The Michigan Legislature has found common ground on a potential solution to high car insurance rates which have plagued Michigan motorists for years. In just the last few days, the Governor has signed the proposed bill, making it the law of the land. As with many reforms and compromises, uncertainties surround the legislative “repair” to an act has been untouched since 1973.
Politicians boast this law will lower rates, but many skeptics question the math. What follows is a review of some of the major changes to the law and how these changes may impact motorists and insurers alike.
There are several changes that will have direct impact on motorists. What has caught most headlines is the mandatory (or “artificial”) rate reductions built into the law as it pertains to Personal Injury Protection benefits (PIP). These are the benefits designed to provide an injured motorist with medical coverage after an injury related to a traffic crash. These benefits are generally provided by the motorist’s own insurer (with an order of priority following thereafter). Up until now, these benefits were “unlimited,” meaning certain medical benefits and services were guaranteed to the injured motorist, regardless of fault. This has changed.
Beginning with policies that are renewed after July of 2020, motorists will no longer be mandated by the law to purchase “unlimited” coverage. They will be afforded the opportunity to purchase lesser coverage offered at a discounted rate artificially set by statute. The schedule is as follows:
- Unlimited benefits: 10 percent mandated rate discount
- $500,000.00 coverage 20 percent mandated rate discount
- $250,000.00 coverage 30 percent mandated rate discount
- $50,000.00 coverage 45 percent mandated rate discount
- No PIP Coverage 100 percent mandated rate discount
Please note, the $50,000 opt-out version is only permitted where coordinated with other health insurance options. Further, to be eligible for the 100 percent opt out plan, the motorist must have health insurance with a deductible no greater than $6,000. Those who lose their coordinated benefits will need to advise their insurer of the loss of coverage within 30 days and opt into another qualifying bracket. It is unclear what happens to those who fail to advise their insurer of the loss of coordinating benefits who suffer a loss.
Those who remain in the unlimited benefits bracket will continue to enjoy the same coverage that is afforded to motorist as in the past, including access to the Michigan Catastrophic Claims Association, allowing them to access benefits for medical care for life. It is likely that this option will be unaffordable to most since all indicators are the price for unlimited benefits will skyrocket once others choose to opt out.
All remaining coverage plans will be limited to the monetary limits associated with their respective plan. However, as will be discussed below, this does not end the injured parties right to recover. This change in the law has opened an avenue for an injured party to bring a lawsuit that was previously barred by the old No-Fault Act – an action against the “at fault” motorist involved in the collision for any damages (economic or non-economic) in excess of their policy limits. This begs the question, can this still be called a No-Fault Act?
These rate reductions are mandated under the law for a term of eight years. After the eight years has expired, insurance companies are free to raise rates unencumbered by the limiting provision. This is why they are referred to as “artificial” rates; they are set by the Act, not by market influence or other factors. Expect these rates to change accordingly after the eight-year moratorium.
The rate discounts listed above are only applicable to PIP coverage. Motorists who look at their Insurance Policy will notice that PIP coverage is only a portion of their total premiums. This means insurers are permitted to raise rates in other areas of the policy as they see fit, including liability coverage. As mentioned above, lawsuits that were previously bared by the No-Fault act are now free game. An injured party will now be permitted to look to the at fault motorist for damages that are in excess of their PIP limits. For example, if a motorist is rear-ended and suffers neck or back injury, they will initially look to their own insurer for coverage. Once that coverage limit is exhausted, that motorist will then look to (and possibly sue) the at-fault motorist for any further monetary damages suffered. Under the old law, this was not permitted unless they met a certain injury threshold.
Because motorists are now subject to lawsuits where they previously were not, the new law forces motorists to carry additional liability insurance. The old minimums on liability insurance were $20,000 per person, $40,000 per occurrence. This change to the law increases these minimums from $250,000 per person, $500,000 per occurrence (smaller minimums are permitted if motorist qualifies to opt out). It is fair to say that most motorist should expect a significant premium increase to their liability premiums to cover the mandatory liability coverage increases.
