Michigan Court of Appeals Provides Guidance On Denials and Tolling for PIP “One Year Back Rule”

Noting that no published authority had yet addressed the interplay of the 2019 No-Fault amendments with pre-amendment case law for the “one year back rule,” the Michigan Court of Appeals has concluded that the amendments return the state of law to that provided in the 1986 Michigan Supreme Court ruling in Lewis v. Detroit Auto Inter-Ins. Exch., 426 Mich 93, and its progeny.  Notably, this includes the requirements that for a denial to be formal it must be “sufficiently direct” and “explicit” to “unequivocally impress upon the insured the need to pursue further relief in court,” but need not be in writing.

In Encompass Healthcare, PLLC v. Citizens, Insurance Company, __ N.W.2d __ (2022), 2022 WL 17070670, the Plaintiff Provider, Encompass, provided services for a patient who sustained a cervical fracture in an automobile accident.  The Defendant PIP carrier, Citizens, paid $177,655.25 of $921,828.44 in claimed expenses pursuant to adjustments and issued accompanying Explanation of Benefits forms (EOBs).  The subject expenses were incurred from June to October 2018.  In May 2019, the patient assigned his right to benefits and recovery to Encompass, which filed a Complaint on November 4, 2019.

In the trial court, Citizens moved for summary judgment under the “one year back rule” of MCL 500,3145(2), arguing that the subject expenses were barred because they were incurred more than a year before the filing of the Complaint.  In response, Encompass argued that its claim was not barred because Citizens never formally denied the claimed expenses under the recently adopted tolling provision at MCL 500.3415(3).  Citizens relied on its EOBs as denials, which denied portions of the claimed expenses.

In reaching its decision, the Court of Appeals considered the history of tolling for the “one year back rule.”  In 1978, in Richards v. American Fellowship Mut. Ins. Co, 84 Mich App 629, the Michigan Court of Appeals interpreted the No Fault Act, which at that time did not expressly include tolling, to incorporate a judicially created tolling provision that remained in effect until an insurer formally denied a claim.  The Richards Court reasoned that such tolling was consistent with the Legislature’s purpose in creating the No-Fault Act to promptly and adequately compensate persons injured in auto accidents by avoiding penalizing the insured for the time the insurance company assessed its liability. In 1986, in Lewis, the Michigan Supreme Court added the requirement that an insured seek reimbursement with reasonable diligence to effectuate tolling.  Then, in 2005, in Devillers v. Auto Club Ins. Ass’n., 473 Mich 562, the Michigan Supreme Court, overruled Lewis and its progeny as wrongly decided, judicial policy making contrary to the plain and unambiguous language of the No-Fault Act.  In 2019, the Legislature amended the No-Fault Act by expressly adding the current tolling provision at issue in this case.

The Court of Appeals then reviewed the “one year back rule” as it exists in the current amended No-Fault Act.  MCL 500.3145(2) provides, in relevant part, that, “the claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced.”  MCL 500.3145(3) requires that “a period of limitation applicable under subsection (2) to the commencement of an action and the recovery of benefits is tolled from the date of a specific claim for payment of the benefits until the date the insurer formally denies the claim . . . “  The Court noted that the central difference between the pre and post-amendment MCL 500.3145 was the insertion of the phrase “until the date the insurer formally denies the claim.”  The Court concluded that these amendments, particularly the addition of subsection (3), superseded the Supreme Court’s ruling in Lewis and returned the state of the law to that provided in Lewis and its progeny.

In Encompass, the Court of Appeals held that the “one year back rule” remained tolled because Citizens never formally denied the claim.  Relying on the prior holdings of Lewis and its progeny, the Court of Appeals reasoned that a formal denial need not be in writing, but must be “sufficiently direct” and “explicit” to “unequivocally impress upon the insured the need to pursue further relief in court.”  Notably, the EOBs in this case did not provide the explicit and unequivocal expression of finality required for a formal denial since they did not include language clearly stating that the claims were denied and some comments suggested providing additional information. The Court’s reasoning suggests that, given the proper language, an EOB might suffice as a formal denial, but not in this case.

The return to tolling for the “one year back rule” in the amended No Fault Act is a significant change from the strict calendar-based approach utilized by the pre-amendment Act.    We can expect to see more cases on the issue of whether a particular denial was formal.  Although not required, a written denial would be the best formal notice.  Also, not discussed in the Encompass decision, it should be noted that the amended Act states that tolling does not apply if “the person claiming the benefits fails to pursue the claim with reasonable diligence.”

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. Mr. Ashton 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 jashton@cmda-law.com.