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No-Fault Reform, Reformed

Changes have been made to the Michigan No-Fault law, again. Less than a week after sweeping changes were signed into law, a problem was found; insurance rates were going up, the exact opposite that was promised by lawmakers in Lansing.

To understand why this is happening, the basic function of our No-Fault insurance system must be understood. Each Michigan motorist is required to have two basic forms of insurance - insurance that provides benefits to the policy holder (including resident relatives) and coverage that protects against liability. The portion of coverage that provides benefits to the policy holder is called Personal Injury Protection Benefits (PIP). These benefits do just what the name implies; they provide benefits where the policy holder requires medical treatment after a crash.

The liability benefits are appropriately named as well. These are benefits that indemnify the insured up to the limit of the policy. Under the old law, Michigan motorists were required to hold $20,000.00 of coverage per individual, and $40,000.00 per occurrence. This means the insurer would indemnify the motorist against liability up to $20,000.00/$40,000.00, depending on the situation.

Under the old law, many motorists found these limits were sufficient because a person injured in a traffic crash was required to look to their own insurer for medical costs associated with an injury. That injured party was not permitted to sue the at-fault driver unless a certain "threshold" was met. Therefore, most motorists did not require additional coverage.

Under the new law, an injured party is permitted to bring a lawsuit against the at-fault motorist, even where the lawsuit was previously prohibited under the old law. This is because motorists are now permitted to carry as little as $250,000.00 (or less, if certain requirements are met) in PIP coverage where the old law required unlimited. As anyone who has been to a hospital knows, $250,000.00 is not a lot of coverage for someone who is seriously injured and requires hospital care. Therefore, due to the relatively low PIP limits under the new law, an injured person may be required to look for other sources to satisfy medical costs.

The legislature's remedy for this gap in coverage was to allow an injured motorist to sue the at-fault driver for damages that would have ordinarily been covered by the old act. In doing so, lawmakers also required motorists to increase their liability coverage from $20,000.00/$40,000.00 to $250,000.00/$500,000.00 to mitigate the increased liability created by the change in the law.

This is where the latest "legislative fix" was required. In drafting the legislation, lawmakers made portions of the law effective immediately and some are not effective for years (including the mandated - or "artificial" - PIP rate reductions). However, the law did inadvertently make the increased liability coverages effective immediately. In other words, upon the signing of the bill by the Governor, anyone operating a vehicle on the road without liability limits of $250,000.00/$500,000.00, or greater, was technically in violation of the law.

In order for insurance companies to comply with the new law, as it was initially written, they would force every Michigan policyholder to purchase the increased liability coverage. This would inevitably cost the policyholder more money (increased coverage = higher premiums). So, our lawmakers effectively raised insurance costs by passing the bill. The exact opposite of what was promised.

This left Lawmakers scrambling to put together a band-aid that will kick the liability requirement down the road so that motorists won't feel the price hike ... yet.

However, it doesn't take an insurance expert to understand that we can expect higher premiums associated with liability coverage when this provision kicks in, it's just a matter of time. The question is, will the mandated "artificial" reductions related to PIP premiums off-set the increased liability mandate? Time will tell.

In the meantime, MPM remains dedicated to all aspects of insurance, insurance defense, and liability mitigation. Follow us on Facebook, LinkedIn, or visit www.mpmtrialattorneys.com as the No-Fault Act reform continues to unfold.

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