Chapter 1: Background on Michigan’s No-Fault System

I.   Background and Development

§1.1   Before October 1, 1973, the effective date of the Michigan No-Fault Insurance Act (No-Fault Act), a person injured in an automobile accident could sue the driver of the vehicle responsible for the accident for all of the injuries and damages the person incurred. However, the tort system was deficient in many ways. First, many persons injured in automobile accidents could not recover for injuries and damages because the tort system required that the injured person be free of any contributory negligence and that the accident be caused by a person adjudged to be at fault. Second, often minor injuries were overcompensated and serious injuries were under compensated. Before no-fault law, seriously injured persons frequently received no compensation for out-of-pocket medical expenses, lost income, or sustained noneconomic losses because the minimum required statutory third-party liability coverage was $20,000. Third, it was often necessary to sue to recover benefits; therefore, injured persons often faced lengthy delays in receiving compensation, and a heavy burden was placed on the courts. Finally, the system appeared to discriminate against uneducated and poor plaintiffs because they tend to settle claims prematurely due to economic need or a lack of legal assistance. Shavers v Kelley, 402 Mich 554, 621–622, 267 NW2d 72 (1978) cert denied, 442 US 934 (1979).

The No-Fault Act was designed to correct the deficiencies of the tort system. It was based largely on two uniform acts—the Uniform Motor Vehicle Accident Reparations Act (UMVARA), 14 ULA 48 (1972) (drafted by the National Conference of Commissioners on Uniform State Laws) and A Proposal for Motor Vehicle Basic Protection Insurance Act, in R. Keeton & J. O’Connell, Basic Protection for the Traffic Victim (1965). Included in the Michigan statutory scheme were three elements common to both uniform acts: (1) self-insurance coverage irrespective of fault, (2) prompt payment of some economic damages, and (3) limitations on suits against the other driver and on the damages recoverable.

The supreme court upheld the constitutionality of the No-Fault Act in Shavers. The court found that abolishing the tort system for injuries suffered in an automobile accident was justified by the system’s deficiencies. The court further held that the No-Fault Act’s provisions were reasonably related to the legislative goal of correcting the deficiencies of the traditional tort system. In particular, the Shavers majority stated that a system designed to pay the economic losses of injured persons promptly, regardless of fault, while allowing plaintiffs to file a tort suit for serious personal injuries, would compensate, as the legislature intended, virtually all victims of automobile accidents.

The legislature has frequently amended the No-Fault Act since its enactment. Until 2019, none of these amendments significantly overhauled the basic structure of the No-Fault Act. However, no-fault reform via 2019 PA 21 and 22 (most parts of which were effective June 11, 2019) substantially changed many aspects of no-fault. One of the most notable changes was the legislature’s abolition of mandatory lifetime first-party benefits, referred to in the statute as personal protection insurance (PIP) benefits. The new scheme allows insurers to offer several different levels of PIP choice coverage to consumers, discussed in §§1.5–1.8. No-fault reform also affected priority, coverage, and benefits in PIP actions; changed health care provider lawsuits; and broadened third-party and property protection benefit cases, among other things.

In July 2023, the Michigan Supreme Court in Andary v USAA Cas Ins Co, 512 Mich 207, ___ NW2d ___ (2023), held that the 2019 no-fault amendments to family-provided attendant care, MCL 500.3157(10), and to non-Medicare fee schedules, MCL 500.3157(7), do not apply retroactively to claimants injured while covered by an insurance policy issued before these amendments. The court reasoned that plaintiffs’ “vested contractual right” to benefits under their no-fault policies “at pre-amendment levels cannot be stripped away or diminished when the Legislature has failed to clearly state its intent to do so.” 512 Mich at 215. The court, however, rejected plaintiffs’ due process and equal protection challenges to prospective application of the 2019 no-fault amendments. The court also made it clear that its decision is limited to those who are entitled to PIP benefits because they were directly covered by a no-fault policy at the time their accident occurred. “We do not decide whether individuals who have a purely statutory claim to no-fault PIP benefits, such as under MCL 500.3114(4) or MCL 500.3115, are entitled to the same protections.” Id. at 257 n30. For a further discussion on retroactivity of the no-fault amendments, see §§15.9–15.11.

