grimmett
signed on the day of her treatment (Doc. 93)3 entitles it to receive payment directly from
Encompass for the services rendered. Encompass says the assignment is invalid and
unenforceable for several reasons: (1) the assignment mentioned only the name
“Specialty Surgical Center” and did not reference “Michigan Ambulatory Surgical
“[W]hen a document is referred to in the pleadings and is integral to the claims, it may
be considered without converting a motion to dismiss into one for summary judgment.”
Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335–36 (6th Cir.
Center;” (2) the assignment was for future, not present rights under the policy because
proof of reasonableness has to be submitted to the insurer before payment becomes
due; (3) the assignment was not notarized, and it was not clear that MASC
unambiguously accepted Grimmett’s offer to assign rights; (4) the assignment did not
comply with the Statute of Frauds because it was not signed by a MASC representative;
(5) the assignment did not provide for the right to sue both the insurer and Grimmett;
and (6) the policy contained an anti-assignment clause.
As previously mentioned, Southeast did not file an amended complaint after
Covenant. In its response to Encompass’ motion for judgment on the pleadings,
however, Southeast asserts that it had a valid assignment of rights from Grimmett. The
Court therefore allows Southeast to amend its complaint to include relevant arguments
regarding an assignment of rights. See Fed. R. Civ. P. 15(a)(2) (“The court should freely
give leave” to amend pleadings.).
Encompass advances many of the same arguments in opposition to Southeast’s
assignment as it did regarding MASC’s assignment, namely that: (1) Southeast’s exact
name does not appear on the assignment; (2) the assignment was for future benefits;
(3) it is not clear that there was an offer and acceptance of the assignment; (4) the
assignment violates the Statute of Frauds; and (5) the insurance contract contained an
anti-assignment clause. In addition, Encompass argues that the assignment was not
supported by consideration.
Michigan law provides that “[a] domestic or foreign corporation may transact
business under any assumed name or names other than its corporate name.” Mich.
Comp. Laws § 450.1217. “[T]he obvious purpose of the [assumed name] statute is to
inform the public with whom it is dealing, and thereby serve its convenience and to
prevent imposition and fraud.” Bankers Tr. Co. v. Bradfield, 324 Mich. 116, 123 (1949)
(internal quotation marks omitted). This means that “[a] corporation that has complied
with this statute has notified the public constructively regarding its assumed name.
Accordingly, parties contracting with agents of the corporation operating under the
assumed name cannot claim that they were without notice regarding the existence or
identity of the corporation.” Penton Pub., Inc. v. Markey, 212 Mich. App. 624, 627
Michigan courts have also declined to allow a party to avoid a contract even
though an assumed name certificate was not filed. See, e.g. People's State Bank v.
Trombly, 241 Mich. 199, 208 (1928); Rossello v. Trella, 206 Mich. 20, 24 (1919). While
an assignment and a contract are not the same in all respects, both involve
manifestation of intent toward the other party. See Burkhardt v. Bailey, 260 Mich. App.
636, 654–55 (2004); W. Michigan Univ. Bd. of Trustees v. Slavin, 381 Mich. 23, 31
(1968) (“An offer is a unilateral declaration of intention.”). Thus, where the identity of an
assignee is at issue, Michigan law regarding contracts entered into under an assumed
name can be applied.
Here, in each case Grimmett knew she was assigning her rights to the hospital
that was about to perform surgery. Since MASC filed a Certificate of Assumed Name
before the date of the surgery,4 Grimmett was on constructive notice that Specialty
Surgical Center and MASC were the same entity. Therefore, whether or not she actually
knew the correct name of the hospital is irrelevant to determining the validity of the
Because Southeast only showed it had an assignment in its response to
Encompass’ motion, it did not have a chance to respond to the name argument in
Encompass’ reply. As such, it has not provided documentation showing that “Michigan
Surgical Hospital,” the name that appears on the assignment, is the same entity as
“Southeast Michigan Surgical Hospital.” It is for this reason also that the Court grants
leave for Southeast to amend its complaint.
Assignment of Present Rights
In Michigan, an assignment is valid “if it clearly reflects the intent of the assignor
to presently transfer ‘the thing’ to the assignee.” Burkhardt v. Bailey, 260 Mich. App.
