For health care providers concerned about the effect the Covenant Medical Center v. State Farm ruling would have on their right to receive insurance payments for undisputed services, the University of Michigan Regents v. Victor P. Valentino, J.D. decision is a victory. The Michigan Supreme Court upheld the right of no-fault insurers to directly pay medical providers, reversing the earlier Michigan Court of Appeals decision.
The Court of Appeals ruling had awarded Victor P. Valentino, a personal-injury attorney, a portion of more than $98,000 from his client’s no-fault auto insurance settlement that was designated for medical treatment. The client, Larry Reed, later filed for bankruptcy and was subsequently unable to pay the University of Michigan’s University Hospital’s health care bills.
Reed had agreed upon a 1/3 contingency fee “of the net recovery…received through suit, settlement, or in any other manner” in Valentino’s retainer agreement. Therefore, when Reed’s insurance company began sending two-party checks listing both the hospital and Reed as payees, Valentino would take his portion of the check. Only after the hospital filed a five-count complaint alleging conversion, tortious interference with a contract, claim and delivery, declaratory relief, and injunctive relief, did Valentino forward the remainder of the insurance proceeds to the University Hospital in order to cover Reed’s medical bills.
Valentino then filed a motion for summary disposition. The trial court granted the motion, finding that the hospital had no right to the insurance payments and therefore had no cause of action against Valentino for retaining any contingency fees previously agreed upon by attorney and client.
The hospital appealed, arguing that they, not Valentino, were entitled to the proceeds. The Michigan Court of Appeals agreed with the Covenant ruling, finding that although the practice of insurance companies to make direct payments to medical providers on the injured party’s behalf is common, the injured party is the only person who has a legitimate right to the insurance payments.
The case was taken to the Michigan Supreme Court, where the hospital’s legal counsel argued that “the Court of Appeals decision rewards a plaintiff’s attorney for doing nothing, while at the same time, misappropriating payment of the healthcare provider that did life-saving work, and forcing the attorney’s client into bankruptcy.”
The Michigan Supreme Court agreed with the hospital’s argument and ordered that the Michigan Court of Appeals decision be vacated and that the case be remanded to the trial court to proceed according to the ruling. Although the Michigan Supreme Court’s earlier holding in Covenant v. State Farm found that “a healthcare provider has no statutory cause of action against an insurer to compel payment under the no-fault act,” the court wrote in its decision, “the act permits insurers to directly pay healthcare providers on the insured person’s behalf,” such as what happened in this circumstance.