A Breakdown of the New Michigan No-Fault Legislation
On May 30, 2019 Governor Whitmer signed Senate Bill 1 to reform Michigan’s No-Fault Act. After more than 45 years of being a “no-fault state” in which people injured in automobile accidents had medical expenses and other benefits provided under the Michigan No-Fault Act without the need to file a lawsuit against a negligent driver or owner, the Act is undergoing significant changes that will affect Michigan residents and non-residents involved in automobile accidents in and outside of Michigan. Beyond the elimination of required “lifetime benefits,” the addition of tiered personal injury protection (PIP) coverage, and the reduction of premiums highlighted in recent news headlines, this reform includes many other substantive changes to PIP coverage, as well as related changes to tort liability that will transform Michigan into a mixed no-fault and tort state as of July 1, 2020.
- Available Benefits
The Michigan No-Fault Act will no longer require a lifetime of medical expense benefits. For insurance policies issued or renewed after July 1, 2020, pursuant to MCL 500.3107c, insurers will be required to provide the following PIP coverages for allowable expenses with associated premium reductions:
- $50,000 PIP allowable expense coverage (45% PIP premium reduction);
- $250,000 PIP allowable expense coverage (35% PIP premium reduction);
- $500,000 PIP allowable expense coverage (20% PIP premium reduction);
- Unlimited PIP allowable expense (10% PIP premium reduction); and
- Opt out option (no PIP premium).
Uber and Lyft operators will be required to obtain $250,000, $500,000 or unlimited coverage. In regard to the capped coverages, the insurer must offer a rider for attendant care in excess of the applicable limit.
Notably, only the PIP portion of the insurance premium will be reduced by the coverage selected. By definition, allowable expense coverage includes medical expenses, attendant care, vocational rehabilitation, and long-term institution care expenses.
Michigan no-fault coverage, per MCL 500.3107(1)(a)(b) and (c), will continue to include wage loss (with monthly maximums), household service (still at $20.00 per day), and funeral benefits. Notably, the capped limits only apply to allowable expenses, not wage loss, household service or funeral benefits (between $1,750.00 and $5,000.00). The draft legislation we reviewed does not provide for survivors’ loss benefits, currently provided for at MCL 500.3108. However, survivors’ loss benefits are referenced at MCL 500.3135(3)(c). We will continue to monitor whether or not these benefits will still be available in the amended No-Fault Act.
Some people will be able to opt out of the no-fault system. Under the provisions of MCL 500.3107, a “qualified person” (meaning a person covered by Medicaid) or that named insured’s spouse and relatives residing in the household must have either “qualified health coverage” (Medicare or health and accident coverage that “does not exclude or limit coverage for injuries related to motor vehicle accidents” and for which the individual deductible is $6,000 or less per individual”) or no-fault benefits from other sources. Should the “qualified person” lose their “qualified health coverage,” then that person has 30 days to obtain no-fault coverage or he or she will be excluded from all “allowable expense” coverage “during the period in which coverage under this section was not maintained.” During the 30 day period, should that person sustain an injury, he or she may claim benefits through the Assigned Claims Plan with a $2,000,000 cap. Should that person fail to obtain no-fault coverage within that 30 day period, he or she would be excluded from recovering allowable expenses unless benefits are available elsewhere.
The new statute, at MCL 500.3107(5), specifically provides that the PIP coverage election applies to the named insured, the spouse or relatives domiciled in the same household, and “to any other person with a right to claim PIP benefits under the policy.”
- Cost Containment
The amended No-Fault Act includes cost-containment in the form of fee schedules and utilization reviews.
Fee Schedules – MCL 500.3157
Interestingly, the fee schedules do not take effect until July 1, 2021. Beginning July 1, 2021, most providers will be capped at 200% of the Medicare Fee Schedule. As of July 1, 2022, this will drop to 195% and then to 190% in July 2023. There are various exceptions to the fee schedule, such as for facilities that render treatment or rehabilitative occupational training, as well as Level I and Level II trauma care centers. If there is no Medicare Fee Schedule in place for a particular service, then the rate will be 55% of the rate charged by that facility as of January 1, 2019, eventually dropping to 52.5%.
Notably, there is no hourly rate cap for attendant care. However, at MCL 500.3157(10), there is an hourly cap of 56 hours per week (established by the Worker’s Disability Compensation Act) for care provided in the home by an individual related to the injured person, an individual domiciled in the household of the injured person, or an individual with whom the injured person had a business or social relationship before the injury.
Utilization Review – MCL 500.3157A
The Department of Insurance will be required to establish a Utilization Review Department to:
Establish criteria or standards for utilization review that identify utilization of treatment, products, services or accommodations under this chapter above the usual ranges of utilization for the treatment, products, services or accommodations based on medically accepted standards.