II.   Comparison of the No-Fault System and the Tort System

§1.2   To compare the no-fault system with the traditional tort system, consider, for example, a two-car collision involving cars A and B. Assume that B was at fault and that B’s car went off the roadway after the collision and damaged a home belonging to C. The following table illustrates the differences in recovering benefits under the two systems.

As the table illustrates, the remedies and damages recoverable by injured persons are generally the same under both systems. However, under the no-fault system, recovery comes from two sources—A’s insurer and B’s insurer. Many out-of-pocket expenses come from A’s insurer (as the insurance carrier of the injured person), although this may depend on A’s policy. The no-fault system’s payment of broad and generous benefits, regardless of fault, is balanced by the following legislative tradeoff: to recover noneconomic losses, the threshold level of death, permanent serious disfigurement, or serious impairment of a body function must be met. Therefore, although insurers might pay greater economic benefits to both parties injured in an automobile accident, they will have less exposure to certain types of claims because claims for noneconomic damages as well as some economic losses are limited.

III.   Comparison with Model Acts and Laws in Other States

§1.3   Two model acts existed when the legislature adopted Michigan’s No-Fault Act: (1) the UMVARA, 14 ULA 48 (1972), and (2) the Motor Vehicle Basic Protection Insurance Act, a plan proposed by R. Keeton and J. O’Connell in Basic Protection for the Traffic Victim (1965). Since then, numerous states have adopted no-fault legislation.

Michigan is one of the most litigious and reported no-fault states, and compared with many jurisdictions, our caselaw is well developed. Except for the threshold issue, for which the statutory language in Michigan differed from other states for many years, the UMVARA has sometimes played a role in the supreme court’s statutory interpretation of Michigan’s No-Fault Act. The supreme court looked to the UMVARA in MacDonald v State Farm Mut Ins Co, 419 Mich 146, 350 NW2d 233 (1984), and Ouellette v Kenealy, 424 Mich 83, 378 NW2d 470 (1985). The court in both cases focused on the UMVARA’s definition of the term work loss and the accompanying committee comments in reaching its determination that first-party work loss claims and third-party excess work loss claims are recoverable only for actual work loss, not loss of earning capacity. The supreme court also cited the commentary to the UMVARA in connection with whether a claim was one arising out of the “use of a motor vehicle as a motor vehicle.” McKenzie v Auto Club Ins Ass’n, 458 Mich 214, 218 n5, 580 NW2d 424 (1998); Thornton v Allstate Ins Co, 425 Mich 643, 657, 391 NW2d 320 (1986). The UMVARA has also been referenced on other issues. See Marquis v Hartford Accident & Indem, 444 Mich 638, 513 NW2d 799 (1994); DiFranco v Pickard, 427 Mich 32, 398 NW2d 896 (1986) (threshold); LeBlanc v State Farm Mut Auto Ins Co, 410 Mich 173, 301 NW2d 775 (1981) (mitigation of damages). But see Spectrum Health Hosps v Farm Bureau Mut Ins Co, 492 Mich 503, 821 NW2d 117 (2012) (criticizing reliance on UMVARA when statutory language is otherwise clear and unambiguous).

IV.   Types of No-Fault Claims

§1.4   No-fault rights are allocated between a claim against the no-fault insurer—a first-party claim—and a claim against the negligent tortfeasor—a third-party claim.

First-party claims. A first-party claim is a claim by an individual against a no-fault insurer who, by contract or law, is required to pay no-fault benefits to the claimant. Most claims involve payments for medical expenses, wage loss, replacement services, survivor’s loss, or funeral expenses. See chapters 6 and 7 for a detailed discussion of first-party benefits and chapters 8 and 9 for information about first-party litigation.

