NEURODIAGNOSTICS, INC. V. KENTUCKY FARM BUREAU MUTUAL INSURANCE COMPANY, ET AL.
Annotate this Case
Download PDF
MODIFIED : JULY 30, 2008
RENDERED : APRIL 24, 2008
TO BE PUBLISHED
"Ouyteure Caurf laf
2006-SC-000857-DG
NEURODIAGNOSTICS, INC.
V.
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NUMBERS 2005-CA-000735 AND 2005-CA-001583
FAYETTE DISTRICT COURT NOS. 05-XX-00001 AND 05-XX-00009
KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY
AND STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY
APPELLEES
OPINION OF THE COURT BY JUSTICE MINTON
AFFIRMING
At issue in this case is whether, under the Kentucky Motor Vehicle Reparations
Act' (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 . We
conclude, consistent with the lower courts that have addressed this issue, that under
the old law, it could ; but under the current law, it cannot. So we affirm .
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
Kentucky Revised Statutes (KRS) 304.39-010 - 304 .39-350 .
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 .
I . THE CASE AGAINST STATE FARM .
LDC filed the first case against State Farm Mutual Automobile Insurance
Company. State Farm issued an automobile insurance policy to Donald Hughes . The
policy contained, in part, mandatory no-fault (also known as personal injury protection,
(PIP)) coverage of $10,000 in BRB. Hughes claimed that he was injured in an
automobile accident and asserted a claim to recover his no-fault benefits . KRS 304 .39241 provides that "[a)n insured may direct the payment of benefits among the different
elements of loss, 2 if the direction is provided in writing to the reparation obligor. A
reparation obligor shall honor the written direction of benefits provided by an insured on
a prospective basis." Under KRS 304.39-241, Hughes directed that his no-fault
benefits be distributed initially to satisfy his lost wages ; and he directed that any
remaining funds be paid toward his outstanding medical expenses . After Hughes's
initial directive, he sent
a modified directive by which
he requested that State Farm pay
benefits to a specific healthcare provider for surgery. The letter further directed that
after payment of the surgical bill, the remaining benefits should be apportioned for
satisfaction of lost wages.
Once State Farm paid the surgical bill and lost wages, it had paid out the full
$10,000 of no-fault benefits . There was no money left to pay medical expenses from
Under KRS 304.39-020(5), as applied to this case, the elements of accrued economic loss
are medical expenses and work loss.
other medical providers, including two bills that LDC submitted to State Farm for
medical services rendered to Hughes after his automobile accident .. One bill was in the
amount of $1,152 ; and the other was in the amount of $1,242, for a total of $2,394.
LDC submitted the bills to State Farm before Hughes asserted his claim to State Farm
for his no-fault benefits and provided his written direction for payment of those benefits .
At the time LDC rendered the medical services to Hughes, it requested that he
sign a form entitled, "Agreement to Pay and Assignment of Benefits ." The form stated,
in part, as follows:
I understand that LDC will attempt to collect funds for the benefit of the
patient or me. However, in the event the insurance (except workers'
compensation) delays payment for longer than 45 days, LDC will expect
payment from me, even if I have insurance coverage or if any other
person or entity will ultimately pay for the patient's services .
I understand that I am ultimately responsible for this bill.
If this is a motor vehicle claim, 1 hereby direct my reparation obligor (my
motor vehicle insurance company) State Farm to pay LDC for today's
services, pursuant to KRS 304.39-241 . Initial here
I irrevocably assign LDC, its successors and assigns, all benefits payable
to me (or the patient) from my insurance, workers' compensation, auto
insurance and/or attorney for today's services . This assignment does not
release me from my responsibility to pay LDC as I have agreed .
Hughes initialed the blank in the provision pertaining to KRS 304.39-241 and
signed the form. LDC relied on the direction and the assignment in filing suit against
State Farm for payment of Hughes's outstanding medical expenses from his no-fault
benefits .
State Farm filed a motion for summary judgment or, in the alternative, to dismiss.
In its motion, State Farm requested that the district court dismiss or grant summary
judgment in its favor because . (1) State Farm paid its policy limits as directed by
Hughes, the insured ; (2) the assignment of benefits was not enforceable against State
Farm; (3) State Farm was not a party to the assignment of benefits; (4) LDC has no
standing under the MVRA to pursue a claim ; and (5) regardless, KRS 304.39-241,
which pertains to the direction of payment of benefits, overrides any rights that might
otherwise be available under the assignment.
