Introduction
When the Michigan No-Fault Act was reformed on June 11, 2019, the new legislation introduced, among other changes, limitations on the amounts that a medical provider could charge for treatment as well as the hours that a family member could charge for attendant care. In Andary, et al v USAA, et al, the Michigan Court of Appeals found that these changes do not apply to accidents that occurred prior to the passage of reform. The Michigan Supreme Court affirmed this decision, but rejected challenges to prospective application of the law.
The Dispute
Prior to the passage of reform, the only limitation on the amount a provider could seek for reimbursement was that the charge had to be reasonable and customary. There was also no cap on the amount of hours a family member could charge for attendant care. When the Michigan No-Fault Act was amended, it introduced a fee schedule which limited reimbursement on a percentage of the corresponding Medicare rate for the treatment provided, or a lesser percentage of the provider’s listed charge or average charge as of January 1, 2019 if no Medicare rate applied. In addition, family (and most non-professional) provided attendant care was capped at 56 hours per week.
The plaintiffs in this case, Ellen Andary and Phillip Krueger, were both individuals who were injured prior to June 11, 2019. Both individuals suffered traumatic brain injuries, requiring life long care. Andary required 24 hour in-home attendant care, mostly provided by family members. Andary was covered under a PIP policy issued by USAA Casualty Insurance Company. Krueger was inpatient at Eisenhower Center beginning in 1997, a residential care facility treating individuals with traumatic brain injuries. Eisenhower’s charges, in large part, were not covered under Medicare, and thus subject to a lower rate of reimbursement under the fee schedule. Krueger was covered under a PIP policy issued by Citizens Insurance Company of America.
Andary, Krueger, and Eisenhower jointly filed a declaratory action against USAA and Citizens, seeking a finding that their vested contractual rights at the time they were injured were not subject to the new limitations. In addition, they argued that limitations violated their rights under the Contracts Clause, as well as due process and equal protection, under the Michigan Constitution. The trial court found in favor of USAA and Citizens.
Court of Appeals
The Court of Appeals first noted that all statutes are presumed to apply prospectively. To overcome that presumption, the Legislature must clearly manifest an intent to apply the statute retroactively.
The Court pointed out that the defendants failed to note any language in the No-Fault Act itself, i.e. MCL 500.3101 et seq, that explicitly or implicitly indicated retroactive application. The defendants relied upon a new provision in the insurance code, MCL 500.2111f, which states that insurance companies must pass along the savings realized by applying the new fee schedule and attendant care limitations to individuals who were injured prior to July 2, 2019. The Court found that this provision did not mandate implementation of the limitations on the prior claims, only that if there are savings they must be passed along. Therefore, the Court found that this provision did not manifest an intent by the Legislature to apply the law to claims that occurred prior to the amendment.
The Court also rejected the argument that this was not retroactive application because it only applied to a reduction of benefits that were incurred after reform. The Court found that this case involved contracts that provided for unlimited benefits, and found that to apply the limitations to these claims would “substantially alter the well settled expectations and long term reliance of individuals injured in auto accidents.” The Court also noted that, unlike workers compensation which is entirely statutory, PIP benefits are dictated by statute and contract, with agreed upon rights and obligations. The Court could have stopped there, but it opted to continue to evaluate the plaintiffs claim under the Contracts Clause. The Court found that application of the amendments to these claims did violate the Contracts Clause. Specifically, the statute caused a substantial impairment of the plaintiffs’ rights under their insurance contracts. This ruling meant that Andary and Krueger no longer had standing to challenge whether these limitations violated due process and equal protection if applied to claims going forward. However, the Court found that Eisenhower did have standing, because it had other patients that would be affected by the changes. The Court remanded the case to the trial court so that parties could further develop the record as to Eisenhower’s challenge.
Michigan Supreme Court
The Michigan Supreme Court affirmed this decision in large part. The Court first found that PIP benefits had both statutory and contractual characteristics. While neither Andary nor Krueger was a named insured on an auto policy, they were insureds by operation of the contractual language. These contracts provided language that mirror the no-fault law prior to its amendment. The Court rejected the defendants argument that no-fault benefits were wholly statutory, illustrating this by comparing and contrasting the workers compensation system, which places a statutory obligation on employers to provide for reasonable medical services to an employee, regardless of whether the employer has insurance for workers compensation claims.
The Court next found that rights under the insurance contract vest at the time of the injury. Therefore, the insured and the insurer cannot change the terms of the policy after a covered accident occurs. As a result, the Court found that the scope of benefits also vests at the time of the injury. While the Court agreed that an injured party’s claim for a specific amount of money does not accrue until the expense is incurred, the law in place at to the time the parties’ rights and obligations vested under a contract controls claims under that contract.
The Court went on to find that the amendments did not apply retroactively. The Court applied a four factor analysis, and found that the Legislature did not clearly state an intention to apply the limitations on attendant care and medical charges to apply retroactively to individuals with vested contractual rights under pre-amendment statutes.
The Court found, though, that the Court of Appeals erred in reviving Eisenhower’s constitutional challenges to prospective application of the law. The Court found that the trial court correctly found that all plaintiffs lacked standing to maintain due process and equal protection challenges to the law. With the above finding Krueger and Andary were not limited by statutory amendments in their claim for benefits, they no longer had a sufficiently concrete and direct interest in proceeding with its constitutional challenges.
The Court found that Eisenhower attempted to litigation constitutional claims on behalf of an abstract group of potential future patients who have yet to be injured or treated, and potential medical providers that have no affiliation with Eisenhower. The Court went even further, finding that Eisenhower’s claims for violation of equal protection and due process failed as a matter of law. The freedom to contract was not an absolute freedom, and there is no right to continue a business model free of government regulation. As a result, the Court only needed to find a rational basis for the government’s actions. The Court cited long settled law that it was a legitimate legislative purpose and policy to make automobile insurance more affordable for Michigan residents, and the newly implemented fee schedule was aimed towards reining in escalating costs.
Driving Forward
While it limits the ability of insurers and the MCCA to contain the cost of claims incurred prior to the 2019 reforms, it also allows carriers to continue with the processes they implemented since the Court of Appeals ruling last year. It also settles the law for both sides, providing certainty in how these claims will be handled going forward. However, with decades of claims able to apply the former provisions, the cost savings under statute, to the extent they occur, will be slow to materialize.
A silver lining in this opinion is that the Michigan Supreme Court wholly rejected the constitutional claims by the plaintiffs, and especially the attempt by Eisenhower to invalidate the fee schedule limitations to all claims, pre and post reform alike.
Therefore, carriers can safely implement the fee schedule and attendant care limitations to post-reform accidents without concern of imminent modification by another court ruling. That’s not to say that future challenge will not arise, but the Court soundly rejected any claim that a provider has equal protection or due process rights to paid for its services without limitation by statute.
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