The Michigan Legislature passed no-fault auto insurance laws in 1973 and like a T-Rex guarding its bone, has been holding on to this dysfunctional approach to auto insurance ever since. Instead of running away completely from the problem and joining states which have enjoyed lower auto insurance premiums after abandoning the failed no-fault experiment, Michigan has historically doubled down on their system and made it even more difficult for seriously injured accident victims to receive necessary catastrophic injury coverage. On May 20, 2019, however, Michigan took baby steps toward ridding itself of its dysfunctional and confusing no-fault system. It eliminated core features of the Michigan no-fault law it had in place for nearly 50 years, including doing away with Michigan’s lifetime, unlimited no-fault medical expenses, and giving drivers the choice of opting out of the No-fault Act altogether. At the same time, the new law opens up the tortfeasor’s tort exposure and ensures higher payouts in civil negligence litigation by decreeing that damages that are no longer payable under PIP will be shifted over as an element of damages for the injured person’s tort claim. This historic change in Michigan law presents new potential subrogation opportunities in a state that has otherwise been all but abandoned by subrogation professionals.
On May 20, 2019, Gov. Gretchen Whitmer signed into law SB 1, a massive overhaul of Michigan’s no-fault laws. The signing ceremony took place on Mackinac Island with much pomp and circumstance, and the governor described the changes as “historic.” The historic legislation had a number of flaws, however, and the governor agreed not to submit the new law to the Secretary of State (necessary for it to become law) while she waited for the legislature to return from Mackinac Island to fix the flaws. On June 4, 2019, the legislature passed HB 4397. Governor Whitmer signed it into law on June 11, 2019, and both SB 1 and HB 4397 were sent to the Secretary of State where the Great Seal of Michigan was affixed, they were given their Public Act numbers, and they became law.
As a result of this tortured history, there has been a great deal of confusion as to when the various portions of the bill became or will become effective. Known as HB 4397/SB 1, some of it became effective on May 20, 2019. Other portions became effective June 11, 2019. Much of the bill, however, doesn’t take effect until July 1, 2020.
Ironically, the new legislation was driven by public outcry over the fact that Michigan is the most expensive state in the country for auto insurance. The sad truth is that Michigan has secured its claim to the highest premiums in the country by not running away from no-fault entirely. In essence, the new legislation offers artificial savings by offering less of a bad thing and mandating that insurance companies charge less, no matter how much the coverage costs them. The new bill is also likely to raise liability premiums and chase even more insurance companies out of the Michigan market. SB 1/HB 4397 passed by a slim 61 to 49 margin and makes the following changes:
- Historically, all Michigan drivers have been required to purchase unlimited no-fault Michigan PIP benefits. For auto policies issued or renewed after July 1, 2020, drivers will now have the choice of the following no-fault medical benefits limits:
- $50,000 (if a driver is enrolled in Medicaid)
- $250,000
- $500,000
- No Limits
In other words, there will be a small savings for much less coverage than previous unlimited PIP benefits. (For policies effective after July 1, 2020 and before July 1, 2028).
- The law “mandates” a 45% savings for drivers who opt for the $50,000 cap; 35% savings for drivers who opt for the $250,000 cap; 20% savings for drivers who choose the $500,000 cap; and 10% savings for drivers who wish to have “no limit” and maintain their unlimited No-Fault medical benefits. (For policies effective after July 1, 2020 and before July 1, 2028).
- The new law also gives drivers the option of opting out of no-fault PIP medical benefits altogether. They will see a 100% savings on the no-fault PIP medical portion of their auto insurance bill, which is estimated to be 35% to 44% of the average auto insurance bill in Michigan. Sadly, even this savings will not bring down the sky-high Michigan premiums enough to make them affordable for the average Michigan resident. (For policies effective after July 1, 2020 and before July 1, 2028).
- Insurance companies who decide to stick it out in Michigan will have the opportunity to demonstrate to the Insurance Commissioner that the new law’s mandatory rate reductions would violate their constitutional rights and leave them at risk of having too little “capital.” (For policies effective after July 1, 2020 and before July 1, 2028).
