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Shah v. State Farm Mutual Automobile Insurance Co.

Court of Appeals of Michigan

May 8, 2018


          Genesee Circuit Court LC No. 17-108637-NF

          Before: Borrello, P.J., and Shapiro and Tukel, JJ.

          Borrello, P.J.

         In this suit seeking recovery of medical expenses under the no-fault act, MCL 500.3101 et seq., plaintiffs, Jawad A. Shah, M.D., PC, Integrated Hospital Specialists, PC, Insight Anesthesia, PLLC, and Sterling Anesthesia, PLLC, appeal as of right the trial court's order granting summary disposition in favor of defendant, State Farm Mutual Automobile Insurance Company, and denying plaintiffs' motion for leave to amend their complaint as futile. For the reasons set forth in this opinion, we reverse the trial court's order and remand this matter for further proceedings consistent with this opinion.

         I. BACKGROUND

         This case encompasses various providers of medical and related healthcare services attempting to recover from a no-fault insurer for services rendered to the insured, George Hensley. According to plaintiffs' initial complaint filed on February 24, 2017, Hensley was injured on November 30, 2014, in a motor vehicle accident and was insured by defendant. Plaintiffs submitted claims for services rendered to Hensley, but defendant refused to pay these claims. In their complaint, plaintiffs sought a judgment of approximately $82,000, plus interest and reasonable attorney fees. Defendant answered the complaint and filed its affirmative defenses on April 21, 2017, denying liability.

         On May 25, 2017, our Supreme Court issued its opinion in Covenant Med Ctr, Inc v State Farm Mut Auto Ins Co, 500 Mich. 191; 895 N.W.2d 490 (2017). In Covenant, our Supreme Court held "that healthcare providers do not possess a statutory cause of action against no-fault insurers for recovery of personal protection insurance benefits under the no-fault act," expressly overruling a body of caselaw from this Court that had concluded to the contrary. Id. at 196. In explaining its holding, the Covenant Court rejected the notion that a medical provider had independent standing to bring a claim against an insurer to recover no-fault benefits. Id. at 195. However, the Court clarified that its decision was "not intended to alter an insured's ability to assign his or her right to past or presently due benefits to a healthcare provider." Id. at 217 n 40.

         On July 20, 2017, defendant moved for summary disposition pursuant to MCR 2.116(C)(8). Defendant argued that dismissal was required for failure to state a claim because plaintiff's no-fault claim was "in direct contravention of the Michigan Supreme Court's decision in Covenant."

         Apparently anticipating defendant's motion, plaintiffs had obtained an assignment of rights from Hensley on July 11, 2017[1] to pursue payment of no-fault benefits for healthcare services "already provided" by plaintiffs.[2] Plaintiffs relied on this assignment to then file a response to the summary disposition motion and a motion for leave to amend the complaint to reflect that the suit was being pursued through the assignment of rights obtained from Hensley. Plaintiffs argued that it was necessary to amend the complaint to allow the action to proceed pursuant to their respective assignments because the Covenant decision had extinguished their ability to pursue an independent, direct action against defendant under these circumstances. Again showing foresight in anticipating defendant's next tactical decision, plaintiffs also preemptively argued that if the trial court were to determine that a contractual provision within defendant's policy prevented assignments, then such a provision should not be enforced for one of two reasons. First, plaintiffs argued that defendant would have to show that Hensley was a named insured under the policy (rather than, for example, a passenger entitled to benefits under someone else's policy) for the anti-assignment clause to be enforced against him. Second, plaintiffs argued that the anti-assignment clause was voidable as against public policy where the assignment was obtained after the loss occurred. Furthermore, in an effort to avoid problems with the one-year-back rule of MCL 500.3145(1), plaintiffs also argued that the amended complaint should relate back to the date of the original complaint because the amendment to accommodate the assignments was intended to support the previously filed no-fault claim that arose from the same transaction or occurrence, namely Hensley's injuries sustained in the November 20, 2014 accident. Plaintiffs did not contend that Covenant was inapplicable to their suit.