636, 654–55 (2004). As the Covenant court noted, only past or present rights to
insurance benefits are assignable. Covenant, 500 Mich. at 217 n.40; Mich. Comp. Laws
§ 500.3143 (providing that assignments of future rights are void). Therefore, the Court
must determine “whether the assignment in question purports to assign only past due
and presently due benefits or whether it purports to assign future benefits as well.” Prof'l
Rehab. Assocs. v. State Farm Mut. Auto. Ins. Co., 228 Mich. App. 167, 172 (1998).
MASC attaches to its brief a document from the Michigan Department of Licensing
and Regulatory Affairs showing that the two entities are the same. “A court may
consider matters of public record in deciding a motion to dismiss without converting the
motion to one for summary judgment.” Commercial Money, 508 F.3d at 336.
In Aetna Cas. & Sur. Co. v. Starkey, 116 Mich. App. 640 (1982), the Michigan
Court of Appeals refused to enforce an assignment of benefits that “would become
payable” over the course of a hospitalization. Id. at 642, 646. In contrast, the
assignment from Grimmett to MASC reads “I hereby assign to Specialty Surgical Center
(the ‘Center’) my rights to collect no-fault insurance from my auto insurer for my care at
the Center.” (Doc. 93). The assignment from Grimmett to Southeast reads “I assign and
authorize payment directly to Michigan Surgical Hospital of any healthcare benefits that
I am entitled to receive.” (Doc. 100). Unlike in Starkey, the language in both
assignments is entirely in the present tense, the treatment at each center consisted of
one discrete operation, and Grimmett signed the assignments on the same days the
respective operations were performed. Since the No-Fault Act provides that “[p]ersonal
protection insurance benefits are payable as loss accrues,” Mich. Comp. Laws §
500.3142(1), Grimmett essentially assigned her rights as they came into existence.
Therefore, the MASC and Southeast assignments referred to present rights and are not
void under Mich. Comp. Laws § 500.3143. See Prof’l Rehab, 228 Mich. App. at 173-74
(finding present-tense assignment valid to the extent it referred to past or present
Encompass is incorrect to rely on subsection (2) of § 500.3142, which provides
that “[p]ersonal protection insurance benefits are overdue if not paid within 30 days after
an insurer receives reasonable proof of the fact and of the amount of loss sustained.”
Mich. Comp. Laws § 500.3142(2). Subsection (2) only describes when benefits are
overdue, not when they first become due.
Michigan courts have enforced anti-assignment clauses that prohibit assignment
of future benefits, but not those that prohibit assignment of accrued losses. Covenant
Med. Ctr., Inc. v. Auto-Owners Ins. Co., No. 17-CV-11176, 2017 WL 4572327, at *4
(E.D. Mich. Oct. 13, 2017) (“[Under] Michigan law . . . . an anti-assignment clause will
not be enforced where a loss occurs before the assignment, because in that situation
the assignment of the claim under the policy is viewed no differently than any other
assignment of an accrued cause of action.”) (quoting Century Indem. Co. v. Aero-Motive
Co., 318 F. Supp. 2d 530, 539 (W.D. Mich. 2003)). See also Roger Williams Insurance
Co. v. Carrington, 43 Mich. 252 (1880) (“the provision of the policy forfeiting it for an
assignment without the company's consent is invalid, so far as it applies to the transfer
of an accrued cause of action”); In re Jackson, 311 B.R. 195, 201 (Bankr. W.D. Mich.
2004) (“This finding is based on the theory that once a party to a contract performs its
obligations to the point that the contract is no longer executory, its right to enforce the
other party's liability under the contract may be assigned without the other party's
consent, even if the contract contains a non-assignment clause.”) (citing Detroit, T. &
I.R. Co. v. Western Union Telegraph Co., 200 Mich. 2 (1918)).
Since the Court has already determined that Grimmett made the assignments at
the same time her losses accrued, it declines to enforce the anti-assignment clause.
This is a sound result because Michigan law does not support the upholding of
contractual provisions in insurance policies that are contrary to public policy. See Farm
Bureau Mut. Ins. Co. of Michigan v. Nikkel, 460 Mich. 558, 568 (1999) (quoting Raska v.
Farm Bureau Mut. Ins. Co. of Michigan, 412 Mich. 355, 361-62 (1982)). Allowing
insurers to prevent the assignment of accrued claims would unfairly disadvantage
insureds without providing any benefit to the insurers other than the avoidance of
obligations already incurred. See Wonsey v. Life Ins. Co. of N. Am., 32 F. Supp. 2d 939,
943 (E.D. Mich. 1998) (“The rationale behind these cases is derived from the implicit
recognition that the obligor . . . would not suffer any harm by a mere assignment of
payments under a contract. Harm to obligor would result, however, in cases involving . .