About two months after State Farm's motion for summary judgment/motion to
dismiss, LDC filed a motion for summary judgment. The district court granted State
Farm's motion to dismiss . LDC appealed, and the circuit court affirmed the district
court's order of dismissal . The Court of Appeals granted discretionary review and held
that, under the circumstances, LDC simply lacked standing to assert a claim by
attempted assignment against State Farm .
II. THE CASE AGAINST FARM BUREAU .
LDC filed the second of the two cases at issue against Kentucky Farm Bureau
Mutual Insurance Company. Farm Bureau had issued an automobile insurance policy
to Blanch Merryman . The policy contained, in part, mandatory no-fault coverage of
$10,000 in basic reparation benefits . Merryman's granddaughter, Jennifer Lee McCord,
claimed that she was injured in an automobile accident and asserted a claim to recover
no-fault benefits under Merryman's policy. At the time of the accident, McCord was
living with Merryman .
Fifteen months after the accident, McCord sought treatment with a chiropractor
for injuries that she alleged stemmed from the automobile accident . The chiropractor
ordered magnetic resonance imaging (MRI) of both McCord's lumbar and cervical
spines, which LDC performed . Similar to Hughes's case, at the time McCord had the
MRIs, LDC required her to complete the form entitled, "Agreement to Pay and
Assignment of Benefits ." The form contained the exact same language as the one that
Hughes signed . McCord completed the form and provided that her reparation obligor
was Farm Bureau. LDC submitted its bills for the two procedures, also totaling $2,394,
to Farm Bureau for payment from McCord's no-fault benefits .
In McCord's case, however, Farm Bureau sent the bills to an outside company
for peer review. A reviewing physician advised Farm Bureau that it should not allow
payment because (1) McCord did not initiate the treatment until fifteen months after the
motor vehicle accident; and (2) no medical history existed to indicate that the treatment
was accident-related . The reviewing physician recommended that payment for the
billed MRIs should be submitted to McCord's health insurance provider. Farm Bureau
notified LDC that it would not pay for the MRIs and advised LDC of the
recommendation to submit its bills to the health insurance provider.
Choosing to rely instead on the assignment provisions of the form that McCord
completed when she had the two MRIs, LDC filed suit against Farm Bureau. Farm
Bureau filed a motion to dismiss the case in which it argued that LDC's cause of action
should be dismissed because (1) Kentucky law does not provide LDC with a direct
cause of action against Farm Bureau ; and (2) the peer review, conducted under
Kentucky law, found LDC's charges and services neither reasonable nor medically
necessary . In an opinion and order, the district court granted Farm Bureau's motion to
dismiss LDC's action, with prejudice . LDC appealed, and the circuit court affirmed the
district court's order of dismissal . The Court of Appeals granted discretionary review
and held--consistent with the companion State Farm case---that LDC simply lacked .
standing to assert a claim by attempted assignment against State Farm .
III. RESOLUTION AND DISCUSSION OF THE ISSUE .
A. The Enactment of KRS 304.39-241 and Simultaneous Repeal of
KRS 304 .39-240 Rendered Unenforceable a Motor Vehicle Accident
Victim's Assignment to a Medical Provider of Any Right to Benefits
Under the MVRA.
The MVRA is an exclusive body of law that provided for assignment of rights to
benefits when enacted. However, the legislature repealed the assignment of rights to
benefits provision in 1998. At the same time that the legislature repealed the
assignment of benefits provision, it enacted a new provision that allowed the insured to
direct the payment of benefits among the different elements of loss.4 So the issue we
must resolve is what the legislature intended when it repealed KRS 304.39-240 and
enacted KRS 304.39-241 . And because resolution of the issue in this case is one of
statutory interpretation, a pure question of law, it is subject to de novo review by this
Court.5
Upon review, we conclude that the MVRA no longer affords a direct right of
action by assignment to medical providers against reparation obligors . Instead, the
control rests with the insured to direct payment of his or her benefits among the
different elements of loss . This interpretation is consistent with the purposes behind the
MVRA of (1) providing prompt payment to victims of motor vehicle accidents,
KRS 304.39-240, entitled "Assignment of benefits" (repealed 1998).
KRS 304.39-241 .
Bob Hook Chevrolet Isuzu, Inc. v. Commonwealth Transp Cabinet, 983 S.W .2d 488,
490 (Ky. 1998) .
KRS 304.39-010(2) .