Medical providers will be required to submit records and other information and to comply with any decision of the Department of Insurance regarding utilization reviews. If the Department determines that a provider’s treatment, products, services or accommodations are “longer in duration than, are more frequent then, or extend over a greater number of days than the treatment, products, services or accommodations will usually require for the diagnosis or condition for which the patient is being treated,” the insurer can request the provider to explain why such treatment is necessary. A provider may appeal an insurer’s denial of a claim based on the Department’s utilization review to the Department under rules to be promulgated by the Department.
- Provider Claims
At MCL 500.3112, the Legislature effectively negates the Michigan Supreme Court’s Covenant decision, 500 Mich 191 (2017), by expressly providing that a healthcare provider may make a claim and assert a direct cause of action against an insurer or under the Assigned Claims Plan. As a practical matter, this means that a provider will no longer be required to obtain an assignment from an injured party.
The amended Act essentially retains the prior language of MCL 500.3112, indicating that the “payment by an insurer in good faith of personal protection insurance benefits, to or for the benefit of a person who it believes is entitled to the benefits, discharges the insurer’s liability to the extent of the payments unless the insurer has been notified in writing of the claim of some other person.” Although the amended Act gives a provider a statutory right to make a claim, the lack of any amendment to the payment language may require the filing of a “3112 motion” by an insurer for an “appropriate order” should there be any doubt about the proper person to receive the benefits.
- Priority Changes
There are major changes to the priority provisions of MCL 500.3114.
Named insureds now recover benefits up to the chosen limit without potential recoupment from other household policies. Moreover, occupants without their own policies (unless they have opted out of coverage as is now allowed) or insurance in his or her household, obtain coverage from the Michigan Assigned Claims Plan, not the insurer of the owner, registrant or operator of the motor vehicle occupied. Similarly, non-occupants without insurance of their own obtain coverage thought the Michigan Assigned Claims Plan with a cap at $250,000.
The basic priority structure for motorcycles, at MCL 500.3114(5) is unchanged. However, it should be noted that a motorcyclist or passenger injured in a motor vehicle accident would be limited to the PIP coverage option chosen by the owner, registrant or operator of the motor vehicle involved in the accident.
- Overdue Benefits
At MCL 500.3142, the existing 30 day time period to determine benefits as “overdue” has been changed to reflect that, if a provider of allowable expenses fails to submit a bill to the insurer within 90 days after the service has been provided, the insurer has an additional 60 days, in additional to the existing 30 days, to make payments before the benefits are “overdue” giving rise to interest.
- “One Year Back Rule” – Tolling
At MCL 500.3145(3), the Legislature goes back to the prior Lewis v. DAIIE, 426 Mich 93 (1986) claim-tolling provision and effectively overrules the Devillers v. ACIA, 473 Mich 562 (2005) standard, providing that:
A period of limitations applicable . . . to the commencement of an action and the recovery of benefits is tolled from the date a specific claim for payment of the benefits until the date the insurer formally denies the claim. This subsection does not apply if the person claiming the benefits fails to pursue the claim with reasonable diligence.
Determining expenses available under the “one year back rule” will now be more difficult than just determining the date of the filing of the Complaint.
- Attorney Fee Limits
According to MCL 500.3148, attorneys may no longer claim a fee for undisputed benefits or for future payments ordered more than three years after the trial court judgment or order is entered.
- 3163 Certification
This legislation effectively repeals MCL 500.3163 that currently provides that insurers doing business in Michigan must certify that any accidents occurring in Michigan involving out-of-state residents insured under their auto policies essentially receive Michigan PIP benefits.
- Out-Of-State Accident
The amended legislation regarding out-of-state accidents would seem to require redrafting.
This amendment apparently changes the current no-fault law which generally provides that accidents occurring outside of Michigan are compensable under the No-Fault Act only if the injured person was the named insured, spouse of a named insured or a relative of either domiciled in the same household under a Michigan no-fault policy. The amended statute, at MCL 500.3111, now provides that an occupant of a Michigan registered and insured vehicle involved in an accident outside of Michigan needs to be a Michigan resident to claim PIP benefits. However, the same provision also states “or if the owner or registrant of the vehicle was insured under a personal protection insurance policy or provided security approved by the secretary of state under section 3101(4),” which would potentially provide coverage for an out-of-state resident in an out-of-state accident.
- Out-Of-State Residents
This legislation amends MCL 500.3113(c) to exclude benefits when “the person was not a resident of this state.” However, there is an exception for an out-of-state resident who owns a motor vehicle registered in Michigan.
MCL 500.3151 now requires the person performing an independent medical examination (IME) to be a licensed, board certified or board eligible physician qualified to practice in the area of medicine appropriate to treat the person’s condition. Moreover, during the year immediately preceding the examination, the examining physician must have devoted a majority of his or her professional time to either or both the active clinical practice of medicine or the instruction of students in an accredited medical school, residency or clinical research program.
- Underwriting Restrictions
From the carrier and insured’s perspective, it is significant that insurers can no longer establish rating classifications for home ownership, educational level, occupation, postal zones or credit scores effective July 1, 2020. Previously, the only restrictions were for sex and marital status.
