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Coordination of No Fault benefits after a health insurance denial

January 3, 2017 by Steven M. Gursten

Important MCOA decision reinforces that auto accident victims cannot be bullied, as State Farm tried to do in St. John Macomb Oakland Hospital v. State Farm Mutual coordination-of-insurance-benefits

What happened in this case won’t come as a shocker to auto attorneys familiar with State Farm and how the giant insurer handles accident claims.

State Farm decided one Macomb County car accident victim should be required to go through a full “appeals process” concerning his health insurer’s denial of medical coverage for needed treatment for a traumatic brain injury, including a TBI hospitalization program — before the auto insurer should be obligated to pay No Fault medical benefits under the victim’s coordinated No Fault auto insurance policy.

There is no existing case law or legal precedent that justifies the delay and denial by State Farm.  State Farm just decided it didn’t want to pay. It decided to create its own extrajudicial requirements that the accident victim would have to meet before they agreed to pay – even though it could add years of delay for critical medical care.

But the Michigan Court of Appeals wasn’t having it. In St. John Macomb Oakland Hospital v. State Farm Mutual Automobile Insurance Company, a unanimous, three-judge panel ruled:

  • An auto accident victim is “not required to appeal the medical necessity determination in order to establish that it made reasonable efforts to obtain payments that were available from the health insurer.”
  • A motor vehicle accident victim “does not need to engage in the potentially lengthy and costly effort of challenging a medical necessity determination in order to obtain health insurance benefits before proceeding to obtain payment from the no-fault insurer.”
  • “[W]e conclude that a plaintiff is not required to appeal a health insurer’s medical necessity determination in order to establish that reasonable efforts were made to obtain payment from the health insurer.”

This important legal decision for Michigan attorneys adds clarity to a common situation that we see occurring in cases. It stands for the fact that auto accident victims cannot – and must not – be bullied as State Farm tried to do to its own insured customer in this case.  The auto insurer, like everyone else, must follow the law and cannot create its own law when it would rather not pay a valid claim.

Coordination of insurance benefits: What is a coordinated policy in Michigan?

A coordinated No Fault insurance policy in Michigan means, according to the Court of Appeals, a policy that “coordinates” a person’s “no-fault coverage and health insurance coverage” so that if the person is injured in a car accident and requires medical treatment:

  • “[T]he health insurer becomes primarily liable for medical expenses”; and,
  • “[T]he no-fault insurer is not liable for the medical expenses that the health insurer is required to pay for or provide.”

As an insurance attorney in Michigan, almost all of the cases I see involve coordinated No Fault policies. They are extremely common.

Here’s how a coordinated No Fault policy works: When a Michigan driver has a coordinated No Fault policy, auto accident-related medical expenses are paid first by his or her health insurance company (which is said to be “primary”) and, then, whatever is not covered gets picked up by his or her No Fault auto insurer (which is said to be “secondary”), or coordinated to the primary policy which is first.

In return for agreeing to the terms of a coordinated policy, the auto insurance company charges a reduced premium to the customer. (See MCL 500.3109a: “An insurer providing personal protection insurance benefits under this chapter may offer, at appropriately reduced premium rates, deductibles and exclusions reasonably related to other health and accident coverage on the insured.”)

Is appealing a ‘medical necessity determination’ reasonable?

In St. John Macomb Oakland Hospital, a State Farm insured customer with a policy for “coordinated no-fault insurance and health insurance” suffered a traumatic brain injury in an auto accident and his doctor recommended he be admitted to a St. John’s “hospitalization program for closed head injuries.”

When the medical treatment expenses for the program were rejected by the victim’s health insurer as “not medically necessary,” the victim by-passed the health insurer’s “appeals process” and sought payment from State Farm under the No Fault portion of his coordinated policy.

State Farm refused, insisting that, by failing to seek “an appeal of the medical necessity determination,” the victim “failed to make reasonable efforts to obtain payment” from his health insurer” before seeking benefits” from State Farm.

The Michigan Court of Appeals said the insurer had gone one step too far in trying to avoid its contractual obligation to pay No Fault medical benefits.

It’s true, said the unanimous panel, that a car accident victim with a coordinated auto insurance policy “must make reasonable efforts to obtain payments” from a health insurer before seeking payment from his or her No Fault insurer.

But, the judges concluded, the auto accident victim had made the necessary “reasonable efforts.”

What are ‘reasonable efforts’ under Michigan’s auto No Fault law?

In St. John Macomb Oakland Hospital, the court explained the following actions by the motor vehicle accident victim were sufficient to establish “reasonable efforts to obtain payment” for medical expenses from a health insurer before seeking payment from the victim’s No Fault insurer under his coordinated policy:

  • An “attempt [was made] to obtain payment of medical expenses when [a claim was filed] with Blue Cross/Magellan. The denial letter indicates that … a physician reviewed [the victim’s “submitted medical records”] in determining that the treatment was not medically necessary. There is no indication that [there was a failure] to follow the proper procedure for filing the claim. Following the denial of the claim, … the … hospitalization treatment was unavailable because Blue Cross/Magellan denied its claim under a medical necessity standard … [No] duplicative recovery [was sought from the health and No Fault insurers], but instead, … payment [was sought] from the insured’s no-fault insurer after the insured’s health insurer denied payment …”

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