No fault act precludes assignment of PIP benefits to provider and a direct cause of action by provider against PIP insurer: NEURODIAGNOSTICS V. KENTUCKY FARM BUREAU MUT. INS. CO. (SC 4/24/2008)

INSURANCE:  No fault PIP benefits and assignment of benefits
DATE RENDERED: 5/22/2008 -75

At issue in this case is whether, under the Kentucky’s Motor Vehicle Reparations Act FN1 (MVRA), a medical provider can have a direct right of action against an automobile insurer for basic reparation benefits (BRB) by assignment from the insured.  The SCOKY concluded, consistent with the lower courts that have addressed this issue, that under the old law, it could; but under the current law, it cannot and thus affirmed the COA decision.

This opinion involves two lawsuits filed by Neurodiagnostics, PSC, d/b/a Lexington Diagnostic Center (LDC), in district court. Both cases involved payment for medical services provided by LDC to individuals who had sustained injuries in automobile accidents. The Court of Appeals consolidated the two cases for the purposes of appeal because they involved the same substantive issue: whether LDC could pursue direct rights of action for payment of BRB against automobile insurers of its patients by assignment from the patients.

The assignment provisions of the LDC contract are unenforceable because they are no longer permitted under the MVRA.  SCOKY could not agree with LDC’s contention that KRS 304.39-240 was actually a limitation on the ability to assign rights, and the legislature removed the limitation when it repealed KRS 304.39-240.  The plain language of KRS 304.39-240 indicates that assignments were unenforceable with two limited exceptions. And with the express repeal of KRS 304.39-240, any assignment of benefits under the MVRA is unenforceable.

Finally, on the issue of assignment, the Court addressed LDC’s reliance on Phoenix Healthcare of Kentucky, L.L.C. v. Kentucky Farm Bureau Mut. Ins. Co.,FN14 a Kentucky Court of Appeals case decided after the repeal of KRS 304.39-240 in which Phoenix Healthcare filed a cause of action against the reparation obligor under an assignment from the insured. Consistent with the conclusion of the Court of Appeals in this case, SCOKY held the Phoenix Healthcare decision does not apply here because the opinion did not address the validity of the assignment. The issues presented for the court’s consideration were whether the MVRA provided the exclusive remedy for the insurer’s late payment or whether the appellant could recover punitive damages under the Unfair Claims Settlement Practices Act.  And since the issue was neither presented nor ruled upon, it does not constitute persuasive authority in this case.

Digested by Michael Stevens

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