O'Neil Wallace & Doyle, PC

March 15, 2019

No-Fault Update—The Michigan Court of Appeals Reviews Balance Bills and Fraud in Personal Injury Protection ("PIP") Claims

The Michigan Court of Appeals recently issued two opinions impacting PIP litigation. In Auto-Owners Insurance Company v. Compass Health PLLC, Dkt. No. 339799 (Mich. Ct. App. Dec. 18, 2018),the Court found that medical providers can bring balance bill claims against an insurer pursuant to an assignment; despite the insured not having the same right. Next, in Cannon v. Farm Bureau Insurance Company, Dkt. No. 342173 (Mich. Ct. App. Feb. 21, 2019), the Court narrowed the scope of fraud protections in connection with a statutory insured. While unpublished, these opinions provide insight into how the Court of Appeals is attempting to resolve emerging issues in the post-Covenant and Bahri era. Please see the following for a detailed analysis of these cases.

Auto-Owners Insurance Company v. Compass Health PLC, Dkt. No. 339799 (Mich. Ct. App. Dec. 18, 2018)


Since Covenant v. State Farm, 500 Mich. 191 (2017) held that medical providers can only sue an insurer pursuant to an assignment, insurers began challenging balance bill claims based on their duty to defend and indemnify its insured. Specifically, insurers relied on Insurance Bulletin 92-03, to establish that an insured has no right to claim a balance bill from its insurer when the insurer pays less than the amount demanded because the insurer must defend and indemnify the insured when sued by the medical provider. Accordingly, insurers would argue that a balance bill could not be claimed in a provider suit since the insured had no balance bill right to assign.

The Compass Health Court reviewed this issue and held that medical providers must dispute the insurer's payment determination with the insurer and take action solely against the insurer within one year of the payment from the insurer.

Brief Synopsis of the Rule / Holding

If a no-fault insurer has paid an amount that it determines is reasonable for a bill, then the medical provider that is paid this amount cannot claim the remaining balance of the bill / charge against the Claimant / Insured and must take action solely against the insurer. Further, medical providers wishing to dispute a no-fault insurers decision regarding the reasonableness of a bill / charge must do so by filing a lawsuit within one year of the payment made by the insurer pursuant to MCL 500.3145.

Factual Background

In July, 2014 Caleb Casanova, the Claimant / Insured, was injured in an automobile accident. Compass Healthcare PLC ("Compass Health") submitted a bill to Home-Owners Insurance Company ("Home-Owners"), the Claimant's no-fault insurer, for $1,859.00. On August 5, 2014, Home-Owners paid Compass Health $1,076.14. Then, on August 13, 2014 and September 5, 2014, Compass Health sent an invoice directly to the Claimant for the remaining $782.86.

Thereafter, Compass Health sent multiple invoices to the Claimant, to which Home-Owners responded and requested that Compass Health deal directly with Home-Owners. Compass Health ignored this direction and sent multiple invoices to the Claimant, to which Home-Owner's responded in kind requesting that Compass Health deal directly with Home-Owners regarding the disputed bill. Finally, following a letter from Compass to the Claimant yet again in 2016 and Home-Owners responded with a cease and desist letter advising Compass Health that Home Owners was the only proper party to any dispute as to the reasonableness of the payment and that collections efforts directed to the Claimant should be ceased. Despite this notice, Compass Health sent the Claimant invoices three (3) More times in 2016.

Thereafter, Home-Owners filed a five (5) count complaint against Compass Health seeking a declaratory judgment under the No-Fault Act as to whether Compass Health may attempt to obtain payment of its "balance bill" directly from the Claimant.


The Court cited to Covenant v. State Farm, 500 Mich. 191 (2017) and stated that healthcare providers do not have a statutory right to recovery of no-fault benefits directly from an insurer, but rather, the provider may seek payment from the injured person for reasonable charges relating to services provided.

Next, the Michigan Court of Appeals cited Bronson Methodist Hospital v. Auto-Owners Ins. Co., 295 Mich. App. 431 (2012) and stated that no-fault insurers are required to challenge a medical provider's charges in order to determine whether they are reasonable, a medical provider should expect no less and a customary fee for a certain service is not automatically a reasonable fee, but rather a cap on what a provider may charge for that service. Further, medical providers are permitted to challenge the failure to fully reimburse them for medical bills and they have the burden of establishing that the charges for same were reasonable. Compass Health failed to institute any such action. "Instead defendants (Compass Health) have chosen to harass Casanova (the Claimant) over $782.86 outside of the courts since 2014."