. situations where the duties owed to the parties may change depending on the identity
of the assignee.”); cf. McHugh v. Manhattan Fire & Marine Ins. Co., 363 Mich. 324, 328
(1961) (upholding anti-assignment provision where “the identity of the insured is a
matter of importance to the insuring company.”).
Further, lower Michigan courts have emphasized that Michigan statutes prohibit
contract terms that prevent assignment of health insurance receivables. Mich. Spine &
Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., No. 17-158827-NF (Oakland
Cty. Cir. Ct. Aug. 9, 2017); Vision Specialists of Mich. v. Amica Mut. Ins. Co., No. 1731719-GC-2 (Oakland Cty. Dist. Ct. Oct. 13, 2017). Specifically, Michigan’s
implementation of the Uniform Commercial Code (UCC) provides:
(1) Except as otherwise provided in subsection (2) or (4), a term in a promissory
note or in an agreement between an account debtor and a debtor that relates to
a health-care-insurance receivable or a general intangible, including a contract,
permit, license, or franchise, and which term prohibits, restricts, or requires the
consent of the person obligated on the promissory note or the account debtor to,
the assignment or transfer of, or creation, attachment, or perfection of a security
interest in, the promissory note, health-care-insurance receivable, or general
intangible, is ineffective to the extent that the term does 1 or more of the
(a) Would impair the creation, attachment, or perfection of a security interest.
(b) Provides that the assignment or transfer or the creation, attachment, or
perfection of the security interest may give rise to a default, breach, right of
recoupment, claim, defense, termination, right of termination, or remedy under
the promissory note, health-care-insurance receivable, or general intangible.
Mich. Comp. Laws § 440.9408. The scope provision of the Michigan UCC includes “an
assignment by or to a health-care provider of a health-care-insurance receivable and
any subsequent assignment of the right to payment.” Mich. Comp. Laws §
440.9109(4)(h). Thus, Encompass’ anti-assignment clause is also invalid by statute.
Encompass’ other arguments with respect to the assignments do nothing to
advance its case. Since only the intent of the assignor is relevant to creating a valid
assignment, notarization and “acceptance” by the assignee are not necessary.
Grimmett’s signature on the assignment forms sufficiently manifests her intent to assign
her right to insurance benefit payments to MASC and Southeast.
Further, the Michigan Statute of Frauds provides that an “assignment of things in
action” must be in writing and signed “by the party to be charged.” Mich. Comp. Laws §
566.132. Assuming without deciding that the rights assigned in this case were “things in
action,” MASC is correct to point out that Grimmett is the party to be charged. Since
Grimmett’s signature does appear on the assignments, this argument fails.
MASC is also correct to argue that it may sue both Grimmett and Encompass at
the same time, as the assignment provides that “I [Grimmett] recognize and agree that
this assignment of rights simply allows the Center to collect bills for my care at the
Center directly from my auto carrier; it does not relieve me of my obligation for payment
of any medical bills for my care at the Center.” (Doc. 93) (emphasis in original). Thus,
were MASC unable to recover its expenses from Encompass, it would still have a valid
claim against Grimmett. Fed. R. Civ. P. 8(d)(3) allows a party to bring inconsistent
claims at the same time.
Finally, it is axiomatic that assignments do not need consideration to be valid.
Coe v. Hinkley, 109 Mich. 608, 611-12 (1896).
B. Third-Party Beneficiary
Parties who are intended third-party beneficiaries to a contract may sue on the
contract, but parties who are merely incidental third-party beneficiaries may not.
Brunsell v. City of Zeeland, 467 Mich. 293, 296 (2002). In Covenant, the Michigan
Supreme Court did not prohibit healthcare providers from suing insurers as intended
third-party beneficiaries to an insurance contract:
While defendant argues that a provider likewise possesses no contractual right to
sue a no-fault insurer given that healthcare providers are incidental rather than
intended beneficiaries of a contract between the insured and the insurer, this
Court declines to make such a blanket assertion. That determination rests on the
specific terms of the contract between the relevant parties.
Covenant, 500 Mich. at 217 n.39. The majority cited Schmalfeldt v. N. Pointe Ins. Co.,
469 Mich. 422 (2003), in which it was held that “[a] person is a third-party beneficiary of
a contract only when that contract establishes that a promisor has undertaken a
promise directly to or for that person.” Id. at 428 (citing Mich. Comp. Laws § 600.1405).
