Tennessee Chiropractor Denied Direct Claim Against Tortfeasor’s Liability Insurer

A Tennessee appellate court has ruled that a chiropractic clinic’s assignment agreement unenforceable in lawsuit against former patient injured in car wreck and liability insurance company who settled injury claim with patient. 

In Action Chiropractic, LLC v. Prentice Delon Hyler,, No. M2013-01468-COA-R3-CV (Tenn. Ct. App. Feb. 12, 2014), the defendant (patient) was injured in a car crash and was subsequently treated at plaintiff’s chiropractic center (clinic), incurring approximately $5,010 in charges for medical care. In an attempt to secure payment for any treatment provided, the clinic initially required the patient to execute an assignment contract for “medical expense benefits allowable, and otherwise payable” to patient by his “health insurance, auto insurance, or any other party involved.”

The clinic sent a copy of the assignment contract to Erie Insurance Exchange (Erie), which was the auto insurance carrier of the person responsible for causing the patient’s car crash. The clinic demanded that Erie honor the assignment contract by paying the clinic directly the amounts due for patient’s treatment.

Patient eventually settled his personal injury claim with Erie for $8,510, and Erie sent patient a check for the full settlement amount with a letter stating that Erie would not pay medical providers or reimburse health insurance carriers directly and that patient would be responsible for handling any outstanding balances out of the settlement check. In other words, Erie ignored the clinic’s demand that Erie pay the clinic directly. Patient then failed to pay the clinic for the treatment he received.

The clinic sued the patient and Erie based on the assignment contract. The case was dismissed on summary judgment and affirmed on appeal on multiple bases. The appellate court ruled that the clinic’s assignment contract was invalid under Tennessee’s statute governing assignment of rights under insurance policies. Contrary to the clinic’s stretched interpretation of Tenn. Code Ann. § 56-7-120, the statute was inapplicable because the patient was not an insured under the Erie policy and thus was not a “person entitled to benefits under the policy” within the meaning of the statute. Further, under Tennessee common law, even though the patient could have assigned his settlement proceeds to the clinic, the court ruled that Erie still had no obligation to honor the assignment contract. The patient had no rights against Erie that he could assign to the clinic and there otherwise was no contractual privity between Erie and the clinic. Finally, because the clinic was seeking to enforce a duty purportedly arising under the Erie insurance policy, the lawsuit was in essence a “direct action against a liability insurance carrier of a defendant who allegedly caused harm,” and Tennessee does not permit direct actions against insurance carriers. 

I wonder if the chiropractor also brought a claim against the patient’s lawyer.  My guess is the patient did not have a lawyer, because a lawyer probably would have insisted that the chiropractor’s interest be resolved at the time of settlement.

Those of you who regularly do personal injury work in Tennessee will recognize that the language in the chiropractor’s agreement with his patient is similar to the language many hospitals have in their admission contracts.

You can be sure that the Tennessee Supreme Court will be asked to review this case.