- The Michigan Catastrophic Claims Association (MCCA) was created along with no-fault to pay injured motorists’ medical bills in serious accidents. The MCCA is not a no-fault insurer of its member insurers. Rather, it is an indemnitor for benefits paid by member insurers in excess of the statutory thresholds established under enabling statute.[1] Under the new Michigan legislation, the CAT Fund will still be liable for catastrophic injury payments for policies issued before July 1, 2020. But for policies issued afterward where the driver opts for the lower premiums or opts out altogether, the drivers will still have to pay annual MCAA assessments to cover deficits even though they receive no benefit from it. The MCCA will pay refunds (difference between excess and 120% of liabilities) to drivers if actuarial examination shows that MCCA assets exceed 120% of the MCCA’s liabilities. (For policies effective after July 1, 2020 and before July 1, 2028).
- The quality and efficiency of medical care provided under a Michigan auto policy will decline because the new law attempts to socialize an already bad idea. A no-fault fee schedule based on the Medicare fee schedule has been created and it will now govern charges from doctors, hospitals, clinics, rehabilitation facilities and any other provider who treats car accident victims. Reimbursement to health care providers will range from 190% to 250% of the amount payable under Medicare. The new fee schedule will apply to “treatment or rehabilitative occupational training” rendered after July 1, 2021. (Eff. 7/1/20).
- The savings that auto insurance companies will realize (corresponding naturally to the medical charges that health care providers will now be forced to eat) will not even be enjoyed by auto insurers. Instead, the new law mandates that these savings must be passed on to the insurance consumer in the form of lower premiums. Insurers will have to hire more paper-pushers because the law requires them to document these lower premiums in their rate filings. However, the Insurance Commissioner will not start “checking under the hood” until July 1, 2022. (Eff. 7/1/20, but not implemented until 7/1/22).
- Auto insurance companies are being told that beginning July 1, 2020 they can no longer calculate insurance premiums based on certain pricing factors that have been the nuts and bolts of underwriting since insurance came into existence. The law prohibits them from considering sex, marital status, home ownership, education level, occupation, postal zones, and credit scores. This will ensure that good drivers who enjoy lower premiums will be forced to subsidize bad and risky drivers. It couldn’t be more backwards. Naturally, insurance companies have had to increase premiums in anticipation of these Orwellian restrictions on generations of underwriting science. (7/1/20).
- The Michigan mini-tort law maximum recovery limit will rise from $1,000 to $3,000 effective July 1, 2020. (Eff. 7/1/20).
- The new law also contains significant restrictions and conditions on the use of independent medical exams of car accident victims by doctors hired by the no-fault carrier. (Eff. 6/11/19).
- No-fault benefits for in-home, family-provided attendant care is limited to 56 hours per week. (eff. 7/1/20).
- A new anti-fraud unit will search for and punish all “criminal and fraudulent activities in the insurance market.” (Eff. 5/30/19).
- The Insurance Commissioner will now be stepping in to help when carriers deny benefits. An insurance page on the Commissioner’s website is created to allow people to report insurance fraud and unfair settlement and claims practices. (Eff. 5/30/19).
- The verbal threshold of “serious impairment of bodily function, or permanent, serious disfigurement” which allows a driver to sue a third party has been redefined as an impairment that is:
- “objectively manifested” (meaning it is “observable or perceivable from actual symptoms or conditions by someone other than the injured person), or
- Is “an impairment of an important body function” (meaning a body function of great value, significance, or consequence to the injured person), or
- “affects the injured person’s general ability to lead his or her normal life” (meaning it “has had an influence on some of the person’s capacity to live in his or her normal manner of living.”). [2]
There is no time limit as to how long the impairment must last to be considered “serious.” This new definition of “serious impairment of body function” is intended to comply with a Supreme Court decision that criticized the old definition.[3] (Eff. 6/11/19).
The Following Changes Present New Potential Subrogation Opportunities
Section 500.3145(1) provides a one (1) year limitations period for claimants to bring Michigan no-fault actions. However, under subsection (2), if a no-fault insurer pays benefits or receives notice under subsection (4), the limitations period is one (1) year from the date benefits are last incurred, but only benefits incurred in the year prior to filing are recoverable. The new law tolls the subsection (2) limitations dates (as to both the filing of the action and the benefits which are recoverable) by the period of time between the date a claim for benefits is made and the date the insurer formally denies the claim, providing increased recovery potential on long-tail claims. In summary, subsection (3) tolls the limitations period in cases where notice was given under subsection (4) or the carrier has made previous PIP payments. Specifically, it tolls the limitations date by the period of time between the date a claim for benefits is made and the date the insurer formally denies the claim. However, the subsection (3) tolling provision does not apply if the claimant fails to pursue the claim with reasonable diligence. (Eff. 6/11/19).- Residual Liability Insurance coverage is required to provide protection from lawsuits which exceed the no-fault thresholds, accident with non-residents whose vehicles are not registered in Michigan, and for mini-tort liability. The previous limits of this coverage was $20,000 per person and $40,000 per occurrence. Those limits are now increased to default limits of $250,000/$500,000, with new mandatory limits of $50,000/$100,000 should the driver so choose. (For policies effective after July 1, 2020 and before July 1, 2028).