(2) encouraging "prompt medical treatment and rehabilitation of the motor vehicle
accident victim by providing for prompt payment of needed medical care and
rehabilitation" ;' (3) reducing "the need to resort to bargaining and litigation through a
system which can pay victims of motor vehicle accidents without the delay, expense,
aggravation, inconvenience, inequities[,] and uncertainties of the liability system";$ and
(4) helping "guarantee the continued availability of motor vehicle insurance at
reasonable prices by a more efficient, economical[,] and equitable system of motor
vehicle accident reparations[.]"9
With these purposes of the MVRA in mind, we turn to what the law used to be
and compare it to what it is now. When the legislature enacted the MVRA in 1975, the
Act included the following provision :
304.39-240 ASSIGNMENT 4F BENEFITS
An assignment of or agreement to assign any right to benefits under this
subtitle for loss accruing in the future is unenforceable except as to
benefits for:
(1) Work loss to secure payment of alimony, maintenance, or child
support; or
(2) Medical expense to the extent the benefits are for the cost of products,
services, or accommodations provided or to be provided by the assignee.
This narrow provision authorized assignment by the insured of a right to benefits
only in two circumstances, one being (as we have in this case) for medical expenses to
the extent the benefits were for the cost of services provided or to be provided by the
KRS 304.39-010(3).
KRS 304 .39-010(5) .
KRS 304 .39-010(6).
assignee. Under a valid assignment, the provider had a direct right to claim benefits
from the no-fault insurer.' °
That which the legislature gives, however, the legislature may take away." In
1998, the legislature repealed KRS 304.39-240 . "The repeal of a statute without any
reservation takes away all remedies given by the repealed statute[. 1,02 The legislature
did not simply repeal KRS 304.39-240, however, because it enacted KRS 304.39-241
simultaneously with its repeal of KRS 304.39-240. And the enactment of KRS 304.39241 and repeal of KRS 304.39-240 reflect a legislative intent to eliminate any
assignment of a right to benefits . 13 So, where KRS 304.39-240 allowed assignments
under only two narrow circumstances, with the express repeal in 1998 of KRS 304.39240, any purported assignment of rights to benefits under the MVRA is unenforceable .
The new statutory provision, KRS 304.39-241, allows the insured to direct the
payment of his or her benefits among the different elements of loss if the direction is
provided, in writing, to the reparation obligor. With this change in the law, the
legislature recognized that it is a more efficient, economical, and equitable system to
10
12
13
See U.S . v. Allstate Ins. Co., 754 F:2d 662, 666 (6th Cir. 1985) ("In section 304.39-240, the
Kentucky legislature specifically made enforceable an assignment of a right to benefits for
`medical expense to the extent the benefits are for the cost of products, services, or
accommodations provided or to be provided by the assignee .' It thus clearly contemplated
that a provider's right to recover should arise only from assignment. In addition, in providing
that `medical expense benefits may be paid by the reparation obligor directly to persons
supplying products, services, or accommodations to the claimant,' section 304.39-210
makes the provider an optional payee or incidental beneficiary of no-fault policies in order to
facilitate the insured person's receipt of benefits, and does not make the provider a third
party beneficiary with a right to enforce the insurance contract.").
Jacober v. Board of Com'rs of City of Covington , 607 S.W.2d 126, 127 (Ky.App. 1980);
Aldridge v. Commonwealth , 192 Ky. 215, 232 S.W. 619,620 (1921) .
1A Sutherland Statutory Construction § 23:7 (6th ed.).
Roberts ex rel. Roberts v. George W. Hill & Co., 23 S.W.3d 635, 636 (Ky. 2000) (holding that
in workers' compensation case, the enactment of one statute and repeal of another reflected
a legislative intent to eliminate a tort remedy available previously under the repealed statute).
keep the provider out of the reparations process and afford the insured the control of
how his or her benefits are paid because there is only a certain amount of money
available for payment. If each and every medical provider obtained an assignment--as
a matter of course---of any right to benefits under the MVRA, the insured's benefits
could be exhausted after an accident, leaving the insured no ability to decide at a later
date that he or she would be better served by directing reparation benefits to cover
some other element of loss, such as economic loss.
By LDC's own contract with its patient, it recognizes that the insured has the
control under KRS 304.39-241 of how the benefits are distributed by including a
direction on its "Agreement to Pay and Assignment of Benefits" form. Before the
purported assignment provisions, the form states : "If this is a motor vehicle claim, I
hereby direct my reparation obligor (my motor vehicle insurance company) [blank
provided to fill in name of insurance company] to pay LDC for today's services,
pursuant to KRS 304.39-241 ."
We have concluded that the assignment provisions of the LDC contract are
unenforceable because they are no longer permitted under the MVRA . We cannot
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. In our opinion, 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, we address LDC's reliance on Phoenix
Healthcare of Kentucky, L.L.C. v. Kentucky Farm Bureau Mut. Ins . Co .,14 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,
we believe that 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 . 15 And since the issue was neither
presented nor ruled upon, it does not constitute persuasive authority in this case.