Further, “[a]n objective standard is to be used to determine, from the form and meaning
of the contract itself . . . whether the promisor undertook to give or to do or to refrain
from doing something directly to or for the person claiming third-party beneficiary
status.” Id. (citation omitted).
In order to designate a party as an intended third-party beneficiary to a contract,
Michigan courts have required that the contract identify either the party itself or the
reasonably specific class to which the party belongs. In Schmalfeldt, the Michigan
Supreme Court held that a member of the public who had been injured in a bar fight
was not an intended third-party beneficiary of the bar’s commercial insurance policy
[n]othing in the insurance policy specifically designates Schmalfeldt, or the class
of business patrons of the insured of which he was one, as an intended thirdparty beneficiary of the medical benefits provision. At best, the policy recognizes
the possibility of some incidental benefit to members of the public at large, but
such a class is too broad to qualify for third-party status under the statute.
Id. at 429. See also Shay v. Aldrich, 487 Mich. 648, 665 (2010) (finding that police
officers qualified as intended third-party beneficiaries where contract unambiguously
referenced “all other persons”); Koenig v. City of S. Haven, 460 Mich. 667, 683-84
(1999) (finding “the public” as an implied beneficiary to be too broad to qualify as a
reasonably identified class); Benefield v. Cincinnati Ins. Co., No. 300307, 2013 WL
1149552, at *6 (Mich. Ct. App. Mar. 19, 2013) (finding that a group of “140 unit
members” was “sufficiently identifiable.”); Vanerian v. Charles L. Pugh Co., 279 Mich.
App. 431, 436 (2008) (holding that the plaintiff was a third-party beneficiary because
she was “expressly referred to in the contract.”); A.B. Petro Mart, Inc. v. Ali T. Beydoun
Ins. Agency, Inc., 317 Mich. App. 290, 298 (2016) (declining to find that plaintiff was a
third-party beneficiary because “the insurance contract simply does not refer to” him).
Requiring that a third-party beneficiary class be sufficiently specific “assure[s] that
contracting parties are clearly aware that the scope of their contractual undertakings
encompasses a third party, directly referred to in the contract, before the third party is
able to enforce the contract.” Koenig, 460 Mich. at 677.
Since Covenant, one Michigan lower court has found that healthcare providers
are intended third-party beneficiaries of no-fault insurance contracts because of the
nature of the no-fault system:
One of the primary purposes of an auto insurance policy is to insure the policy
holder and cover any medical expenses that the policy holder may have that are
related to an auto accident. Even though a specific medical provider is not a
known or named party to the contract, they are certainly contemplated in the
Advanced Spine & Headache Ctr. v. 21st Century Centennial Ins. Co., No. 17-30412GC-2 (Oakland Cty. Dist. Ct. Oct. 10, 2017); see also Vision Specialists, No. 17-31719GC-2 at 3. The court in these cases declined to apply Schmalfeldt in the no-fault
context, reasoning that:
In Schmalfeldt . . . . [t]here was no promise to directly benefit the patron. In the
instant case, the insurance policy between the injured and Defendant is for the
sole purpose of covering the injured’s medical bills resulting from an auto
accident. It is intended to cover the exact services at issue here, coverage that
directly benefits the medical providers. This is a distinction with a signinficant [sic]
Advanced Spine, No. 17-30412-GC-2 at 3 n.1. This is in keeping with the fact that the
Michigan Supreme Court has considered the purpose of a contract and the statutory
scheme underlying a contract in deciding whether plaintiffs were intended third-party
beneficiaries. See Brunsell, 467 Mich. at 298 (“[T]he contractual provision at issue was
intended to delineate the obligations of the city and the bank with regard to the
premises, not to directly benefit third parties.”); Blackwell v. Citizens Ins. Co. of Am.,
457 Mich. 662, 668 (1998) (“We note that plaintiff may reasonably be viewed as an
intended third-party beneficiary of the contract between Citizens and her employer. This
Court has held that the legislative policy behind the WDCA is to provide financial and
medical benefits to the victims of work-connected injuries in an efficient, dignified, and
certain form.”) (internal quotation marks omitted); see also Vanerian, 279 Mich. App.at
436 (2008) (“[T]he whole and singular purpose of the contract was to secure repairs to
the flooring in plaintiff's basement.”).