Analysis of a first-party claim generally focuses on the following five questions:

1. Is there coverage for the type of accidental bodily injury sustained?
2. Is the claimant excluded from no-fault benefits?
3. Who is the no-fault insurer?
4. What type and amount of benefits are recoverable from the no-fault insurer?
5. What reductions, setoffs, or reimbursements are allowed to the no-fault benefits otherwise payable?

Third-party claims. A third-party claim is the typical automobile negligence claim. In a third-party claim, a plaintiff sues the driver or owner of a vehicle, alleging breach of a duty resulting in serious injury. If the driver or owner of the vehicle has no-fault insurance, the injured person (or the representative of the decedent’s estate) may sue for noneconomic damages as long as the claimant’s injuries meet the threshold requirement of death, permanent disfigurement, or serious impairment of a body function. The plaintiff may also sue for any economic losses. In most cases in which there is a PIP policy, the amount of economic losses is that which exceeds—in amount or duration—the statutory no-fault maximum benefits. In some cases, when an exclusion under MCL 500.3107d applies or there is an exclusion under MCL 500.3109a, there is no limit on economic damages in third-party cases. The plaintiff does not have to meet the no-fault threshold to recover economic damages in a third-party case unless the plaintiff is a nonresident. See MCL 500.3135. The third-party claim compensates the injured person for damages, such as past, present, and future noneconomic losses or excess economic losses. However, in a third-party suit between Michigan residents concerning an accident in Michigan, the plaintiff is not entitled to sue the negligent driver for compensation for any economic damages paid by the plaintiff’s own no-fault insurance carrier. See chapter 10 for further discussion of recovery in third-party cases and chapters 11 and 12 for information about third-party litigation.

V.   Personal Protection Insurance Coverage

A. Levels of Coverage

§1.5   Starting July 2, 2020, insurers must require consumers applying for no-fault insurance to select one of the following levels of PIP coverage:

• $50,000 per individual per loss. MCL 500.3107c(1)(a). This option is limited to applicants who are enrolled in Medicaid. In addition, any spouse of the applicant and any resident relative must have other coverage—either in the form of qualified health coverage, see MCL 500.3107d, or other no-fault PIP coverage under MCL 500.3107(1)(a). This option is unavailable for transportation network company vehicles. MCL 500.3107c(7).
• $250,000 per individual per loss. MCL 500.3107c(1)(b).
• $500,000 per individual per loss. MCL 500.3107c(1)(c).
• Unlimited. MCL 500.3107c(1)(d).

Attendant care riders must be offered to applicants who select a policy with a $50,000–$500,000 PIP limit. MCL 500.3107c(8). See chapter 6 for more on attendant care benefits. In addition, insurers are required to reduce their average premiums in accordance with the PIP coverage level selected. MCL 500.2111f. It remains to be seen whether individual overall premiums will decrease with a lower level of PIP coverage.

Selections must comply with MCL 500.3107e and be made on a form approved by the director of the Department of Insurance and Financial Services (DIFS). MCL 500.3107c(1). See exhibit 1.1, DIFS Bulletin 2023-11-INS. It is not necessary for the PIP selection form to be provided to the insured before the policy is issued. See Bronson Health Care Grp, Inc v Esurance Prop & Cas Ins Co, No 363486, slip op at *7, ___ Mich App ___, ___ NW2d ___ (Sept 28, 2023) (holding that DIFS stating in FAQ that form must be provided to insured before policy is issued is incorrect because it adds a requirement to statute that is not discernible from text). Although an applicant can make the selection verbally, the section is effective only if the person who received the applicant’s verbal instructions recorded and maintained them. MCL 500.3107e(2)(b). If a dispute about the selection’s effectiveness arises, there is a rebuttable presumption that the selection was ineffective. Id.

