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One Court of Justice Blog

October 21, 2016

COA: Dismissal of lawsuit for PIP benefits because of discovery violations bars related claims for insurance benefits brought by service providers

In Kevin Dawoud v State Farm Mutual Automobile Insurance Co, Nos. 327915 and 327927, the Court of Appeals affirmed the trial court's order granting summary disposition in favor of defendant, State Farm, and dismissed the consolidated appeal by Grace Transportation Inc. and Utica Physical Therapy (“the service providers”), on the grounds that their derivative claims were barred as a result of the fact that the injured insured's claim against State Farm had been dismissed because of the insured's discovery violations.
 
Kevin Dawoud, Rasha Kamel, and Mikho Essa (“plaintiffs”) were allegedly involved in a motor vehicle accident. Plaintiffs applied for no fault benefits and filed a lawsuit seeking personal protection insurance (“PIP”) benefits from State Farm. The service providers, who provided therapy and transportation services to plaintiffs, were permitted to intervene by stipulation of all parties to seek direct payment of their bills by State Farm. The Court dismissed the plaintiff’s case with prejudice after the plaintiffs failed to comply with discovery orders and failed to attend three scheduled depositions.
 
Thereafter, State Farm moved for summary disposition and argued that the dismissal of the underlying plaintiff’s case operated as an adverse adjudication on the merits pursuant to MCR 2.504, which bars the service providers from proceeding with their derivative claims. 
 
The service providers relied on Wyoming Chiropractic Health Clinic, pc v Auto-Owners Ins Co, 308 Mich App at 389; 864 NW2d 598 (2014) to assert that “the ‘derivative’ argument is precisely the standing argument under a different cloak, especially here where the ‘failure’ of the injured parties’ claim was due to litigation misconduct and not any substantive validity of the claim.” The service providers also assert that an injured individual may ultimately be precluded from pursuing a cause of action for PIP benefits where he or she fails to abide by a court order, but that such preclusion does not invalidate the claim for benefits on substantive grounds.

The Court of Appeals rejected these arguments and held the specific question of whether the dismissal of plaintiffs’ underlying claims with prejudice due to discovery violations should not be treated differently than a “substantive” dismissal “on the merits.”  The Court of Appeals noted that MCR 2.313(B)(2)(c) provides that, for failing to comply with a court’s discovery order, a court may enter-an order “...dismissing the action or proceeding or a part of it, or rendering a judgment by default against the disobedient party.” Since the trial court did not provide otherwise in its order for dismissal, its dismissal of plaintiffs’ claims operated “as an adjudication on the merits” with regard to their rights to PIP benefits under the clear language of the applicable court rule. MCR 2.504(B)(3).  Furthermore, as the service providers have acknowledged, if an insured’s claim is substantively barred on the merits, any derivative claims necessarily fail as well. Covenant Med Ctr v State Farm Mut Auto Ins Co, 313 Mich App 50, 54; 880 NW2d 294 (2015). Accordingly, the Court of Appeals concluded that the trial court did not err when it granted State Farm’s motion for summary disposition with respect to the service providers’ derivative claims.
 

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