Raymand Nawas vs State Farm Mutual Automobile Insurance Company

Raymand Nawas vs State Farm Mutual Automobile Insurance Company
No. 13-11158, U.S. District Court for the Eastern district of Michigan, Southern
Division, 2014 U.S. Dist. 128365

Raymond Nawas v. State Farm Mutual Automobile Insurance Co., decided by the US.
District Court for the Eastern District of Michigan on September 15, 2014, primarily
involved a claim for no fault insurance benefits. When the plaintiff’s insurance company
refused to pay medical bills he had incurred following a motor vehicle accident, Medicare
conditionally paid them. The plaintiff then filed a multi-count complaint which was
premised, in part, upon the Medicare Secondary Payer (MSP) Act which the defendant
insurance company then sought to have dismissed. The defendant argued the plaintiff’s
claim was premature because a claim under the MSP Act cannot be pursued until the
defendant’s obligation to the plaintiff’s underlying no-fault insurance claim has been
established by a judicial determination or settlement. This argument was rejected and the
plaintiff’s claim under the MSP Act was allowed to proceed.

The District Court noted Medicare was at one time the primary payer of health costs for
eligible individuals. However, rising health care costs led Congress to enact the MSP
Act which designated “certain private entities – such as a group health plan, a worker’s
compensation plan or an automobile or liability insurance plan – as ‘primary payers’ that
have the responsibility to pay for a person’s medical treatment.” Under the Act, if the
primary payer has not paid for the rendered medical treatment or fails to make payment
in a timely manner, then Medicare has the option of “conditionally” paying for covered
medical services which have been or is reasonably expected to be paid by a primary payer. Medicare may then seek reimbursement of any conditional medical payments from
the primary payer.

The District Court also noted the MSP Act created a private right of action, with double
recovery, to encourage private parties who are aware of non-payment by primary plans to bring actions to enforce Medicare’s rights. This provision of the MSP Act was relied upon
by the plaintiff in this case. He alleged since the defendant insurance company refused to
pay his no-fault insurance claim, Medicare stepped in and made conditional payments to
his medical providers and therefore he sought to recover from the defendant double the
amount of the conditional payments.

The defendant’s argument the claim was premature was based upon the interpretation of
the MSP Act’s “demonstrated responsibility” provision which states in pertinent part:
“A primary plan…shall reimburse (Medicare) for any payment made
by(Medicare)…with respect to an item or service if it is demonstrated that
such primary plan has or had a responsibility to make payment with respect
to such item or service. A primary plan’s responsibility for such payment may
be demonstrated by a judgment, a payment conditioned upon the recipient’s
compromise, waiver or release of payment for items or services included in a
claim against the primary plan or the primary plan’s insured…”

In support of its argument, the defendant relied upon Geer v. Amex Assurance Co. (09-
11917, 2010 WL 2681160, E.D. Mich. July 6, 2010). The Geer court had accepted this
argument and dismissed the MSP Act claim in the insurance context as the plaintiff
had not yet “established” a claim against the defendant insurance company through
a judgment, settlement or the like. In so doing, the Geer Court adopted the reasoning
of Glover v. Liggett Group (459 F.3d 1304, 11th Cir. 2006), a case which arose in the
context of a tort claim brought by a plaintiff against a cigarette manufacturer.

In Nawas, the Court went on to state, “Having considered the reasoning of these cases,
the Court concludes that defendant’s argument is not well-taken. First, the Sixth Circuit
disavowed the position taken by the Eleventh Circuit in Glover and limited this argument
to tortfeasor liability only. The Sixth Circuit had also previously conducted an extensive
analysis of the MSP Act’s “demonstrated responsibility” provision in the Bio-Medical Applications v. Central States case, 656 F.3d 277 (6th Cir. 2011) and held that the “demonstrated responsibility” language does not prohibit or delay direct actions against
insurance companies by policy holders seeking to enforce Medicare’s Secondary Payer
Act rights.”

The Court further explained that it believed Congress had added the “demonstrated
responsibility” provision as a condition precedent to and limiting principle only for
tortfeasor liability under the Act, noting the Medicare Modernization Act made no other
major changes to the MSP Act. Therefore, there was no reason to believe that Congress
intended to affect the liability of primary plans other than tortfeasors, that is, traditional
primary plans like private insurers. It went on, “Moreover, the concept of demonstrated
responsibility makes sense only in the context of tort (where no evidence of responsibility
exists until it is adjudicated), rather than in the context of an insurance contract (where
insurers assume the responsibility of payment for enumerated contingencies). The Court
concluded the “demonstrated responsibility” provision limits only lawsuits brought
against tortfeasors, not lawsuits brought against private insurers.

Accordingly, the defendant’s motion to dismiss the plaintiff’s claim was denied, thereby
allowing the matter to proceed toward a determination on the merits of the underlying
case as well as leaving intact State Farm’s exposure for double damages should it
ultimately not prevail in the case.