The Court concluded that any claim that Compass Health had against the Claimant was covered by his no-fault policy of insurance held with Home-Owners and Home-Owners, as opposed to the Claimant, was the proper party against whom to initiate an action for recovery of the remaining balance on the bill. Furthermore, because Compass Health's claim fell squarely within the parameters of the No-Fault Act, Compass Health's recovery was still subject to the one-year back rule, MCL 500.3145. Therefore, Compass Health was required to file suit against Home-Owners by August 13, 2015. It did not and its claims were barred.

Cannon v. Farm Bureau Insurance Company, Dkt. No. 342173 (Mich. Ct. App. Feb. 21, 2019)


The Court of Appeals has struggled with drawing the parameters for determining the extent that the fraud of one party can be imputed to others. The Cannon Court held that individuals who are not provided no-fault benefits through a policy of their own and are instead otherwise provided benefits through the policy of another pursuant to MCL 500.3114, are not subject to the fraud exclusion contained in the policy that are not contained in the No-Fault Act. In other words, the fraud of another cannot be used by an insurer to void PIP benefits provided to a statutory insured.

Brief Synopsis of the Rule / Holding

An insured who is not a party to a no-fault policy, but who is eligible for benefits pursuant to the no-fault statute is not subject to the policy's fraud exclusion. In addition, an individual who is entitled to coverage pursuant to statute does not lose his or her statutory right to PIP benefits on the basis of a fraudulent claim submitted by a policy holder. The Court held that Farm Bureau could not rely upon its contractual fraud exclusion to fully void the Plaintiff's statutory PIP claims when Plaintiff's entitlement to PIP benefits was based entirely upon a grant of same within the No Fault Act. However, Farm Bureau could rely upon its contractual fraud exclusion to deny UM/UIM Benefits as same were granted by contract.

Factual Background

Plaintiff was injured in an automobile accident in May of 2016 while operating a vehicle owned by Ivy Harp. Cannon did not own a vehicle and was not insured under any family member's no-fault policy. Therefore, she submitted a claim for PIP benefits to Farm Bureau, the insurer of Harp's vehicle.

After the Plaintiff was released from the hospital following the accident, Harp submitted claims forms requesting reimbursement for attendant care services provided to Plaintiff indicating that Plaintiff received 24 hour attendant care daily, with 15 hours of same being performed by Harp. Harp's son submitted reimbursement requests for replacement services. Farm Bureau discovered that Plaintiff's claim for attendant care, replacement services and case management services were fraudulent. Specifically, Harp claimed that she provided attendant care services to Plaintiff while Harp was actually on a 10-day vacation to Aruba. Further, another individual claimed reimbursement for attendant care services allegedly performed at a time while she was in the hospital giving birth.

As a result of this fraud, Farm Bureau cut off Plaintiff's benefits and Cannon filed suit to recover PIP, UM and UIM benefits.


The Court reasoned that pursuant to MCL 500.3114(1) the Plaintiff was entitled to no-fault benefits from the insurer of the owner or registrant of the motor vehicle that she was a passenger in at the time of this accident because she did not have coverage under any other policy.

The Court cited Shelton v. Auto-Owners Ins. Co., 318 Mich. App. 648 (2017), which also involved a statutory insured, as opposed to a named insured as in Bahri, and indicated that in contrast to Bahri, because the entitlement to benefits flowed from the statute in Shelton, the statutory language controlled. Shelton also involved a question of fact with regard to whether the Plaintiff made material misrepresentations and, if so, whether they were made with the intent to defraud the defendant.

Next, the Court analyzed Meemic Ins. Co. v. Fortson, 324 Mich. App. 467 (2018), in which the Court recognized an "innocent third-party rule" exception to the Court's decision in Bahri. Fortson involved a plaintiff who sustained a brain injury. His parents submitted claims for 24-hour supervision which were proven to be false. The Court indicated that the Fortson plaintiff was entitled to benefits under the No-Fault Act and the insurer could not terminate benefits under the Act for his parents' fraudulent submissions.

The Cannon Court ultimately concluded that a statutory insured is not subject to the policy's fraud exclusion and does not lose his or her statutory right to PIP benefits on the basis of a fraudulent claim submitted by another. Next, a Medical / healthcare provider may be denied benefits based upon an insured's fraud. Based upon the foregoing, the Court held that Farm Bureau could not rely upon its contractual fraud exclusion to fully void the Plaintiff's statutory PIP claims. However, Farm Bureau could rely upon its contractual fraud exclusion to deny UM/UIM Benefits as same were granted by contract.


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