The change in law also impacts the “mini-tort” lawsuit. Under the old law, a motorist could sue an at-fault driver for property damage in an amount no greater than $1,000. The new law has increased this amount to $3,000. Expect associated premiums to increase accordingly. Also expect to see increased litigation in this area where the possible recovery has tripled making the lawsuits more attractive to trial lawyers.
The law does address the Michigan Catastrophic Claims Association (MCCA) by attempting to bring transparency to its fund balance. The law now requires an occasional audit of the MCCA and applies a formula that requires a refund to eligible policy holders when the fund balance is disproportionally high compared to its liability. Keep in mind, this will only apply the those who can afford the unlimited coverage in the future. This will likely leave a majority of motorists without a refund.
The law will also grant law enforcement authority to a group of investigators who will be assigned to examine fraud in relation to insurance claims. It is the hope of the legislators that this will curtail the number of fraudulent claims made against insurance companies.
The law also makes changes that will impact how claims are adjusted and what medical providers can charge for services rendered to injured motorists. The most sweeping change is the fee schedule that has been adopted and placed into law. This fee schedule goes into effect on July 1, 2021 and limits the amount a provider can charge in relation to a percentage of the Medicare fee schedule. Initially, providers may only charge 200 percent of what Medicare is permitted to charge, scaling back 5 percent each year for three years. There are exceptions to this rate for certain treating facilities such as trauma centers and hospitals.
The law also prohibits certain rating classifications that were previously employed by insurance companies. These tools used by insurers to set rates were sometimes referred to as “red lining.” Insurers will no longer be permitted to use factors such as zip code, age, gender, or credit score to establish premium rates. However, using “territory” as a factor will still be permitted.
The order of priority (the order an injured party must follow when looking to an insurer for coverage) has changed dramatically. Under the old law, an injured party would look to several layers of insurers to determine which insurer would cover the injury pursuant to the No-Fault Act. Under this new law, an injured party generally will look to his or her own insurer for coverage, then to an insurer of a resident relative, then directly to the Michigan Assigned Claims Plain (MACP). It is important to note that the MACP will no longer provide unlimited coverage. Instead, the coverage will be limited to either $2 million or $250,000 depending on specific factors.
The new law also provides hospitals and treating doctors with a direct cause of action to sue the insurance company where it is alleged bills for medical treatment or services have not been paid. Under the old law, provers were required to get an assignment (essentially “permission”) from an injured party to sue the insurance company. This is no longer the case. Providers can independently make the decision to bring a lawsuit under this act without restriction.
The law changed the time in which an injured parties was required to report a loss to his or her insurer. Under the old law, a person injured in a traffic crash was required to give notice to the insurer of the claim within one year of the occurrence. Further, no claim for reimbursement could be made against an insurer if it was incurred more than one year before a lawsuit was filed. No tolling provision was applicable to this rule. Under the new law, the limitation tolls during the period after the claim was made and until the insurer formally denies the claim. This will likely be a hotly contested issue during litigation where each side will argue over what is considered “notice” of a claim and what constitutes formal denial.
The law also codifies the factors that must be met to bring a bodily injury action against an at-fault driver. Under the old law, a person injured in a traffic crash who realized serious impairment of a body function would have to satisfy factors set forth in case law (namely McCormick v. Carrier). These factors have now been codified and defined by the Act giving specific criteria that must be satisfied before a third-party bodily injury claim can be filed.
In summation, the Legislature and our Governor have succeeded in artificially lowering premiums as they relate to PIP benefits for the next eight years. After those eight years, market factors will again control rates. However, it is more than likely that premiums as it relates to liability and collision coverage will increase due to mandated increased coverages and increased liability in the realm of mini-torts. It is also likely this will lead to an increase in litigation where the door is now open for third-party lawsuits based on fault where the damages exceed the now lower PIP limits. The question is, will the artificial rate reductions related to PIP coverage counteract the likely increases in liability and collision coverage? Time will tell.
As always, McDonald Pierangeli Macfarlane, PLLC, will continue to study this act and all corresponding case law that follows so that we may remain one of the leading insurance defense firms in the State. Please feel free to contact us for any of your defense needs as it pertains to this act, or any other litigation matter.