How To Understand The History Of No Fault Insurance In Michigan

Transcription

1 SYMPOSIUM: THE FUTURE OF MICHIGAN NO-FAULT AUTO INSURANCE University of Detroit Mercy Law Review s First Annual Live Symposium 1 INTRODUCTION The University of Detroit Mercy Law Review hosted its First Annual Live Symposium on March 12, The Symposium, The Future of Michigan No-Fault Auto Insurance, was comprised of a distinguished panel of practitioners and legal scholars, which attracted the attendance of various academics, members of the student body, and other insurance practitioners. The Symposium began with a brief overview of the topics to be discussed, followed by presentations from a few prominent professionals: James Mellon, George Sinas, and James Gross. Those presentations concerned a variety of current issues relating to the state of no-fault insurance law in Michigan. I. PANELIST PRESENTATIONS A. James Mellon:A Brief History of No-Fault Automobile Insurance Law 2 Mr. Mellon began his presentation with a short history of Michigan s no-fault workers compensation scheme that began in 1912 and would ultimately lead to the development of the State s no-fault automobile insurance legislation. Interestingly, the no-fault workers compensation was a pure no-fault scheme and was only available to male workers. Mr. Mellon noted that Michigan adopted its first form of automobile insurance legislation in This form of insurance was based on the traditional tort system, whereby the victim was required to file a third-party claim against the insurer of the responsible party. Mr. Mellon proceeded to 1. This article is based upon the events that took place at the Live Symposium on March 12, A video recording of the event is available at the University of Detroit Mercy. 2. James Mellon, Address at the University of Detroit Mercy Law Review Symposium: A Brief History of No-Fault Automobile Insurance Law (Mar. 12, 2010).

2 634 UNIVERSITY OF DETROIT MERCY LAW REVIEW [Vol. 87:633 discuss two influential studies that he believed impacted the eventual adoption of no-fault automobile insurance in Michigan. The first study was conducted by Columbia University, which found that the greatest cause of injuries during the 1930s was automobile accidents. The second study, conducted by Harvard University, concluded that the traditional tort system was designed to compensate for said injuries, but it was deficient in several ways. For example, tremendous amounts of litigation caused significant delay in the receipt of insurance benefits for the most seriously injured claimants. Additionally, many successful claimants sustaining only minor injuries were receiving payments in excess of the amounts necessary for their recovery. Mr. Mellon concluded by discussing the 1973 adoption of no-fault automobile insurance under the Michigan No-Fault Insurance Act. 3 The no-fault system in Michigan allows the victim to file a claim against its own insurer for economic losses, (i.e., medical expenses associated with an injured policyholder s treatment and rehabilitation) in addition to actual wage losses subject to statutory maximums. Additionally, Michigan s nofault laws allow injured claimants to file traditional tort claims against the insurer of the at-fault party for damages arising from serious pain, suffering, and disfigurement. Accordingly, Michigan s no-fault scheme was designed to cure the deficiencies of the traditional tort system by providing injured claimants the ability to file first-party insurance claims for necessary medical expenses and limited economic expenses, while preserving the claimant s right to seek additional tort damages under the common third-party claim. B. George Sinas:No-Fault PIP Causation Law and the Decisions in Griffith v. State Farm and Scott v. State Farm Mr. Sinas opened his discussion by emphasizing that Michigan s nofault insurance scheme is the most comprehensive in the nation. While various other States provide some form of no-fault coverage, virtually all of them limit the recovery of economic losses to a particular monetary amount. However, unlike other States, section 3107(1) of Michigan s No- Fault Insurance Act provides, inter alia, unlimited lifetime benefits that are payable to the seriously injured policyholder for economic expenses incurred as a result of an automobile accident that are reasonably necessary for the policyholder s care, recovery, and rehabilitation. 4 These benefits are known as Personal Injury Protection Benefits (PIP benefits). Additionally, the causation standard that must be met before a policyholder is entitled to recover such benefits under section 3107(1) is generally not difficult to establish. Consequently, Mr. Sinas would contend that these provisions reflect the intention that Michigan s no-fault scheme was designed to 3. See MICH. COMP. LAWS ANN et. seq. (West 2009). 4. MICH. COMP. LAWS ANN (1) (West 2009).

