In Covenant Medical Center, Inc. v. State Farm Mutual Automobile Insurance Company
, No. 322108, the Michigan Court of Appeals held that if an insurer has written notice of a third party’s claim, then the insurer cannot discharge its liability to a third party by settling with its insured; in doing so, the Court reversed the decision of the trial court and remanded the case for further proceedings.
In 2011, Jack Stockford was injured in an automobile accident. He was treated at Covenant Medical which then billed Stockford’s insurer, State Farm, for provided medical services. Covenant Medical sent the bills to State Farm on three separate occasions in 2012. Subsequently, State Farm settled with Stockford and entered into a written agreement that released State Farm from liability “regarding all past and present claims incurred through January 10, 2013” as a result of Stockford’s 2011 accident. Covenant Medical did not receive payment for its services and sued State Farm for refusal to pay. The trial court found that the release barred Covenant Medical’s claim and granted State Farm’s motion for summary disposition. Covenant Medical then filed this appeal.
The Court of Appeals looked to the plain language of MCL 500.3112 in its decision to reverse the holding of the trial court. The statute provides that the liability of an insurer is discharged by a good faith payment to an insured or for the benefit of the insured “unless the insurer has been notified in writing of the claim of some other person.” The Court found that Covenant Medical’s three written bills sent to State Farm in 2012, put State Farm on notice of their claim; therefore their payment to Stockford was not made in good faith and their liability to Covenant was not discharged.