         On September 7, 2017, defendant filed a reply in support of its summary disposition motion. As plaintiffs anticipated, defendant argued that an anti-assignment clause in the policy rendered any assignment of rights from Hensley void. Accordingly, defendant argued that plaintiffs' claims should be dismissed because the anti-assignment clause must be enforced as written and was not against public policy. Defendant also argued that the one-year-back rule of MCL 500.3145(1) would bar the assigned claims, or a portion of the assigned claims, even if the assignments were considered valid. Defendant explained that plaintiffs could not obtain any greater rights than those held by Hensley at the time of the assignments. Had Hensley brought suit on the date of the assignments, he could not have obtained damages for any expenses incurred more than a year before that date. Defendant argued that plaintiffs stood in the shoes of Hensley after the assignments and could not obtain any greater rights than this. Defendant also asserted that Hensley had his own lawsuit that had already been resolved and was no longer pending. Defendant further argued that the relation-back doctrine would not apply because the assignment did not exist on the date plaintiffs originally filed their complaint. Defendant contended that plaintiffs were not really seeking an amendment that could relate back to the original complaint pursuant to MCR 2.118(D) but were actually attempting to supplement their complaint pursuant to MCR 2.118(E) in order to allege a subsequently acquired assignment. Defendant explained that supplemental pleadings never relate back to the date of the original pleading. Finally, defendant explained that Hensley was indeed a named insured, and it provided a copy of the declarations page as support.

         On the same day, defendant also filed a response to plaintiffs' motion for leave to amend their complaint. Defendant raised the same arguments made in its reply brief and argued that for these reasons, any amendment was futile because the cause of action that plaintiff was attempting to add was legally insufficient on its face.

         A hearing on the motions was held on September 11, 2017. The parties' oral arguments reiterated the arguments made in their written submissions. The trial court ruled as follows:

All right, the Court read both of the motions and the briefs, as well as the second motion, which is the motion for leave to file an amended complaint. As I said they interrelate and the circumstances are that Shah was a provider or plaintiffs were health providers – health services care providers for the insured George Hensley. And apparently only after the covenant [sic, Covenant decision] did an assignment take place and the policy language of the State Farm policy, which Mr. Hensley purchased precludes the assignment without approval of State Farm, which did not occur. So actually (inaudible) did not acquire any rights by virtue of the assignment.
And in addition, as pointed out by defense counsel, if it had been granted it would have been a supplemental pleading and the date would be barred under the statute of limitations. You may submit an order if you don't have one here today.

         The trial court clarified that it was granting defendant's motion for summary disposition, denying leave to file an amended complaint as futile, and dismissing the case with prejudice. The trial court entered an order[3] granting summary disposition pursuant to MCR 2.116(C)(8) and dismissing the case with prejudice "for the reasons stated on the record."

         This appeal followed.

         II. ANALYSIS


         Plaintiffs first argue that our Supreme Court's decision in Covenant should not apply retroactively but should instead be given prospective effect only.

         Whether a judicial decision applies retroactively is a question that this Court reviews de novo. W A Foote Mem Hosp v Mich. Assigned Claims Plan, 321 Mich.App. 159');">321 Mich.App. 159, 168 ___; N.W.2d ___ (2017). However, plaintiffs never challenged the retroactive application of Covenant or the applicability of Covenant to this case in the trial court. In fact, plaintiffs appeared to concede in the trial court that Covenant was retroactively applicable and was consequently controlling in this case. Therefore, we must first address whether plaintiffs preserved their argument that Covenant should apply prospectively only and not retroactively to the instant case.