If the applicant did not make an effective selection but has made a premium payment, there is a rebuttable presumption that the premium paid reflects the level of PIP coverage. MCL 500.3107c(3). In other words, the statute “has three preconditions that must be met for [the rebuttal presumption] to apply—(1) a policy is issued as described in MCL 500.3107c(1), (2) the insured did not make an effective selection of PIP coverage under the same subsection, and (3) the insured made a premium payment. MCL 500.3107c(3).” Bronson Health Care Grp, slip op at *10. If there is no effective PIP selection and the presumption in §3107c(3) does not apply, PIP coverage is unlimited. MCL 500.3107c(4). The coverage selected applies to the insured and anyone with rights to claim PIP benefits under the policy.

If benefits are payable under more than one PIP policy, the total PIP limit is the highest available coverage under any one of the policies. MCL 500.3107c(7). The potential for catastrophic medical expenses and limits on future care options will encourage many to choose continued unlimited medical coverage.

B. Requirements for Selecting Limited PIP Benefits

§1.6   Under MCL 500.3107c(1), an insured must select a coverage option as described in MCL 500.3107e, which states:

(2) A person must make a selection under section 3009 or 3107c, or an election under section 3107d in 1 of the following ways:

(a) Marking and signing a paper form.

(b) Giving verbal instructions, in person or telephonically, that the form be marked and signed on behalf of the person. To be an effective selection or election, the verbal instructions must be recorded and the recording maintained by the person to whom the instructions were given. If there is a dispute over the effectiveness of a selection or election under this subdivision, there is a presumption that the selection or election was not effective and the insurer has the burden of rebutting the presumption with the recording.

(c) Electronically marking the form and providing an electronic signature as provided in the [Uniform Electronic Transactions Act (UETA)], 2000 PA 305, [MCL 450.831–.849].

An “electronic signature” under the UETA is defined as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” MCL 450.832(h). MCL 450.839 provides for how a party can show that a signature was “the act of the person.” The court of appeals has held that offering a document with an electronically printed name and date without further proof is insufficient to demonstrate that the insured themselves executed or adopted the form. See Bronson Health Care Grp, Inc v Esurance Prop & Cas Ins Co, No 363486, slip op at *8, ___ Mich App ___, ___ NW2d ___ (Sept 28, 2023). The Bronson Health Care Group court remanded the case to the trial court for further discovery, noting that the parties may present evidence, such as “IT metadata showing IP addresses,” that establishes who signed the form. Id., slip op at *9.

C. Options to Eliminate Personal Protection Insurance Coverage

§1.7   Effective July 2, 2020, there are two ways to opt out of the allowable expense portion of PIP coverage. MCL 500.3107(1)(a).

Medicare recipient election. MCL 500.3107d. An applicant covered under Medicare can opt out of allowable expense coverage. However, any spouse of the applicant and any resident relative must have other coverage—either in the form of qualified health coverage, see MCL 500.3107d(7)(b), or other no-fault PIP coverage under MCL 500.3107(1)(a). MCL 500.3107d(1). The form for this election must comply with MCL 500.3107d(3) and .3107e and must have been approved by the director of DIFS. See id. Medicare enrollees who choose to opt out of no-fault benefits are subject to coinsurances, co-payments, and deductibles that may be imposed by Medicare. The enrollee is also responsible for payment of other services not covered by Medicare, including transportation to and from medical appointments, vehicle modifications, case management services, residential treatment programs, long-term and custodial care, and replacement services. A Medicare enrollee may also opt for a lower PIP coverage amount, with Medicare paying for any medical expenses incurred by the claimant once the PIP coverage limits have been exhausted. See DIFS Bulletin 2020-05-INS.

