Introduction
One of the many changes under the Legislature’s reform of the Michigan no-fault act is a modification to the order of priority that makes the Michigan Assigned Insurance Placement Facility (MAIPF) responsible for more claims. The Michigan Department of Insurance and Financial Services (DIFS), however, issued orders that prevented insurers from implementing that change until certain requirements were met and preventing the MAIPF from enforcing a statutory cap on benefits. After several challenges to these orders, the MAIPF and DIFS have resolved the dispute, clarifying the order of priority for benefits under the amended no-fault act.
The New Order of Priority
Under the prior law, a pedestrian or occupant who did not have his or her own no-fault coverage, or coverage through a spouse or resident relative, was required to seek coverage from the vehicles involved in the accident. Those individuals were entitled to lifetime allowable expenses, i.e., medical-related benefits.
Under the new law, those individuals must seek coverage through the MAIPF[1] and are subject to a $250,000 cap on allowable expenses. The only exception is for people who opt out of no-fault coverage entirely. If their coverage lapses and they’re involved in an accident during the 30-day grace period under the applicable statutes, the coverage limit is $2,000,000.
Since the amended statutory language did not have a specific effective date, many assumed that it was immediately effective when the Legislature passed the new version of the act on June 11, 2019.[2]
The DIFS Orders
On September 20, 2019, DIFS issued its first order related to the statutory amendments.[3] This order was meant to address the “limited number of automobile insurers [that] have attempted to apply the amended provisions to claims made under existing, in-force policies without first submitting revised forms and rates for the Director’s review and approval.” The order identified several conclusions of law and related mandates for insurers in response to the statutory amendments. Most significantly:
- The order prohibited automobile insurers from relying on the amendments to the no-fault act that affect the scope of coverage without first submitting revised forms and rates to DIFS. In doing so, DIFS relied upon statutory authority requiring insurers to submit policy forms and rates to DIFS before delivering policies or issuing them for delivery.[4] Additionally, in referencing the amended provisions of the no-fault act that affect the scope of coverage, DIFS cited MCL 500.3009, MCL 500.3111, and MCL 500.3113-.3115.
- The order prohibited insurers from relying on “conformity to law clauses” as a method of modifying existing policy language. It explained that such reliance would constitute an unreasonable and deceptive policy provision in violation of MCL 500.2236(5).
- Relying on MCL 500.2104(5) and Casey v Auto Owners, 273 Mich App 388 (2006), the order reminded insurers that they cannot reduce policy coverage without notifying the policyholders first.
- The order also prohibited the MAIPF from providing coverage for claims submitted to it under forms that incorporated the amended statutory provisions limiting the scope of coverage unless DIFS provided prior approval.
On September 24, 2019, DIFS issued a second order.[5] That order specifically targeted the MAIPF. It prohibited the MAIPF from imposing the $250,000 cap on allowable expenses under MCL 500.3172(7)(a) before July 2, 2020. DIFS asserted that, under the rules of statutory construction, the entire statute must have an effective date of July 2, 2020 because it cross-references opt-out provisions that did not go into effect until July 2, 2020.[6] The order also expressed concern that, if the MAIPF capped allowable expenses at $250,000, at-fault drivers would be exposed to liability for allowable expenses over that limit in the automobile negligence context without the benefit of the higher mandatory bodily injury policy limits (which also went into effect on July 2, 2020).[7]
Challenges to the DIFS Orders
As one might imagine, the DIFS orders prevented insurance carriers from using beneficial statutory provisions to avoid liability for no-fault benefits and prevented the MAIPF from limiting its exposure. Many carriers accepted DIFS’ first order and reprocessed claims of uninsured pedestrians and occupants until DIFS approved the carriers’ policy forms and rates. But there were also challenges to the DIFS orders.
United Services Automobile Association (USAA) challenged the September 20, 2019 DIFS order in at least two cases, both filed in the Wayne County Circuit Court: Thomas v Upshaw (Case No. 20-006497-NF) and Walker v Auto Club Ins Assoc (Case No. 19-008892-NF). In both cases, the court rejected the DIFS order or limited its application. The parties did not appeal those decisions.
Not surprisingly, the MAIPF disagreed with DIFS’ interpretation of the law in the September 24, 2019 order prohibiting the MAIPF from enforcing the $250,000 cap on benefits. So the MAIPF filed an action in the Michigan Court of Claims seeking to invalidate the order. If argued that the order was beyond DIFS’ authority. It also argued that the order was unconstitutional based on the separation of powers doctrine and constituted an attempt to usurp the Legislature’s power. The court ruled in favor of DIFS, and the MAIPF appealed the ruling.
The parties later settled and dismissed the appeal. Under the settlement, the MAIPF agreed that it would not apply the $250,000 cap to claims arising from accidents that occurred before July 2, 2020. In return, DIFS rescinded the September 20, 2019 order prohibiting carriers from utilizing the new order of priority.[8] The result of the rescission is that carriers can submit, or resubmit, claims to the MAIPF for accidents that occurred between 3:22 p.m. on June 11, 2019, and July 2, 2020, and seek reimbursement of amounts previously paid.
The Takeaway
The order of priority rollercoaster in the wake of no-fault reform is no more. After the Legislature amended the no-fault act in 2019, carriers originally denied claims based on the new order of priority provisions and directed claimants to the MAIPF. After DIFS issued its first order, most carriers reprocessed claims and accepted that they were highest in the order of priority until DIFS approved their revised rates and forms. Now, carriers can potentially seek to reprocess claims related to accidents occurring between June 11, 2019, and July 2, 2020, again to enforce the new order of priority. Carriers can also potentially seek reimbursement for benefits paid for those claims. Additionally, with the MAIPF not applying the cap on benefits until July 2, 2020, any automobile negligence claims arising between June 11, 2019, and July 2, 2020, will not have exposure for excess allowable expenses. While much of no-fault reform remains left to interpretation, we finally have concrete answers on these issues.
[1] The MAIPF administers the Michigan Assigned Claims Plan (MACP), an insurance pool that functions as the insurer of last resort. Previously, benefits were available through the MACP when no personal protection insurance (PIP) coverage applied to the injury; no PIP coverage applicable to the injury could be identified; there was a dispute between two or more carriers regarding their obligation to provide benefits; or the identifiable coverage was inadequate because of the insurer’s or insurers’ financial inability to satisfy their obligations. A significant change under the amended no-fault act is that additional claimants are eligible to receive benefits through the MACP.
[2] See Const 1963, art 4, § 27 (prescribing a procedure for a legislative enactment to have immediate effect).
[3] Michigan Department of Insurance and Financial Services, Order No. 2019-048-M (September 20, 2019).
[4] MCL 500.2106; MCL 500.2108; MCL 500.2236.
[5] Michigan Department of Insurance and Financial Services, Order No. 2019-049-M (September 24, 2019).
[6] See MCL 500.3107d(6)(c) and MCL 500.3109a(2)(d)(ii).
[7] The mandatory minimum limits for bodily injury liability before July 2, 2020, were $20,000 per person and $40,000 per accident. The mandatory minimum limits on or after July 2, 2020, are $250,000 per person and $500,000 per accident. However, a policyholder may choose limits as low as $50,000 per person and $100,000 per accident with the submission of certain documentation. MCL 500.3009.
[8] Michigan Department of Insurance and Financial Services, Memorandum: Rescission of DIFS Order No. 19-048-M (July 20, 2021).