         "Michigan generally follows the 'raise or waive' rule of appellate review." Walters v Nadell, 481 Mich. 377, 387; 751 N.W.2d 431 (2008) (citation omitted). Accordingly, "[f]or an issue to be preserved for appellate review, it must be raised, addressed, and decided by the lower court." Mouzon v Achievable Visions, 308 Mich.App. 415, 419; 864 N.W.2d 606 (2014) (quotation marks and citation omitted). The failure to timely raise an issue typically waives appellate review of that issue. Walters, 481 Mich. at 387. Our Supreme Court has explained the rationale for the preservation requirements as follows:

The principal rationale for the rule is based in the nature of the adversarial process and judicial efficiency. By limiting appellate review to those issues raised and argued in the trial court, and holding all other issues waived, appellate courts require litigants to raise and frame their arguments at a time when their opponents may respond to them factually. This practice also avoids the untenable result of permitting an unsuccessful litigant to prevail by avoiding its tactical decisions that proved unsuccessful. Generally, a party may not remain silent in the trial court, only to prevail on an issue that was not called to the trial court's attention. Trial courts are not the research assistants of the litigants; the parties have a duty to fully present their legal arguments to the court for its resolution of their dispute. [Walters, 481 Mich. at 388 (citations omitted).]

         "Although this Court need not review issues raised for the first time on appeal, this Court may overlook preservation requirements if the failure to consider the issue would result in manifest injustice, if consideration is necessary for a proper determination of the case, or if the issue involves a question of law and the facts necessary for its resolution have been presented." Smith v Foerster-Bolser Constr, Inc, 269 Mich.App. 424, 427; 711 N.W.2d 421 (2006) (citations omitted). However, while an appellate court has the inherent power to review an unpreserved claim of error, our Supreme Court has emphasized the fundamental principles that "such power of review is to be exercised quite sparingly" and that the inherent power to review unpreserved issues "is to be exercised only under what appear to be compelling circumstances to avoid a miscarriage of justice or to accord a [criminal] defendant a fair trial." Napier v Jacobs, 429 Mich. 222, 233; 414 N.W.2d 862 (1987) (quotation marks and citation omitted; alteration in original).

         In this case, plaintiffs assert that this issue is preserved for appellate review without identifying a single place in the lower court record where they argued that Covenant should not apply retroactively to the instant case. As previously noted, plaintiffs actually treated the Covenant decision as the controlling law at all times following the issuance of that decision, arguing that it was necessary to amend the original complaint because the Covenant decision had extinguished plaintiffs' independent cause of action against defendant that was not premised on an assignment of rights from Hensley. On appeal, plaintiffs essentially argue they never contested the application of Covenant in the trial court, their appellate challenge to the propriety of that retroactive application is somehow automatically preserved because the Covenant decision was actually applied retroactively in the trial court and because defendant responded to plaintiffs' arguments on appeal.[4] This argument ignores the fundamentals of appellate preservation law requiring parties to first raise issues in the lower court to be addressed in that forum. Walters, 481 Mich. at 387; Mouzon, 308 Mich.App. at 419. Therefore, plaintiffs have waived appellate review of this issue. Walters, 481 Mich. at 387. Plaintiffs may not remain silent in the trial court and then hope to obtain appellate relief on an issue that they did not call to the trial court's attention. Id. at 388; see also Hoffenblum v Hoffenblum, 308 Mich.App. 102, 117; 863 N.W.2d 352 (2014) ("A party may not claim as error on appeal an issue that the party deemed proper in the trial court because doing so would permit the party to harbor error as an appellate parachute.") (quotation marks and citation omitted).

         We further conclude that there is no apparent reason for us to exercise our discretion to review this issue. It does not present a question that must be addressed in order to properly resolve this case and no manifest injustice will result if we decline to review it; as explained below, plaintiffs' legal argument is unavailing because Covenant has already been determined to be retroactive in published decisions of this Court. Moreover, a litigant in a civil case must demonstrate more than a potential monetary loss to show a miscarriage of justice or manifest injustice. See Napier, 429 Mich. at 234. Accordingly, we decline to review plaintiffs' various arguments that Covenant is inapplicable to the instant case and should be given prospective application only.[5]

         Furthermore, as we alluded to, plaintiffs' argument is without merit even if they had not waived this issue for appellate review. This Court has already held in two recent published decisions that Covenant applies retroactively. See W A Foote, 321 Mich.App. at 196; VHS Huron Valley Sinai Hosp v Sentinel Ins Co, ___ Mich.App. ___, ___; ___ N.W.2d ___ (2018) (Docket No. 328005); slip op at 4.[6] We are bound by the holdings in WA Foote and VHS Huron Valley. See MCR 7.215(C)(2) ("A published opinion of the Court of Appeals has precedential effect under the rule of stare decisis."). And furthermore, whether an application for leave to appeal to our Supreme Court has been filed in a case[7] is irrelevant: "The filing of an application for leave to appeal to the Supreme Court or a Supreme Court order granting leave to appeal does not diminish the precedential effect of a published opinion of the Court of Appeals." MCR 7.215(C)(2).