A Medicare Advantage plan obtained under Part C of Medicare is “qualified health coverage” under MCL 500.3107d as long as the plan provides coverage for services required under Medicare Parts A and B, even if through a private health insurance company. University Neurosurgical Assocs, PC v Auto Club Ins Ass’n, No 364322, ___ Mich App ___, ___ NW2d ___ (Sept 21, 2023). In University Neurosurgical Assocs, slip op at *5, the court stated that “the dispositive question is not whether [the insured] elected to receive benefits under Parts A and B (and have them paid by the government), but whether [the insured] was receiving the benefits provided ‘under’ Parts A and B of the Medicare statute. MCL 500.3107d(7)(b)(ii).”

The coverage selected applies to the insured and anyone with rights to claim PIP benefits under the policy. If there has not been an effective election to opt out of allowable expense coverage under MCL 500.3107d(1), allowable expense coverage will be unlimited. MCL 500.3107d(4). If the applicant loses Medicare coverage, or if the applicant’s spouse or resident relative loses the statutorily required coverage, the applicant must obtain full PIP coverage within 30 days. MCL 500.3107d(6)(a). An applicant who fails to secure PIP coverage and is in an accident during this 30-day period must claim benefits through the Michigan Assigned Claims Plan (MACP). See chapter 5 for more on the MACP.

$250,000 PIP exclusion. MCL 500.3109a(2). Another way to opt out of allowable expenses is to select $250,000 in PIP coverage under MCL 500.3107c(1)(b). At this level of PIP coverage, the insurer must offer the applicant an exclusion of 100 percent of the PIP premium for allowable expenses if the applicant and the applicant’s spouse and resident relatives all have health insurance that will cover injuries from a motor vehicle accident. MCL 500.3109a(2)(a). If someone in the household lacks the requisite coverage, the insurer must “offer a reduced premium that reflects reasonably anticipated reductions in losses, expenses, or both.” MCL 500.3109a(2)(b). If the insured or a resident relative later loses the qualified health insurance, the insured must notify the insurer and obtain a policy that covers all PIP expenses (and otherwise meets the requirements of MCL 500.3101) within 30 days. MCL 500.3109a(2)(d)(i). If the insured fails to secure the required coverage and

• there is an accident during the 30-day period, the insured must claim benefits through the MACP. MCL 500.3109a(2)(d)(ii). See chapter 5 for more on the MACP.
• there is an accident after the 30-day period, the insured is not entitled to allowable expenses unless the insured is entitled to coverage under another policy. MCL 500.3109a(2)(e).

Most of MCL 500.3109a(2) focuses on the allowable expenses portion of PIP benefits described in MCL 500.3107(1)(a). Curiously, however, MCL 500.3109a(2)(c) states that an insured is not entitled to “personal protection benefits” under the PIP exclusion set forth in MCL 500.3109a(2). Because “personal protection benefits” under MCL 500.3107 include work loss and replacement services in addition to allowable expenses, MCL 500.3109a(2)(c) seems inconsistent with the rest of MCL 500.3109a(2).

D. Managed Care Plans

§1.8   No-fault reform via 2019 PA 21 (effective June 11, 2019) added the option of managed care plans. See MCL 500.3181–.3189. Under these plans, insurers can offer optional coverage that includes “monitoring and adjudication of an injured person’s care, the use of a preferred provider program or other network, or other similar option.” MCL 500.3181. The option would apply to allowable expenses (with the exception of emergency care) and must be offered at a discount. MCL 500.3182. It can include co-pays and deductibles. MCL 500.3186; see also MCL 500.3187(c). Under managed care plans, PIP benefits must be primary, cannot be coordinated with health insurance, and must be exhausted by the claimant before the claimant can seek benefits from another insurer. MCL 500.3187(a), (b).

If an insurer offers a managed care plan, it must also offer other non–managed care policies. MCL 500.3184. The insurer must also obtain the insured’s signature on a disclosure statement about the plan that complies with MCL 500.3188.

Managed care plans apply to the insured and any person claiming PIP benefits under the policy in an area where managed care options are available. MCL 500.3185.