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Return of the No-Fault Section 3112 Motion

By Rachael M. Sedlacek posted 08-03-2020 10:26

  

Consumer choices for personal protection insurance (PIP) benefits went into effect July 2, 2020. For individuals this means undertaking a new cost-benefit analysis when it’s policy renewal time. For no-fault lawyers it means (at minimum) a different way of thinking about how claims get paid.

John Whitman and Bob Logeman recently discussed this issue in their first-party litigation update at this year’s No-Fault Summit (you can see a preview here). John raised the interesting question—who gets the money if an individual chooses a $250,000 PIP plan? In that case, the pool of funds is limited and may be exhausted quickly if the individual is badly injured in an accident. Additionally, more parties can bring claims for the funds since no-fault reform granted health care providers a direct cause of action for PIP benefits.

So should the insurer pay the claims in order of receipt? Or set some money aside for the injured claimant’s future care? Counsel for the insurer doesn’t want their client to incur attorney fees and penalty interest for delaying in paying the claim (see MCL 500.3142). A dispute about how to pay the funds is possible if not likely.

To solve an allocation dispute, insurance defense counsel may have to turn to section 3112 motions (colloquially known as “Covenant motions” before the supreme court reversed the court of appeals opinion in that case). Under MCL 500.3112, the circuit court “may designate the payees and make an equitable apportionment [of PIP funds].” Although it may not generate a solution every player likes, it takes the onus off the insurance company to divide a limited pie. Bob also suggested that defense counsel may want to interplead the policy funds to the court, noting that it might help mitigate an insurer’s liability for penalty interest.

Likewise, section 3112 motions can be helpful to medical providers, particularly if the insurer and injured claimant have entered into a settlement agreement. As made clear recently in Physiatry & Rehab Assocs v Alhalemi, however, to prevail, the medical provider must show that insurer received written notice of the provider’s claim before it entered into the settlement agreement with the claimant. If there was no written notice of the provider’s claim and you represent the insurer, Dave Pierangeli suggests attaching an adjuster affidavit to the section 3112 motion response detailing the chronology of file receipts. For more tips on section 3112 motions from Dave, along with Matthew Payne from the plaintiff’s side, check out their segment on provider litigation at the No-Fault Summit.

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