         Therefore, even if this issue had not been waived for our review, Covenant is applicable to the instant case, W A Foote, 321 Mich.App. at 196; VHS Huron Valley, Mich.App. at ; slip op at 4; MCR 7.215(C)(2), and plaintiffs "do not possess a statutory cause of action" against defendant as a no-fault insurer to recover personal protection insurance benefits under the no-fault act, Covenant, 500 Mich. at 196.


         Next, plaintiffs argue that the anti-assignment clause in the insurance policy is unenforceable to prevent the assignment that occurred in this case.

         Insurance policies are contracts, and are thus "subject to the same contract construction principles that apply to any other species of contract." Rory v Continental Ins Co, 473 Mich. 457, 461; 703 N.W.2d 23 (2005). "[Q]uestions involving the proper interpretation of a contract or the legal effect of a contractual clause are . . . reviewed de novo." Id. at 464. "In ascertaining the meaning of a contract, we give the words used in the contract their plain and ordinary meaning that would be apparent to a reader of the instrument." Id. "[U]nambiguous contracts are not open to judicial construction and must be enforced as written." Id. at 468 (emphasis omitted). "[T]he judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties . . . ." Id. at 461.

         However, our Supreme Court has also recognized that "courts are to enforce the agreement as written absent some highly unusual circumstance such as a contract in violation of law or public policy." Id. at 469 (quotation marks and citation omitted; emphasis added). "A mere judicial assessment of 'reasonableness' is an invalid basis upon which to refuse to enforce contractual provisions," and "[o]nly recognized traditional contract defenses may be used to avoid the enforcement of the contract provision." Id. at 470. With respect to determining whether a contractual provision violates public policy, our Supreme Court explained in Rory that "the determination of Michigan's public policy is not merely the equivalent of the personal preferences of a majority of this Court; rather, such a policy must ultimately be clearly rooted in the law." Id. at 470-471 (quotation marks and citation omitted). "In ascertaining the parameters of our public policy, we must look to policies that, in fact, have been adopted by the public through our various legal processes, and are reflected in our state and federal constitutions, our statutes, and the common law." Id. at 471 (quotation marks and citation omitted).

         "Under general contract law, rights can be assigned unless the assignment is clearly restricted." Burkhardt v Bailey, 260 Mich.App. 636, 653; 680 N.W.2d 453 (2004). Defendant argues in this case that the present matter is one where Hensley's ability to assign his rights is prohibited by a specific contractual provision. The insurance policy states, "No assignment of benefits or other transfer of rights is binding upon us [(i.e., defendant)] unless approved by us." Despite plaintiffs' newly-raised arguments to the contrary, the language of this provision is perfectly clear.[8] In order for any benefits or rights to be assigned to anyone other than the insured, defendant must consent to the assignment. The assignments at issue attempt to do just that, assigning the right to claim benefits held by Hensley to plaintiffs, and it is undisputed that defendant did not consent to these assignments. The appellate courts of Michigan have previously recognized the enforceability of anti-assignment clauses that are clear and unambiguous. See Detroit Greyhound Employees Fed Credit Union v Aetna Life Ins Co, 381 Mich. 683, 689-690; 167 N.W.2d 274 (1969); Employers Mut Liability Ins Co of Wisconsin v Mich Mut Auto Ins Co, 101 Mich.App. 697, 702; 300 N.W.2d 682 (1980). Thus, because the anti-assignment clause is unambiguous, it must be enforced unless it violates the law or public policy. Rory, 473 Mich. at 468-469.

