Introduction

The amendments to Michigan’s no-fault act were filed with the Secretary of State on June 11, 2019. At that time, certain changes went into effect immediately. However, the Legislature set a later effective date for the most impactful amendments. The second phase of reform went into effect on July 2, 2020. Here’s what you need to know.

Limits on Coverage for Allowable Expenses

Allowable expenses include a broad array of medical-related benefits. The no-fault act previously required automobile insurers to provide unlimited coverage for these expenses. Now, Michigan policyholders can still purchase unlimited coverage, but they also have the option to purchase limited coverage by submitting the appropriate insurance forms. The available coverage limits are as follows:

• $50,000 per individual/loss occurrence (only available if the applicant/named insured is (a) enrolled in Medicaid and (b) their spouse and all resident relatives have qualifying health insurance or a no-fault policy with coverage for allowable expenses)
• $250,000 per individual/loss occurrence
• $500,000 per individual/loss occurrence
• Unlimited (default option)

These coverage limits only apply to allowable expenses. Work-loss benefits and household replacement services are subject to separate limitations on duration and amount. An injured claimant who incurs allowable expenses over their coverage limit will be personally responsible for paying their providers unless (a) they have applicable health coverage or (b) a third party’s negligence caused their injuries (more on that below).

Under the no-fault act’s priority rules, individuals who are injured in certain scenarios—e.g., while riding a motorcycle or while riding in a vehicle in the business of transporting passengers—are stuck with the coverage limit that applies to the striking vehicle or the vehicle in which they were riding, regardless of the coverage level they selected for their own insurance policy. Last year, the Legislature also amended the priority rules that govern the payment of no-fault benefits for non-occupants (e.g., pedestrians and bicyclists) and vehicle occupants who lack their own no-fault insurance coverage or coverage through a spouse or resident relative. Previously, these individuals sought benefits from the insurer of the owner or operator of the motor vehicle involved in the accident. Now, if these individuals lack coverage from another source, they must seek benefits through the Michigan Assigned Claims Plan, subject to a $250,000 cap on allowable expenses.

Opting Out of Coverage for Allowable Expenses

There are two scenarios where a prospective insured may opt out of allowable-expense coverage in exchange for a reduced premium. The first applies if (a) the named insured or applicant has Medicare coverage, and (b) his or her spouse and all resident relatives have “qualified health coverage” or coverage for allowable expenses under a no-fault policy. The second applies if (a) the named insured or applicant selects the $250,000 coverage limit, and (b) some or all of the named insured’s or applicant’s resident relatives have “qualified health coverage.” If the named insured, his or her spouse, and all resident relatives have qualified health coverage, the insurer will not charge a premium for allowable expenses, and all household members will be excluded from coverage for those expenses. However, if one or more of the household members lack qualified health coverage, the insurer will charge a premium to provide allowable-expense coverage for the members without separate health coverage.

Both opt-out options share the same definition of “qualified health coverage.” The term refers to other health or accident coverage (a) that doesn’t exclude or limit coverage for injuries related to motor vehicle accidents and (b) that doesn’t charge an annual deductible that’s greater than $6,000 per person. “Qualified health coverage” also includes coverage under parts A and B of the federal Medicare program.

If a person excluded from coverage for allowable expenses loses their qualified health coverage, the named insured must notify the no-fault insurer. The named insured then has 30 days to obtain coverage for allowable expenses for the excluded individual. If the excluded individual suffers accidental bodily injury from a motor vehicle accident during that 30-day period, the individual may claim no-fault benefits through the Michigan Assigned Claims Plan (subject to a $2,000,000 limit). If the named insured does not obtain coverage by the end of the 30-day period, the excluded individual is not entitled to coverage for allowable expenses.

Higher Exposure for Third-Party Claims

The new coverage-limit and opt-out options create exposure for medical expenses, attendant care, and other allowable expenses that didn’t exist under the former version of the statute. An injured person with limited coverage for allowable expenses can recover their excess expenses from the at-fault driver. If the injured person opted out of allowable-expense coverage entirely, they can recover all of their economic damages from the at-fault party. This increased exposure is in addition to the at-fault party’s liability for work loss in excess of the monthly and yearly limits under the act.

A Michigan resident may recover economic damages from an at-fault driver without showing serious impairment of body function, permanent serious disfigurement, or death. A pure comparative negligence standard applies to economic damages claimed by Michigan residents, meaning that a defendant may face liability even if he or she is less than 50% at fault. Additional limitations apply to out-of-state residents who do not own a vehicle registered and insured in Michigan. To recover economic damages, they must prove serious impairment of a body function, permanent serious disfigurement, or death. Further, a modified comparative fault standard applies to their claims, meaning that they can’t recover economic damages if they’re more than 50% at fault. (The same modified comparative fault standard applies to nonresidents’ and residents’ claims for noneconomic damages.)

To address this increased exposure, the Legislature raised the mandatory minimum liability coverage limits for bodily injury to $250,000 per person and $500,000 per occurrence (up from $20,000 per person and $40,000 per occurrence). However, an applicant or named insured may select a policy with limits as low as $50,000 per person and $100,000 per occurrence if they complete the required form and the insurer makes the necessary disclosures. The default policy limits of $250,000 per person and $500,000 per occurrence will apply if the applicant or named insured doesn’t select a lower coverage option, or if the person and insurer fail to take the actions required under the statute.

The Legislature also increased the cap on damages for “mini-tort” claims. A person suffering damages to their vehicle can claim up to $3,000 from the at-fault party to the extent that insurance doesn’t cover the damages.

What These Changes Mean for Michigan Drivers and Insurers

The most dramatic amendments to the Michigan no-fault act are now in effect. With these changes, insurance applicants should carefully review their coverage options and make sure that they understand the implications of selecting limited or no coverage for allowable expenses. Insurers, on the other hand, must pay close attention to applicants’ selections to ensure that the carriers are charging appropriate premiums.

For the first time in decades, drivers and casualty insurers must re-evaluate their exposure for medical costs and other allowable expenses. Third-party litigation undoubtedly will increase given the greater need to recover excess medical expenses from at-fault parties and the enticement of increased policy limits for bodily injury liability. This upsurge in litigation will likely extend to “mini-tort” claims given the increased policy limits in that area. And parties will need to address liens imposed by health and accident carriers, which are common in cases involving claims for medical expenses.

These changes drastically impact claims handling and litigation management. There’s no turning back now, so it’s time to adapt and meet the challenge head-on.

If you have questions about the recent changes to the no-fault act, please feel free to contact the author, Matthew S. LaBeau. More information about Collins Einhorn’s General and Automotive Liability Practice Group is available here.