- Under the new law a driver is able to sue for those excess medical benefits which exceeded the threshold of the PIP cap amount they selected. The third-party liability coverage available to the tortfeasor now becomes much more important. This ability to sue starts only after the new no-fault PIP options begin on July 1, 2020. (Eff. 7/1/2020).
- Prior to June 11, 2019, out-of-state residents injured in a Michigan car accident could recover Michigan no-fault benefits if their insurer was a certified insurer under § 500.3163. However, the out-of-state residents’ insurers merely had the subrogation rights of Michigan PIP carriers under § 500.3116. Under the new law, out-of-state residents are no longer eligible to recover Michigan no-fault benefits unless they register and insure a motor vehicle in Michigan.[4] Out-of-state residents will have to file suit to recover damages, but will still have to prove a “threshold” injury.[5] This change transforms such accidents from first-party PIP claims to third-party tort claims to which §§ 500.3109(1)[6] and 500.3116 are not applicable, thereby providing new subrogation opportunities.(Eff. 6/11/19).
New Subrogation Opportunities
The last four bullet points above represent new areas of potential subrogation which did not exist under the old law. In situations where a claim languishes for a while, we may now be able to make a claim for benefits which tolls the statute of limitations and extends the period of time for which benefits incurred are recoverable. Under the old law, we were dealing entirely with first-party PIP claims. Now, however, a tort claim, where PIP benefits are not paid is a viable way to seek reimbursement. Sections 500.3116 and 500.3109 would not apply because the tort recovery would not be considered PIP benefits.
In the past, Michigan auto subrogation was limited under § 500.3116 to out-of-state accidents, actions against uninsured motorists, and intentional acts. Though § 500.3116 did not change, the method by which Michigan motorists will be compensated has. Now, compensation over first-party PIP limits will be recovered through tort actions, and because such recoveries are not PIP benefits, the recoveries are not subject to § 500.3116. Similarly, compensation recovered in this matter will not be subject to the Collateral Source Rule of § 500.3109.
Recovery for out-of-state motorists is also impacted by the reform. In the past, if the out-of-state insurer was certified under § 500.3163, the out-of-state insurer’s policy was conformed to Michigan law to provide Michigan benefits. Now, such policies will not be reformed, and insureds will have to institute tort actions to be compensated. These recoveries are also not subject to § 500.3109 and § 500.3116 and, therefore, present a new opportunity for subrogation recoveries.
Effective Dates of the New Law
While the governor signed HB 4397 into law on May 30, 2019, portions of the new law do not go into effect June 11, 2019, and still others won’t become effective until July 1, 2020. The tolling of the one-year-back rule, the new consumer anti-fraud unit, and the new online consumer page for the Insurance Commissioner/Department of Insurance and Financial Services became effective on May 30, 2019. The new definition of the “serious impairment” threshold, the new rules for IME’s, and the new rules for out-of-state residents injured in Michigan all became effective on June 11, 2019. Other changes, including the 56-hour limit on in-home family care and the new medical provider fee schedule become effective on July 1, 2021.
The massive changes to Michigan no-fault laws will have a trickle-down effect from underwriting, to claims, and finally to subrogation efforts. It remains to be seen if the savings realized on the PIP side of the legislation will be offset by the increase in a corresponding increase in liability insurance premiums. The new law appears to assume a level of consumer sophistication, anticipating that drivers will realize exactly what their employer-provided health coverage actually provides when it comes to the choice of opting out of no-fault.
If you have any questions about Michigan no-fault law or auto insurance subrogation, contact Gary Wickert at gwickert@mwl-law.com.
[1] M.C.L.A. § 500.3104(2).
[2] M.C.L.A. § 500.3135(5)(a).
[3] McCormick v. Carrier, 795 N.W.2d 517 (Mich. 2010).
[4] M.C.L.A. § 500.3113(c).
[5] M.C.L.A. § 500.3135(3)(d).
[6] M.C.L.A. § 500.3109(1) generally provides insurers providing PIP benefits with an offset for benefits provided or required to be provided under state law. Because out-of-state residents will not be recovering Michigan PIP benefits, no collateral source reduction will be permitted.