         Resolution of this issue turns on the application of our Supreme Court's decision in Roger Williams Ins Co v Carrington, 43 Mich. 252; 5 N.W.2d 303 (1880). In Roger Williams, an insurance policy was issued covering livery stable property. Id. at 253. The property was destroyed in a fire. Id. After the fire, the insured assigned the policy to secure a debt. Id. at 253-254. Our Supreme Court refused to enforce an anti-assignment clause in that matter, explaining:

The assignment having been made after the loss did not require consent of the company. 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. It is the absolute right of every person-secured in this state by statute-to assign such claims, and such a right cannot be thus prevented. It cannot concern the debtor, and it is against public policy. [Id. at 254.]

         Here, the parties provide no authority, and we have found none, explicitly rejecting this analysis in Roger Williams. Moreover, it has been deemed controlling on this point of law in at least two relatively recent[9] opinions of the United States District Court for the Western District of Michigan,[10] Century Indemnity Co v Aero-Motive Co, 318 F.Supp.2d 530, 539 (WD Mich, 2003) (relying on Roger Williams while explaining that 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."); Action Auto Stores, Inc v United Capitol Ins Co, 845 F Supp 417, 422-423 (WD Mich, 1993) (citing Roger Williams in support of the proposition that a provision prohibiting assignment without consent of the insurer was invalid with respect to a post-loss assignment).

         Our Supreme Court in Roger Williams essentially held that an accrued cause of action may be freely assigned after the loss and that an anti-assignment clause is not enforceable to restrict such an assignment because such a clause violates public policy in that situation. Roger Williams, 43 Mich. at 254. Here, there similarly was an accrued claim against his insurer that was held by Hensley for payment of health care services that had already been provided by plaintiffs before Hensley executed the assignment. Under Roger Williams, any contractual prohibition against the assignment of that claim to plaintiffs was unenforceable because it was against public policy. Id.

         Therefore, we conclude that enforcement of the anti-assignment clause in the instant case is unenforceable to prohibit the assignment that occurred here-an assignment after the loss occurred of an accrued claim to payment-because such a prohibition of assignment violates Michigan public policy that is part of our common law as set forth by our Supreme Court. Roger Williams, 43 Mich. at 254; Rory, 473 Mich. at 469-471.

         We note that, contrary to the arguments advanced by defendant, the conclusion that a contractual provision is unenforceable due to violating public policy is not equivalent to a judicial assessment of unreasonableness, nor is it in conflict with the principle that unambiguous contracts must be enforced as written. Our Supreme Court has made clear that judicial notions of reasonableness are not proper grounds on which to hold contractual provisions unenforceable. Rory, 473 Mich. at 470. Our Supreme Court has also made clear that unambiguous contractual provisions are "to be enforced as written unless the provision would violate law or public policy." Id. (emphasis added). Defendant's arguments appear to incorrectly conflate the concept of "reasonableness" with "public policy." Our decision is not based on any determination that the anti-assignment clause is somehow "unreasonable." Rather, we have simply concluded that enforcing the anti-assignment clause in this circumstance to prohibit an assignment of an accrued claim after the loss has occurred is against Michigan public policy as stated by our Supreme Court one hundred and thirty-eight years ago in Roger Williams. Finally, defendant takes issue with the continued validity of our Supreme Court's holding in Roger Williams and its application in the instant case. However, as our Supreme Court has instructed, we are bound to follow its decisions "except where those decisions have clearly been overruled or superseded." Associated Builders & Contractors v City of Lansing, 499 Mich. 177, 191; 880 N.W.2d 765 (2016). There is no indication that Roger Williams or its holding relating to anti-assignment clauses has been clearly overruled or superseded. Thus, if the continued validity of Roger Williams is to be called into question, it will have to be by our Supreme Court.

         Plaintiffs also raise several additional grounds for arguing that the anti-assignment clause is unenforceable to prevent the assignment at issue in this case. However, plaintiffs did not raise these additional arguments below and they are thus waived for appellate review. Walters, 481 Mich. at 387. Nonetheless, based on our conclusion that the anti-assignment clause did not prohibit the assignments at issue in this case, there is no further relief on this issue that we could grant to plaintiffs, and these additional arguments are therefore moot. B P 7 v Bureau of ...

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