Covenant v. State Farm

In 1972, the Michigan Legislature enacted the Michigan no-fault insurance act,[1] which became effective on October 1, 1973.  One avowed purposes of the no-fault act was to reduce litigation related to automobile accidents.  In 2016, the last year for which annual statistics are available, however, almost half of all civil cases pending in Michigan trial courts were related to automobile negligence claims.  Therefore, it is not surprising that one of the most significant decisions by the Michigan Supreme Court in 2017 related to the interpretation of the Michigan no-fault insurance act: Covenant Medical Center, Inc. v. State Farm, 500 Mich. 191; 895 N.W.2d 490 (2017).

To try to achieve the Legislature’s goal of reducing litigation, the no-fault act abolished all tort liability arising out of automobile accidents except as otherwise provided by the no-fault act.[2]  The act also created statutory causes of action to allow persons injured in an accident to recover for medical benefits and wages loss from their insurance carriers and for non-economic damages from a driver who had caused the accident.[3]  The question before the Michigan Supreme Court in Covenant was whether the no-fault statute also created a cause of action to allow healthcare providers to sue insurance carriers directly to recover for the value of the services performed by the providers.  A series of published and unpublished decisions by the Michigan Court of Appeals had long recognized such a cause of action, but the Michigan Supreme Court had never considered the issue before Covenant.

In a decision authored by Michigan Supreme Court Justice Brian K. Zahra, Covenant held that the Michigan no-fault act did not create a statutory cause of action for health care providers.  In this decision, Justice Zahra restated the well-known legal principles that interpreting statutes begins with the text of the statute and that Michigan courts enforce clear and unambiguous statutes as written.  The opinion then determined if the Michigan Court of Appeals had followed these guiding principles when recognizing the existence of a direct cause of action for healthcare providers.  After a careful review, Justice Zahra concluded that the Court of Appeals decisions had not performed the required statutory analysis before finding that this cause of action existed.

As a result, the Covenant opinion then turned to the text of the no-fault act that had been cited by the plaintiff to justify a finding that healthcare providers had a direct cause of action.  Covenantconfirms that following statutory language is not always a simple task.  Instead, in cases being faithful to the law that exists may require a very careful parsing of the words that were chosen by the Legislature to determine what the statute requires.  The Covenant decision exhaustively reviewed the text, sentence by sentence, before holding that the Michigan no-fault act does not create the direct cause of action that the healthcare provider believed existed.  Therefore, it reversed the Court of Appeals and reinstated the trial court decision dismissing the provider’s claims with prejudice.

Critics of the result in Covenant offer many reasons why healthcare providers should be able to pursue a direct cause of action against insurance carriers of persons they have treated.  In reaching its decision, the Michigan Supreme Court followed the language of the no-fault act as it currently exists because “ ‘it is to the words of the statute itself that a citizen first looks for guidance in directing his actions’ because ‘the essence of the rule of law’ is ‘to know in advance what the  rules of society are’ ”.[4]  Courts that follow statutory language provide another enormous benefit for citizens.  If the People of the state of Michigan disagree with the result in Covenant, then the Michigan Legislature can amend the no-fault act to change the result by expressly creating a statutory cause of action for healthcare providers.  By allowing the Legislature to resolve this type of policy dispute, not the Courts, the rule of law is preserved in Michigan.

[1]  Mich. Comp. Laws § 500.3101 et seq.

[2] Mich. Comp. Laws § 500.3135(3).

[3] See, e.g., Mich. Comp. Laws §§ 500.3105 and 500.3107.

[4] 500 N.W.2d at 496, n. 16 (citing Robinson v. Detroit, 462 Mich. 439, 467, 613 N.W.2d 307 (2000)).