B.
No Other Provision of the MVRA Can Be Construed to Entitle Medical
Providers to Brinq a Direct Action Against the Insurers .
LDC contends that even without an assignment, it is entitled to bring a direct
action against the insurers because the insureds directed the insurers to pay LDC
under KRS 304.39-241 ; but the insurers failed to follow the directions . In support, LDC
argues that affording a direct right of action to the medical provider is consistent with
the MVRA policy stated in KRS 304.39-010(3) of encouraging prompt medical
treatment and rehabilitation of the motor vehicle accident victim by providing for prompt
payment of needed medical care and rehabilitation . LDC believes that if medical
providers are not entitled to assert claims for payment, there is little motivation for an
insurance company to make prompt and proper payments.
'a
's
120 S.W.3d 726 (Ky.App . 2003).
/d. at 727-28.
10
We believe, however, that with the 1998 enactments and amendments to the
MVRA and repeal of KRS 304.39-240, the legislature has developed a process, as
discussed above, which it believes will carry out the policies of the Act. That process
allows the insured to direct the payment of benefits, under KRS 304.39-241, among the
different elements of loss. And other provisions of the MVRA, amended or enacted at
the same time, support the process. For example, when the legislature enacted
KRS 304.39-241, it amended KRS 304.39-210(1), which previously concluded with the
following sentence, "Medical expense benefits may be paid by the reparation obligor
directly to persons supplying products, services, or accommodations to the claimant[.]"
As amended, that sentence now states, "Medical expense benefits may be paid by the
reparation obligor directly to persons supplying products, services, or accommodations
to the claimant, if the claimant so designates ." In addition, the legislature added
another sentence in KRS 304 .39-210(1) to clarify when benefits are overdue :
"Notwithstanding any provision of this chapter to the contrary, benefits are not overdue
if a reparation obligor has not made payment to a provider of services due to the
request of a secured person when the secured person is directing the payment of
benefits among the different elements of loss." 16 Finally, the legislature enacted
16
KRS 304 .39-210(1), as amended effective July 15, 1998, is, in its entirety: "Basic and added
reparation benefits are payable monthly as loss accrues . Loss accrues not when injury
occurs, but as work loss, replacement services loss, or medical expense is incurred.
Benefits are overdue if not paid within thirty (30) days after the reparation obligor receives
reasonable proof of the fact and amount of loss realized, unless the reparation obligor elects
to accumulate claims for periods not exceeding thirty-one (31) days after the reparation
obligor receives reasonable proof of the fact and amount of loss realized, and pays them
within fifteen (15) days after the period of accumulation . Notwithstanding any provision of
this chapter to the contrary, benefits are not overdue if a reparation obligor has not made
payment to a provider of services due to the request of a secured person when the secured
person is directing the payment of benefits among the different elements of loss. If
reasonable proof is supplied as to only part of a claim, and the part totals one hundred
dollars ($100) or more, the part is overdue if not paid within the time provided by this section .
another new section of the MVRA at the same time that it enacted KRS 304.39-241 .
That section is codified at KRS 304.39-245 and reads as follows:
A reparation obligor may request or negotiate a reduction or modification
of charges from a provider of services to a secured person . In no event
shall a provider of services which agrees to a reduction or modification of
the charges bill the secured person for the amount of the reduction or
modification . Nothing in this section is intended to prohibit a provider of
services from billing charges to a secured party if the charges are not paid
by a reparation obligor because the reparation benefits have been
exhausted .
These comprehensive changes throughout the MVRA must be considered in
ascertaining whether the legislature intended to allow medical providers a direct right of
action against reparation obligors in spite of the express repeal of KRS 304.39-240 . 1 '
Reading KRS 304 .39-241 in light of the MVRA as a whole, we conclude that a medical
provider, such as LDC, is an optional payee or incidental beneficiary of the no-fault
policies.' And, as an incidental beneficiary, LDC has no direct right of action against
the reparation obligor. If a medical provider does not receive payment from the
reparation obligor, either because benefits have been exhausted (the State Farm case)
or because the reparation obligor determines that the charges were neither reasonable
nor medically necessary (the Farm Bureau case), then the insured is the party that is
17
,a
Medical expense benefits may be paid by the reparation obligor directly to persons supplying
products, services, or accommodations to the claimant, if the claimant so designates."
