Pre-Treatment Assignments of No-Fault Benefits Prohibited by Auto Policy’s Anti-Assignment Clause

It has become more and more common for medical, diagnostic, and chiropractic providers to require patients to assign their interests in basic economic loss benefits under the No-Fault Act to the provider as a precondition to treatment.  The provider then utilizes the assignment to seek direct payment from the patient's automobile insurance company.  American Family Insurance Company recently challenged the enforceability of such assignments.  This week, the Minnesota Supreme Court ruled in American Family's favor.

In Stand Up Multipositional Advantage MRI, P.A. v. Am. Family Ins. Co., A15-0843, the supreme court held that assignments obtained by Stand Up Multipositional Advantage MRI, P.A. (SUMA) were prohibited by an anti-assignment clause contained in its patients' American Family automobile insurance policies.  The court's reasoning provides valuable insights for insurers to consider in responding to assignment-of-benefits issues in the future, whether pressed by providers under the No-Fault Act or vendors under other first-party policies.

Recognizing that it has not resolved whether anti-assignment clauses in insurance policies are, as a rule, enforceable, the court explored two different approaches to determining the enforceability of anti-assignment clauses.  The court first discussed what is characterized as the “majority rule” around the country that anti-assignment clauses in insurance policies preclude pre-loss assignments but not post-loss assignments.  The court observed that the reasoning behind the “majority rule” is based on a presumption a post-loss assignment does not alter an insurer's exposure to the risk insured under a policy.

However, significant for insurers going forward, the court, at the urging of Amici The Insurance Federation of Minnesota and The Property Casualty Association of America, also considered how the general common law contract anti-assignment rule recognized in Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 270, 274 (Minn. 2004), impacted the at-issue assignments.  The court confirmed that under the Travertine rule, as long as an anti-assignment clause is clear and does not conflict with statute or public policy, the contract is not assignable.

Ultimately, the court concluded that it need not determine which rule applies to the at-issue assignments because American Family's anti-assignment clause would be valid and enforceable to prohibit the SUMA assignments under either rule.  The court reasoned that the assignments at issue were prohibited “pre-loss” assignments under the majority rule because the assignments occurred prior to treatment and billing—the “loss” as defined under the No-Fault Act.  The court further reasoned that the assignments were prohibited under the Travertine rule because the American Family anti-assignment clause was clear and not in conflict with statute or public policy.  In so holding, the court distinguished Star Windshield Repair, Inc. v. W. Nat'l Ins. Co., 768 N.W.2d 346, 350 (Minn. 2009), in which the court did not enforce a contract's anti-assignment clause because to do so would conflict with Minnesota statutory provisions.

The court ended its discussion by noting that there were valid policy considerations presented by both sides as to whether the pre-loss assignment of no-fault benefits should be permitted despite a policy's anti-assignment clause and that it is up to the Legislature to amend the No-Fault Act if it desires a different outcome.

In the end, the decision leaves open the question of whether post-loss assignments of first-party policy proceeds are permitted under the majority rule or prohibited by Travertine.  However, it is implicit in the court's opinion that the court continues to recognize that contract principles can and do apply to insurance policies and that anti-assignment clauses in contracts, including insurance policies, are generally enforceable unless they conflict with statute or public policy.

Amici The Insurance Federation of Minnesota and The Property Casualty Insurers Association of America were represented before the supreme court by Dale O. Thornsjo and Lance D. Meyer from this office.

If you have questions regarding the supreme court's decision or any other insurance coverage or no-fault issues, please contact Dale, Lance, or one of the other members of our Firm's Insurance Coverage Practice Group or Motor Vehicle Practice Group at (952.831.6544).

You can read the full text of the case by clicking here.