- Michigan Assigned Claims Plan
This legislation makes various amendments to the Michigan Assigned Claims Plan at MCL 500.3172 to MCL 500.3177. Notably, neither the Michigan Automobile Insurance Placement Facility nor an assigned insurer is required to pay interest on a claim “for any period of time during which the claim is in dispute.” Moreover, benefits are capped at $250,000 with several exceptions:
- There is a $2,000,000 cap for a person who opts out of the no-fault system as a Medicare recipient per MCL 500.3107d, but that coverage ends if that person fails to obtain no-fault insurance as otherwise required by the Act; and
- There is a $2,000,000 cap for a person who exempts himself or herself from the Act under MCL 500.3109a(2), but lose coverage and then fail to obtain coverage as otherwise required.
Both of these exceptions seem strange since the individuals are acting contrary to the Act but are seemingly eligible for $2,000,000 in benefits.
The amendment also expressly provides that an assignment by the Michigan Automobile Insurance Placement Facility to a servicing insurer is not an admission that PIP coverage is owed.
- Anti-Fraud Unit
This legislation, at MCL 500.6301, establishes an Anti-Fraud Unit in the Department of Insurance authorized to investigate “persons subject to the department’s regulatory authority, consumers, insureds, and any other persons allegedly engaged in criminal and fraudulent activities in the insurance market.” The unit may conduct background checks on applicants for licenses and current licenses, collect and maintain claims of criminal and fraudulent activities in the insurance industry and share records with other criminal justice agencies. Notably, the unit cannot share information with insurers or their defense counsel since the information related to an investigation is not subject to subpoena or the Freedom of Information Act. Moreover, the director and any other person acting on behalf of the unit is not allowed to testify in any private civil action. The unit also has no authority to initiate prosecutions, but rather may:
Conduct outreach and coordination efforts with local, state and federal law enforcement and regulatory agencies to promote investigation and prosecution of criminal and fraudulent activities in the insurance market.
The practical effectiveness of the Anti-Fraud Unit will need to be demonstrated in the real world.
Additionally, the Department of Insurance is to maintain on its internet website a page that allows a person to report fraud and unfair settlement and claims practices.
- Available Damages and Threshold
Significantly, per MCL 500.3135(3)(c), the No-Fault Act will now allow for the recovery of future allowable expenses and work loss in a negligence action.
Specifically, “all future allowable expenses and work loss” in excess of “any applicable limit or the daily, monthly and three year limitations” or “without limit for allowable expenses if an election to not maintain that coverage was made under section 3107D or if an exclusion under section 3109A(2) applies” will be recoverable, minus the amount of taxes that would have been payable on account of the work loss if the person meets the death, serious impairment or permanent serious disfigurement thresholds.
It is also notable that, at MCL 500.3135(5), the Legislature has now codified the Michigan Supreme Court’s McCormick standard, 487 Mich 180 (2010), defining “serious impairment of body function” to be an impairment that satisfies all of the following requirements:
- “It is objectively manifested, meaning it is observable or perceivable from actual symptoms or conditions by someone other than the injured person;”
- “It is an impairment of an important body function, which is a body function of great value, significance, or consequence to the injured person;” and
- “It 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. Although temporal considerations may be relevant, there is no temporal requirement for how long an impairment must last. This examination is inherently fact and circumstance specific to each injured person, must be conducted on a case-by-case basis, and requires comparison of the injured person’s life before and after the incident.”
- Liability Limits
Apparently effective for policies issued or renewed after July 1, 2020, but not specifically indicated in the new legislation, new mandatory minimum limits will raise from $20,000 per person/$40,000 per occurrence to $50,000 per person/$100,000 per occurrence with a “default” minimum of $250,000 per person/$500,000 per occurrence if an applicant does not sign a form explaining the various liability policy limit choices, costs and an explanation of the risks of accepting lower liability policy limits.
- Mini Tort
According to MCL 500.3135(3)(e), Mini Tort coverage will increase from $1,000 to $3,000.
As you can see, the Legislature chose to make many significant changes to both PIP and negligence claims. It appears that portions of the amendments may need to be re-drafted. There are different effective dates for different provisions. Some of the provisions are clearer than others. Some sections appear to be contradictory. Regardless, as of July 1, 2020, we will be actively handling issues and claims under a new No-Fault Act.
Joel Ashton is a partner in our Livonia office where he focuses his practice on insurance defense, including Michigan No-Fault claims (PIP, automobile negligence, uninsured/ underinsured motorist), as well as premises liability and general negligence. His practice also includes the defense of contract and liability claims, contract interpretation issues, subrogation claims involving automobile, fire and casualty, commercial and related coverage. He maintains an AV Preeminent Rating from Martindale-Hubbell, which is the highest possible rating an attorney can achieve for both ethical standards and legal ability. He may be reached at (734) 261-2400 or firstname.lastname@example.org.