3 Summer 2010] FIRST ANNUAL LIVE SYMPOSIUM 635 promote a broad source of recovery for every auto accident victim who sustains devastating injuries. The causation standard introduced by Mr. Sinas was articulated by the Michigan Supreme Court in Scott v. State Farm. 5 For purposes of a policyholder s entitlement to PIP benefits, the Michigan Supreme Court incorporated into section 3107(1) the broad causal nexus standard included in section 3105(1). Ultimately, the court concluded that the standard in section 3105(1) encompasses almost any injury arising out of, or in connection with, an automobile accident for purposes of the policyholder s entitlement to PIP benefits. The court in Scott insisted that although the standard requires more than a mere coincidence, it does not rise to a level that necessitates proximate cause. Therefore, if an injured policyholder can establish some connection between the injuries sustained and the auto-accident, she will be eligible for PIP benefits. Mr. Sinas concluded that the reluctance of the court in Scott to require proximate causation under section 3107(1) emulates Michigan s desire to avoid the tremendous complexities and burdens associated with the traditional tort system a primary objective underlying the No-Fault Act s provision of a prompt and adequate system of insurance recovery. In an attempt to illustrate that the causal nexus standard set forth in Scott has not always been controlling, Mr. Sinas continued his presentation with a review of Griffith v. State Farm. 6 In Griffith, the Michigan Supreme Court concluded that an insured s ordinary, everyday food expenses are not related to injuries sustained in an auto accident or necessary for the care, recovery, or rehabilitation of the policyholder because such costs would be incurred regardless of whether an accident and injuries were sustained. In essence, if an injured policyholder had to pay for an expense prior to the occurrence of the accident, i.e. food, then the policyholder cannot claim that expense after the accident as an allowable expense. Mr. Sinas asserts that this holding is considered to support a notion of incrementalism, meaning that an insurance company must only pay allowable expenses to the extent that they are related to the accident, exclusive of any portion of the expenses which existed previously. Thus, the idea of incrementalism represents the tort concept of allocation within the No-Fault Act which unlike the Scott standard, requires proximate cause. However, Mr. Sinas pointed out that the notion of incrementalism had been previously rejected by relevant case law. Consequently, because Griffith operates to include concepts of tort law that require causation standards not intended to be utilized by the No-Fault Act and that the courts have determined inapplicable for purposes of entitlement to PIP benefits, Mr. Sinas predicts that its precedent will likely be overturned in the near future N.W.2d 249 (Mich. 2008) N.W.2d 895 (Mich. 2005).

4 636 UNIVERSITY OF DETROIT MERCY LAW REVIEW [Vol. 87:633 C. Jim Gross:The Rise, Fall, and Uncertain Future of the No-Fault Act s One-Year- Back Limitation on Recovery Mr. Gross began his discussion by describing the No-Fault Act s one-year-back limitation on recovery. He explained that under section 3145(1) of the No-Fault Act, an action against the insurer for PIP benefits must be filed within one year of the date of the accident unless (1) the injured party gives written notice to the insurer of the injury/accident within a one year period; or (2) the insurer has made a payment for PIP benefits. 7 If the injured party provides written notice within one year of the accident or the insurer has distributed PIP benefits, the claim may be filed within one year after the most recent work loss or survivor s loss payments had been made by the insurer. However, the claimant cannot receive PIP benefits for injuries that occurred more than one year before the commencement of the action. Accordingly, the purpose of the rule is to ensure the economical distribution of PIP benefits by reducing the financial burdens posed by claims not otherwise contemplated by the No-Fault Act, which simultaneously promotes the affordability of the mandatory no-fault insurance. Mr. Gross discussed the Michigan Supreme Court s reluctance to allow statute of limitation tolling provisions to impede the function of the one-year-back provision. For instance, the minority/insanity tolling provisions under section 5851(1) of the Revised Judicature Act maintains that if a claimant is under eighteen years of age, imprisoned, or insane, he can still bring a cause of action one year after the disability is removed. 8 However, in Cameron v. ACIA, 9 the Michigan Supreme Court found that the minority tolling provision does not apply to the one-year-back rule because this rule is not a statute of limitations, but rather a damage limiting provision that applies only to the amount of recovery that a claimant may receive once an action has been brought, as opposed to a limitation on whether an actual cause of action may be initiated. Mr. Gross indicated that the court s rationale in Cameron applied with equal force to the Michigan Department of Community Health ( MDCH ) in Liptow v. State Farm. 10 In Liptow, the MDCH sought reimbursement for $1.5 million in medical benefits for the expenses of an injured auto accident victim. The insurer invoked the one-year-back provision to defeat the claim. In response, the MDCH sought to circumvent the rule by invoking section 5821(4), which essentially immunized state agencies from statutes of limitations. Similar to the minority tolling provision in Cameron, however, section 5821(4) only limited the time in which a 7. MICH. COMP. LAWS ANN (1) (West 2009). 8. MICH. COMP. LAWS ANN (1) (West 2009) N.W.2d 784 (Mich. 2006) N.W.2d 442 (Mich. 2006).