Here, the language of the contract between Grimmett and Encompass reads:
C. Covered person as used in this endorsement means:
1. You or any family member injured in an auto accident;
2. Anyone else injured in an auto accident;
a. While occupying your covered auto; or
b. If the accident involves any other auto:
(1) Which is operated by you or any family member; and
(2) To which Personal Liability Motor Vehicle of this policy applies.
c. While not occupying any auto if the accident involves your covered
II.A. We will pay personal injury protection benefits to or for a covered person
who sustains bodily injury.
[P]ersonal injury protection benefits consist of the following:
1. Medical expenses. Reasonable and necessary medical expenses incurred
for a covered person’s:
b. Recovery; or
While Covenant cited Schmalfeldt for the proposition that intended third-party
beneficiary status “rests on the specific terms of the contract between the relevant
parties,” Covenant, 500 Mich. at 217 n.39, it does not follow that the Michigan Supreme
Court meant to imply that the same level of specificity required of the premises liability
insurance contract in Schmalfeldt would also be required of a no-fault insurance
contract. In fact, the third-party beneficiary question was not considered in Covenant
because it had not been raised by the parties. Id. OMRI aptly argues that the no-fault
insurance system is structured in such a way that benefit payments can be made
directly from the insurer to the healthcare provider, meaning that the insurer necessarily
knows that healthcare providers will directly benefit from the contract between the
insurer and insured.
The language of the present contract can be condensed to “[w]e will pay . . . .
reasonable and necessary medical expenses . . . . to or for a covered person who
sustains bodily injury.” (Doc. 97) (emphasis added). Since it includes the word “for” in
addition to the word “to,” the contract contemplated payment to third parties on behalf of
the insured, and the most obvious parties to which payments for medical expenses
would be made are healthcare providers. While the Michigan Supreme Court warned
against implying a class of third-party beneficiaries in Koenig, 460 Mich. at 683, it also
stated in that case that the purpose of the word “directly” in Mich. Comp. Laws §
600.1405 is to make parties aware that their contracts involve a third party. Id. at 677.
When they enter into a no-fault contract, insurers already know that healthcare
providers will benefit from insurers’ payments, and healthcare providers are not as
broad a class as “the public” in Koenig. The Court therefore finds that MASC and OMRI
are intended third beneficiaries of Grimmett and Encompass’ insurance contract.
The Court is not persuaded by the parties’ other arguments. However, it will
briefly address them in the interest of completeness.
One Year Back Rule
Encompass says that because MASC and OMRI filed amended complaints more
than one year after the respective procedures were performed, their claims are barred
by the “one year back” rule articulated in Mich. Comp. Laws § 500.3145:
An action for recovery of personal protection insurance benefits payable under
this chapter for accidental bodily injury may not be commenced later than 1 year
after the date of the accident causing the injury unless written notice of injury as
provided herein has been given to the insurer within 1 year after the accident. . .
[in which case] the action may be commenced at any time within 1 year after the
most recent allowable expense, work loss or survivor's loss has been incurred.
Id. Encompass is incorrect. The date of the amended complaints is irrelevant since Fed.
R. Civ. P. 15(c)(1)(B) allows an amended pleading to relate back to the date the original
pleading was filed if the amended pleading asserts a claim arising from the same
transaction or occurrence described in the original pleading. That is the case here.
OMRI alleges that it is a “secured lien holder and creditor” of Grimmett because
Grimmett signed a Payment Policy contracting to pay for all medical services rendered
(Doc. 94). OMRI also alleges that it has a “perfected security interest in the payment of
services by Defendant Encompass.” (Id.). Because Encompass has the duty to
indemnify Grimmett under the No-Fault Act, OMRI says that it is entitled to enforce its
lien and receive the amount owed directly from Encompass.
OMRI is correct to state that it has a security interest against Grimmett, but
claiming that Encompass has a statutory duty to indemnify Grimmett and pay OMRI
directly is just another way of describing the statutory cause of action now prohibited by
Covenant. The Payment Policy Grimmett signed expressly states “[p]lease be aware
that the balance of your claim is your responsibility whether or not your insurance
company pays your claim. You [sic] insurance benefit is a contract between you and
your insurance company.” (Id.). Thus, the policy only describes the obligations between
OMRI and Grimmett, and contains no language giving OMRI an interest in payments
OMRI also alleges that it has standing to enforce its lien under the No-Fault Act
because Covenant does not apply to intervenors. OMRI relies on Michigan State AFLCIO v. Miller, 103 F.3d 1240 (6th Cir. 1997), in which the Sixth Circuit stated that “an
intervenor need not have the same standing necessary to initiate a lawsuit.” Id. at 1245.
