Michigan Court of Appeals Rules that Covenant v State Farm has Retroactive Effect on Cases Filed Prior to the Release of the Supreme Court’s Opinion

By September 12, 2017Insurance Defense, News, Press Releases

Panel Holds, “Intervening judicial decisions that may have misinterpreted existing statutory law simply are not, and never were, “‘the law.’”

 

GRAND RAPIDS, MI (August 31, 2017) — The Michigan Court of Appeals issued a published opinion today in WA Foote Memorial Hosp v Michigan Assigned Claims Plan, __ Mich App __; __ NW2d __ (Docket No. 333360) holding that the rule announced by the Michigan Supreme Court in Covenant v State Farm, that healthcare providers possess no right of action under the Michigan no-fault act, has retroactive effect upon cases pending at the time that the Supreme Court’s opinion was released.

Trial courts have come to differing conclusions since Covenant was released. While some have dismissed provider cases where an alternative theory cannot be supported, other courts have concluded that the provider cases filed before Covenant can proceed because Covenant does not apply to those cases. The Court clarified that, indeed, Covenant applies to all cases, regardless of whether they were filed before the opinion in Covenant was issued.

The underlying case turned on an unrelated question concerning the threshold for eligibility to claim PIP coverage through the assigned claims plan. The Kent Circuit Court granted summary disposition to the MAIPF and concluded that the relatively easy identification of an applicable insurer precluded any claim through the MAIPF. The case was filed in September of 2015, and the Kent Circuit Court granted summary disposition the MAIPF long before Covenant was issued.

Following the release of Covenant, the MAIPF moved for leave to file extended supplemental briefing arguing that summary disposition should be affirmed for the narrower alternative reason that the plaintiff healthcare provider possesses no cause of action under the Michigan no-fault act and therefore had no ability to proceed with its claim in the first place. The Court agreed to entertain the supplemental briefs. The MAIPF’s brief included a lengthy discussion about the nature of the law that arises out of judicial decisions, which, unlike legislation, must be given full retroactive effect. The MAIPF argued that rather than make “new law,” the Covenant decision recognized what the law has always been.

Recognizing first that the issue was not directly addressed at the trial court, the Court of Appeals considered whether the issue was properly preserved for review on appeal. The Court rejected the plaintiff’s assertion that the issue was waived because it was not raised below or expressly mentioned in responsive pleadings, noting that a plaintiff’s “‘failure to state a claim on which relief can be granted’ is not waived even if not asserted in a responsive pleading or motion.” The Court also acknowledged that based on the case law as it existed at the time, such a motion would have been reasonably regarded as futile.

Finding that the issue was not waived and otherwise preserved, the panel went on to explore the merits of the “retroactivity versus prospectivity” question. The Court engaged in a lengthy and thorough review of the issue as embodied in the legal commentary and case law, harkening all the way back to Sir William Blackstone’s monumental work, Commentaries on the Laws of England. The Court also examined the relatively recent practice of limiting the retroactive application of judicial decisions, which the Court traced back to the Warren Court era, when the U.S. Supreme Court regularly announced broad new rules of criminal procedure having potential to disturb the finality of a broad range of criminal convictions.

Ultimately, the Court concluded that Michigan jurisprudence on the subject is controlled by the Michigan Supreme Court’s decision in Spectrum Health Hosps v Farm Bureau Mut Ins Co of Michigan, 492 Mich 503; 821 NW2d 117 (2012), which overruled a long line of cases recognizing a “family joyriding” exception to the “unlawful taking” exclusion contained in MCL 500.3113. The Court refused to limit that ruling to prospective application, concluding instead that it was not making new law, but returning the law to what it had always been. Following the reasoning in Spectrum, the Court of Appeals came to the same conclusion with regard to the application of Covenant:

…judicial decisions of statutory interpretation must apply retroactively because retroactivity is the vehicle by which “the law” remains “the law.” As Spectrum Health dictates, intervening judicial decisions that may have misinterpreted existing statutory law simply are not, and never were, “the law.” The necessary consequence is that those decisions of this Court that were overruled by our Supreme Court in Covenant were not “the law” and thus did not, and do not, afford plaintiff a statutory right to recover PIP benefits directly from an insurer. Because plaintiff has no such right under the pre-Covenant caselaw, and because, as our Supreme Court in Covenant determined, plaintiff has no such right under the no-fault act, summary disposition was properly entered in favor of defendants in this case, albeit for reasons other than the pre-Covenant rationale given by the trial court.

While the panel affirmed the trial court’s order granting summary disposition to the defendant, it remanded the case and directed the trial court to allow the plaintiff to move to amend its complaint.

Nicholas Ayoub represented the MAIPF before the Michigan Court of Appeals. He commented, “While the defense and plaintiff’s bars will inevitably be focused on the outcome that this opinion produced, the real story here is found in the disciplined approach with which the Court analyzed the question and reached its conclusion. The true victory is had by the rule of law itself. We recognized from the beginning that the issue here is much bigger than the survival of no-fault claims in light of Covenant. The issue is directly tied to a proper understanding of the nature and origin of law in general, as borne out of our constitutional system of separated powers. We are thankful that the Court was willing and able to give the question the care and attention it required.” Ayoub added, “I believe that Courts throughout the land can look to this opinion as an example of judicial reasoning and writing worth emulating, not only for its disciplined application of the rule of law, but also for its clear and thorough explanation in support of the final ruling.”

Nicholas Ayoub is an appellate practitioner with the law firm of Hewson & Van Hellemont, P.C. He has served as appellate counsel in many first-party no-fault appeals, including the 2012 Supreme Court case of Spectrum v Farm Bureau, on which the Court of Appeals so heavily relied for its conclusion in this case.

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