5 Summer 2010] FIRST ANNUAL LIVE SYMPOSIUM 637 particular action could be brought. It did not address the limitations on recovery for which the one-year-back provision was exclusively designed. Mr. Gross explained that due to the recent change in membership in the Michigan Supreme Court, both Cameron and Liptow are ripe for reconsideration. However, in light of the economical interests underlying the enactment of the one-year-back provision, an overruling of these cases would be a significant detriment to the affordability of Michigan s mandatory no-fault coverage. According to Mr. Gross, an overruling of Cameron would require the no-fault system to pour millions of dollars into claims that are outdated, or perhaps unrelated to auto accidents. As a result, the burden imposed on the system will cause the costs of auto insurance to increase beyond the reach of a large percentage of Michigan motorists. Consequently, overruling Cameron will likely exacerbate the epidemic of uninsured drivers, a problem particularly prevalent in the Detroit area where over half of the city s motorists are financially unable to maintain the required no-fault coverage. II. PANEL DISCUSSION The panel discussion began with an introduction of the distinguished panelists by University of Detroit Mercy School of Law faculty member Professor Pamela Wilkins. Participating on the panel was Jim Gross, Butch Hollowell, Peter Kuhnmuench, James Mellon, Wayne Miller, Ronald Sangster, George Sinas, and Dan Steele. Several questions were posed to the panel, but of greatest interest and applicability to the topic of the Symposium were the panelists thoughts as to the most significant changes that will be seen in Michigan s no-fault automobile insurance scheme over the next five years. Each panelist was given the opportunity to respond, with a majority focusing on judicial and legislative changes. As to potential forthcoming judicial changes, nearly all of the panelists agreed that as a result of the recent single-justice alteration in the makeup of the Michigan Supreme Court, Griffith v. State Farm, Cameron v. ACIA, and other landmark nofault precedents would likely be overruled. The panelists agreed that overruling Griffith would simply strengthen the broad causal nexus standard set forth in Scott. Additionally, setting aside Cameron would allow tolling provisions such as the minority/insanity statute to render the one-year-back limitation inapplicable to the amounts of PIP recovery for certain individuals. Thus, the aggregate effect of overruling both Griffith and Cameron could potentially increase the burden on Michigan s benefit system tremendously with the possibility of seriously endangering the State s ability to sustain the system in the future. In discussing potential legislative changes, the panelists addressed several key issues that they believed needed the greatest attention in order to improve and preserve Michigan s unique no-fault insurance scheme. A majority of the panelists noted that the core issue is the affordability of

6 638 UNIVERSITY OF DETROIT MERCY LAW REVIEW [Vol. 87:633 the compulsory insurance. Although, statistically, Michigan does not have the highest automobile insurance rates in the nation, it does have the highest unemployment rate in the nation and one of the lowest average annual income rates in the nation. The combined effect renders rates under the current system unaffordable for an alarming number of Michigan drivers. In fact, this aggregate effect has caused nearly fifty percent of the drivers in Detroit and close to twenty percent of the drivers across the entire State to go without automobile insurance. In order to address affordability concerns, the panelists suggested that the legislature take up the issue head on. In particular, several panelists believed that one way to alleviate the cost pressure on the system would be to implement a cap limitation on the payout of currently unlimited PIP benefits. In theory, this would force insurers to be more responsible when it comes to paying for benefits, ensuring that only those reasonable and necessary services are paid for, thereby limiting the payout of excessive or unnecessary PIP benefits. The panelists also suggested that another means to lessen the burden on the system would be to create a fee scheduling system whereby healthcare providers could charge insurers no more than a set maximum for certain healthcare services/procedures. A final area of concern for the panelists was the rising insurance rates. Currently there is no system in place that regulates automobile insurance rates in Michigan. This lack of a system gives the insurance companies a tremendous amount of latitude in setting rates. Thus, insurance companies are free to increase rates at will, resulting in the competitor being the main focus when it comes to determining the rates, rather than the affordability to the consumer. In order to provide Michigan drivers with affordable insurance, the panelists all seem to agree that the legislature must limit the current unyielding power of insurers by placing a check on their rate setting practices. CONCLUSION Rising insurance rates, a depressed economy, and an alarming number of Michigan s drivers choosing to forego automobile insurance altogether indicate that Michigan s current no-fault insurance system is ripe for overhaul. Those factors, combined with the recent change in the makeup of the Michigan Supreme Court, tend to suggest that such an overhaul might not be far off. While it may be important to preserve Michigan s unique no-fault system, the consensus among the panelists at the University of Detroit Mercy Law Review s First Annual Live Symposium is that there exists a greater need to provide Michigan drivers with an affordable and effective insurance scheme, whatever form that may be. GORDON PRITCHARD