In a recent No Fault case the Michigan Court of Appeals ruled against State Farm Mutual Automobile Insurance Company's argument that its settlement with an insured released the company from a third-party medical provider's bills, despite that State Farm had written notice of the bills prior to reaching a settlement with the insured. In Covenant Med Ctr, Inc v State Farm Mut Auto Ins Co a medical provider billed State Farm $43,484.80 for services arising from the insured's motor vehicle accident. No. 322108, 2015 WL 6394188 (Mich Ct App October 22, 2015). Later, State Farm entered into a written agreement with the insured purporting to release State Farm from liability for all past and present claims as a result of the accident. When the medical provider sought repayment, State Farm argued that the medical provider's claim was barred by the settlement payment State Farm made to the insured and the release the insured signed as part of a settlement with State Farm.

A trial court originally granted State Farm's Motion for Summary Disposition and argument that the medical provider's bills were barred. However, the Michigan Court of Appeals reviewed the case and concluded that both State Farm and the trial court were wrong under MCL 500.3112, which discusses both payees of personal protection benefits and payments as discharge of liability. In Covenant Med Ctr the Court of Appeals explained "the plain text of [MCL 500.3112] provides that if the insurer has notice in writing of a third party's claim, then the insurer cannot discharge its liability to the third party simply by settling with its insured. Such a payment is not in good faith because the insurer is aware of a third party's right and seeks to extinguish it without providing notice to the affected third party." Because State Farm had notice of the medical provider's claim, its payment to the insured did not discharge its liability to the medical provider; accordingly, the Court reversed the trial court and remanded the case for further proceedings.

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