OMRI says it has a direct interest in the outcome of the case and thus should be
allowed to proceed as an intervenor. OMRI also relies on Michigan cases and court
rules, but this Court will only consider federal procedural rules under the wellestablished principle espoused in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).
Encompass says that OMRI and Grimmett are seeking different relief, which
prohibits OMRI from intervening according to Town of Chester, N.Y. v. Laroe Estates,
Inc., 137 S. Ct. 1645 (2017), in which the Supreme Court held that “at the least, an
intervenor of right must demonstrate Article III standing when it seeks additional relief
beyond that which the plaintiff requests.” Id. at 1651.
Encompass is correct that OMRI and Grimmett are seeking different relief
because OMRI would be seeking a money judgment in its own name. Since the
Supreme Court specifically stated that different relief “includes cases in which both the
plaintiff and the intervenor seek separate money judgments in their own names,” Id.,
OMRI cannot use intervention as a means of bypassing Covenant.
Sufficiency of Pleading
Encompass also challenges Southeast’s complaint on the grounds that the
allegations are bare and conclusory, arguing that Southeast should have specified
which “terms and conditions” of the insurance policy created Encompass’ obligation
toward Grimmett. Since the Court grants Southeast leave to amend its complaint, this
argument is moot.
In sum, the claims of all three healthcare provider plaintiffs survive their
respective motions to dismiss. The assignment from Grimmett to MASC was valid,
OMRI is an intended third-party beneficiary to the contract between Grimmett and
Encompass, and Southeast would likely have a valid cause of action based on
assignment after amending its complaint.
An additional comment is in order. While the Covenant majority found that
healthcare providers could receive benefit payments under the No-Fault Act, it also said
that the right to receive payments did not create a cause of action. Following that
reasoning, however, the No-Fault Act also did not expressly create a cause of action
even for the injured person. Covenant, 500 Mich. at 221 (Bernstein, J., dissenting).
The statutory language interpreted by the Michigan Supreme Court in Covenant
was present in the original 1973 No-Fault Act and remains largely unchanged. See
1972 Mich. Pub. Act No. 294. Since then, healthcare providers have relied on the NoFault Act (which requires all people to be insured) to get paid for the services they
provide to patients. At least since the 1980’s, healthcare providers have brought suits or
intervened in suits against insurers in order to protect their own interests by advocating
for insureds. See, e.g. Dean v. Auto Club Ins. Ass'n, 139 Mich. App. 266 (1984);
Johnson v. Michigan Mut. Ins. Co., 180 Mich. App. 314 (1989); LaMothe v. Auto Club
Ins. Ass'n, 214 Mich. App. 577 (1995); Wyoming Chiropractic Health Clinic, PC v. AutoOwners Ins. Co., 308 Mich. App. 389 (2014). The Covenant decision has now given the
insurance world an unexpected arrow in its quiver that is to the detriment of the broader
purposes of the no-fault scheme.
A statutory interpretation principle enunciated in the sixteenth century is still to be
heeded today: that judges must seek to ascertain “[w]hat was the mischief and defect
for which the common law did not provide.” Heydon's Case, 76 Eng. Rep. 637, 638
(Ex. 1584). In 1973, the No-Fault Act endeavored to cure at least three forms of
mischief: inefficient and expensive litigation, high healthcare costs, and the reality that
many plaintiffs injured in automobile accidents were not adequately compensated. See
Dean, 139 Mich. App. At 273; McKendrick v. Petrucci, 71 Mich. App. 200, 206 (1976);
Shavers v. Kelley, 402 Mich. 554, 579-80 (1978); In re Requests of Governor & Senate
on Constitutionality of Act No. 294 of Pub. Acts of 1972, 389 Mich. 441, 491 (1973); see
also James T. Mellon & David A. Kowalski, The Foundations and Enactment of
Michigan Automobile No-Fault Insurance, 87 U. Det. Mercy L. Rev. 653, 677 (2010).
Thus, imposing barriers to providers being assured payment does not make good
sense. Barriers result in a less efficient litigation process, an increase in healthcare
costs, and the elimination of a significant source of plaintiff advocacy.
UNITED STATES DISTRICT JUDGE
Dated: November 21, 2017
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