A New Era Of Automobile Insurance For The Wolverine State

Michigan No-Fault LawsEveryone in Michigan is financially frustrated with the high price of automobile insurance. Recently, Detroit Mayor, Mike Duggan, along with eight other motorists filed a suit in U.S. District Court in an effort to expedite the elimination of Michigan’s no-fault system. The litigation comes as insurance premiums continue to rise, and after two bills were presented in the Michigan Legislature aimed at eliminating the no-fault system in place. The average cost of insurance premiums in Detroit is $6,197 per driver, whereas the average in California’s tort jurisdiction is $1,518 with 26,199,436 drivers.[1]

The Effect of No-Fault Insurance Laws

In 1972, the Michigan Legislature adopted no-fault in an effort to keep automobile premiums low. It has shaped Michigan automobile insurance claims by requiring no-fault insurance policies for every vehicle on the road.[2] The Michigan Department of Insurance and Financial Services informs citizens:

If you have an automobile accident, no-fault insurance pays for your medical expenses, wage loss benefits, replacement services, and the damage you do to other people’s property. It does not matter who caused the accident”.[3]

Consumers can get “Personal Injury Protection” (PIP) policies, but these only cover bodily injury. PIP policies can be supplemented with “Property Protection Insurance” (PPI) policies which provide up to $1 million in property damage protection. With the minimum policy in Michigan being $20,000 per person / $40,000 per accident and $10,000 in property damage, the required minimums mimic that of other states.

The problem with the no-fault legal system in Michigan, and the other 11 states which have one, is the exorbitant cost.[4] Studies have shown over the course of a 20-year period (1987 to 2007), insurance premiums under the no-fault jurisdictions are 50% higher than those in a tort system.[5] The two main reasons given for the difference in cost were:

  1. The insurance provider pays for more treatment in no-fault jurisdictions than in tort jurisdictions; and
  2. The cost of the medical treatment on no-fault insurance carriers is greater now than it was in 1987.[6]

The insurance carriers bear the cost of the medical treatment in no-fault systems. The automobile insurance carriers in Michigan must pay for the medical treatment, not the health insurer of the injured party. Whether the policies cost more because of fraudulent cases or increased medical bills, the insurance companies are securing their overhead by reallocating the costs to the consumer (either the business or the driver). In Michigan the required costs to maintain an insurance policy makes not having one a more cost-effective option.

Change in Michigan

In February 2018, Rep. Jason Sheppard and Rep. Beau LaFave introduced House Bills (H.B.) 5517 and 5519 respectively.[7] H.B. 5517 calls for the elimination the no-fault laws, and H.B. 5519 seeks to revise the requirements of the 1973 Act and eliminate the no-fault rules entirely.

These two bills have yet to go anywhere. The next step for the frustrated Detroit Mayor was to file suit on behalf of Michigan residents in an effort to advance the issue. Although the Mayor may be attempting to push the hand of the Legislature via the use of the courts (which poses other issues), the high cost of insurance in the state justifies the law suit. The Mayor’s actions are a good indication of the desire for a changed system held by all Michiganders.

Removing the no-fault system would return Michigan to a tort jurisdiction. Rates are already predicted to drop by 50%.[8] Even though a recent study showed Detroit has the best drivers in the country, a drop in the price of automobile insurance premiums should be welcomed by all.[9] Changes made through the Legislature and the courts is often slow, but there seems to be a strong social push to move Michigan out of the old system and into the tort world.

If you should have any questions regarding this article, please contact Matthew Spolsky at [email protected].

[1] Total number of licensed drivers in the U.S. – by state 2016 | Statistic, Statista, https://www.statista.com/statistics/198029/total-number-of-us-licensed-drivers-by-state/ (last visited Aug. 30, 2018).

[2] Michigan No-Fault Automobile Insurance, Automobile No-Fault Law, https://automobilenofaultlaw.com/michigan-no-fault/overview/ (last visited Sep 23, 2018).; Consumer Counselor: Insurance Information for Michigan Consumers, (2018), https://www.michigan.gov/documents/cis_ofis_ip202_25083_7.pdf (last visited Aug. 29, 2018).

[3] Id.

[4] Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah have no-fault automobile insurance laws.

[5] What Happened to No-Fault Auto Insurance? RAND Corporation (2010), https://www.rand.org/pubs/research_briefs/RB9505/index1.html (last visited Sept. 23, 2018).

[6] Id.

[7] Michigan Legislature, Michigan Legislature – Act 17 of 1963, http://www.legislature.mi.gov/(S(fvlkvvfytdegcd3h2opdyrxa))/mileg.aspx?page=getObject&objectname=2018-HB-5517 (last visited Aug. 30, 2018); Michigan Legislature, Michigan Legislature – Act 17 of 1963, http://www.legislature.mi.gov/(S(j22zh4nocoxurh4lk1syndzq))/mileg.aspx?page=getObject&objectname=2018-HB-5519 (last visited Aug. 30, 2018).

[8] https://www.mlive.com/news/index.ssf/2018/02/michigans_no-fault_automobile_insura.html.

[9] Brian Manzullo, Detroit has the best drivers in America, study says Detroit Free Press (2017), https://www.freep.com/story/news/local/michigan/detroit/2017/06/27/detroit-best-drivers-america/431393001/ (last visited Sept. 23, 2018).

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Matthew M. Spolsky
Juris Doctor