JUDICIAL DEVELOPMENTS: COVENANT
On Thursday May 25th, the Supreme Court issued its long awaited opinion in the case of Covenant v State Farm. The news is not good. In brief, the Court held that service providers have no statutory right of direct action. Direct action lawsuits have been the mechanism by which we have brought suits for our service provider clients for many years.
Fortunately, the Court also made clear that service providers are not without recourse. Perhaps the most promising method of bringing our claims prospectively is through the use of an Assignment from the patient, permitting us to litigate their cause of action. Under the No-Fault Law, assignments of benefits payable in the future are void. This suggests that assignments for services already rendered are permissible. I have recommended the following simple assignment:
I, ____________________ (Assignor), do hereby assign my right to collect No-Fault insurance benefits, for unpaid services rendered by __________ (Assignee) to date, to _______________. This is an assignment for services already rendered only; this is not an assignment of benefits for services rendered in the future or after the date of this document. Assignor agrees that as consideration for this assignment, Assignee assumes the burden, otherwise born by the Assignor, to pursue payment for services rendered by Assignee, from the insurance company or payor entity responsible to pay for such services. This assignment shall be irrevocable unless terminated by mutual agreement of Assignor and Assignee in writing."
These assignments should be obtained from the patient at the end of a billing period or upon discharge. Our experience has been that it is harder to obtain such assignments once the patient no longer treats with our service provider client. It should be understood that, even though the Court in Covenant approved the use of assignments in general, we are facing additional litigation as insurers raise their challenges to assignments. For example, many insurers have anti-assignment provisions in their policies. We believe those provisions are invalid as they violate the No-Fault Law. However, we expect that insurers will test these clauses. This will result in probable delay in handling the cases.
There are a variety of other methods of bringing our claim that we will be using with increasing frequency in the time to come. These include:
- Third party beneficiary theories.
- Co-counseling with the patient's attorney. We would represent the patient for our provider's charges only.
- Suing the patient. Obviously, this is not an ideal solution, but it may be thrust upon us by the Covenant decision and by patient's attorneys who will not cooperate with assignments or co-counsel arrangements. We believe that insurers in many situations have an obligation to defend and indemnify their insureds from such claims. Suing their insureds may have the round-about effect of having the insurers defend against our claims much like they do now.
Covenant is a game changer. There will be adjustments as insurers challenge our alternative methods of bringing service provider claims. However, we believe that an equilibrium will ultimately be achieved. We will continue to keep you updated on this big development in No-Fault litigation.
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