KentuckyTax Comm'n v. Sandman , 300 Ky. 423,189 S.W .2d 407, 409 (1945) ("It is
elementary that each section of a legislative act should be read in the light of the act as a
whole; with a view to making it harmonize, if possible, with the entire act, and with each
section and provision thereof, as well as with the expressed legislative intent and policy."),
overruled on other grounds by Commonwealth ex rel. Allphin v. Borders , 267 S.W.2d 940,
941 (Ky. 1954) .
See Allstate,
754 F.2d at 666 (considering Kentucky MVRA as it existed before the repeal of
KRS 304.39-240 and in conjunction with other statutory provisions of the Act, such as
KRS 304.39-210, and concluding that provider was an optional payee or incidental
beneficiary of no-fault policies) .
12
ultimately responsible for payment . And it is the insured that has the direct right of
action against the reparation obligor if he or she disagrees with the way in which his or
her benefits were either paid or not paid.
We conclude that a medical provider has no standing under the MVRA to bring a
direct action against the reparation obligor/insurer . For this reason, we will not address
the additional issue raised by LDC in the State Farm case pertaining to whether its bill
and assignment of benefits form constitute reasonable proof under KRS 304.39-210(1)
of the fact and amount of loss realized .
We have chosen to decide this case under the current provisions of the MVRA.
We decline, as did the Court of Appeals, to consider the issue of whether the insurance
contracts also prohibited assignments by their terms. Those contracts are not part of
the district court record in either case. In both cases, however, the insurers argued that
the cases should be dismissed because LDC did not have standing under the MVRA to
bring a direct cause of action against them. We agree and affirm on that ground.19
IV. CONCLUSION.
Among the goals of the MVRA are to provide prompt payment of basic
reparation benefits to victims of motor vehicle accidents and to help guarantee the
continued availability of motor vehicle insurance at reasonable prices by a more
efficient, economical, and equitable system of motor vehicle accident reparations . In
1998, the legislature instituted the process of allowing the insured to direct the payment
19
Richmond v. Louisville and Jefferson County Metropolitan Sewer Dist., 572 S.W .2d 601, 602
(Ky.App. 1978), discretionary review denied, ("It is the duty of the reviewing court to consider
all the grounds raised, and to affirm the judgment if it should properly have been entered on
any of the grounds raised .").
of benefits among the different elements of loss. At the same time, the legislature
repealed the provision of the MVRA that allowed an assignment of any right to benefits
under the Act. The repeal of the assignment provision took away any direct cause of
action by the medical provider, and no other current provision of the MVRA can be
construed to afford a direct cause of action to medical providers. We affirm the
conclusion of the Court of Appeals that-on basis of standing-LDC could not pursue
direct rights of action for payment of bast reparation benefits against automobile
insurers of its patients by assignment from the patients .
All sitting, except Schroder, J. All concur.
COUNSEL FOR APPELLANT :
David T. Enlow
Tracey S. Enlow
Enlow & Enlow, PLLC
1850 Lexington Financial Center
250 West Main Street
Lexington, Kentucky 40507-1723
COUNSEL FOR APPELLEE KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY:
Christina L. Vessels
Guy R. Colson
Fowler, Measle & Bell, LLP
300 West Vine Street, Suite 600
Lexington, Kentucky 40507-1660
COUNSEL FOR APPELLEE STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY:
Douglas L. Hoots
Tyler Griffin Smith
Landrum & Shouse, LLP
106 West Vine Street, Suite 800
P. 0. Box 951
Lexington, Kentucky 40588-0951
'
Supawr (~Vurf of ~ffrxrfuxhv
2006-SC-000857-DG
NEURODIAGNOSTICS, INC.
V.
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NUMBERS 2005-CA-000735 AND 2005-CA-001583
FAYETTE DISTRICT COURT NOS. 05-XX-00001 AND 05-XX-00009
KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY
AND STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY
APPELLEES
ORDER OF CORRECTION
The Opinion of the Court by Justice Minion, rendered April 24, 2008, is
CORRECTED on its face by the substitution of page 1 attached in lieu of the
original page 1 of the opinion . Said correction does not affect the holding .
ENTERED : July 30, 2008.
uyr.rmr C~Vurf -of ~rufurhv
2006-SC-000857-DG
NEURODIAGNOSTICS, INC.
V.
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NUMBERS 2005-CA-000735 AND 2005-CA-001583
FAYETTE DISTRICT COURT NOS . 05-XX-00001 AND 05-XX-00009
KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY
AND STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY
APPELLEES
ORDER OF CORRECTION
The Opinion of the Court by Justice Minton, rendered April 24, 2008, is
CORRECTED on its face by the substitution of page 1 attached in lieu of the
original page 1 of the opinion . Said correction does not affect the holding .
ENTERED : July 30, 2008.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.