No-Fault Lines

Automobile No-Fault Law has changed dramatically and you need to know how to navigate the new insurance coverage choices you are now required to make. The choice you make can affect not only you but your family and occupants of your motor vehicles if you are involved in a crash. We believe the best choices are those based on the facts, knowing what options are available to you, and what risk you are willing to take. This Guide explains the Options available to you under the new law, the risks, and some of the costs, to help you to make an informed decision.   

The new No-Fault law makes a complex system even more confusing and difficult for a layperson to navigate. The savings touted under the new law are likely to come at the expense of those who can least afford it: automobile crash survivors who have suffered catastrophic and often life-changing injuries. Worst of all, it remains to be seen whether those savings will actually trickle down to motorists, who are discovering that they now have less coverage without a correspondingly significant reduction in premiums.

For a comprehensive overview of Michigan’s new No-Fault law led by Partner Nicholas Andrews, visit Michigan Lawyers Weekly to download our recent webinar.

HERE ARE THE HIGHLIGHTS OF MANY OF THE CHANGES UNDER THE NEW NO-FAULT LAW:

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The biggest change for Michigan motorists is that mandatory comprehensive lifetime no-fault insurance coverage has been replaced by a tiered system that allows individuals to opt-out or purchase as little as $50,000 worth of coverage for medical expenses under certain circumstances. Other options include $250,000, $500,000, and No-Limit. The No-Limit Option is the closest coverage to what we all had under the Old Law.

 

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The protections afforded to drivers and owners of motor vehicles that cause a crash have been nearly eliminated. Drivers are now exposed to liability for economic damages they never before had to consider. Worse, accident victims in many circumstances are now dependent on coverage purchased by someone else.

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The new law prohibits insurance companies from the practice of “redlining” and states that they can no longer use certain credit scores to determine insurance premiums. However, insurance companies may still be allowed to use “insurance scores” which use some, but not all, factors in your credit history to determine how you are likely to manage your risk exposure.

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The market-based limitations on the cost of medical care built in to the prior system has been replaced with government mandated caps on what hospitals, doctors, and other healthcare providers can charge.

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New Coverage Choices

With the coverage tier provisions of the new law now in place, Michigan drivers must make automobile insurance choices they have never had to make before. Making these choices in an informed and responsible manner requires knowledge of both the ins and outs of the state’s new automobile insurance law andan understanding of the types and scope of coverage provided by government and private health insurers.

Perhaps the most significant decision that Michigan drivers will make is selecting a level of coverage for that portion of Personal Injury Protection (PIP) that are called “allowable expenses” and include medical bills and other expenses related to your care, recovery, and rehabilitation.

Here are the PIP choices motorists must now make when renewing their policies:

★ Option 1 – No Limit Option – Recommended

Liss, Seder & Andrews recommends the No Limit Option for most families.

This Option is available to anyone purchasing No-Fault Insurance and is the closest to what we all had under the Old Law. This option covers all reasonable expenses incurred for the care, recovery, and rehabilitation of the injured person. Under this Option the new law mandates premium reductions to be “an average of 10% or greater per vehicle.” These premium reductions are not guaranteed for each policyholder. This reduction only applies to the PIP portion of your insurance premium. Other portions of your premium may actually increase. The insurance company is only required to reduce its statewide average premium charges, meaning you may not get it. Insurance companies can also apply for an exemption.

Case Study –

A young man became a quadriplegic on his high school graduation day. He required specialized treatment at one of the foremost spinal cord hospitals in the county. At this hospital, his father had his expenses paid while he was trained to provide for his son’s care, the family’s home was modified and they have lived together for years in the best environment possible. This type of care is only possible under Option 3.

Option 2 – $250,000 Option

This option is available to anyone purchasing No-Fault Insurance. This Option only covers up to $250,000 incurred for the injured person’s care, recovery, and rehabilitation. Under this Option the new law mandates premium reductions to be “an average of 35% or greater per vehicle.” This reduction only applies to the PIP portion of your insurance premium. Other portions of your premium may actually increase. These premium reductions are not guaranteed for each policyholder. The insurance company is only required to reduce its statewide average premium charges, meaning you may not get it. Insurance companies can also apply for an exemption.

Case Study –

A young man became a quadriplegic in a car crash requiring hundreds of thousands of dollars of hospital care. Under Option 1 he would have run out of money before he was released from the hospital. Under old no-fault he received money to cover all medical bills, provide transportation needs, and most importantly, to modify his home so he could live with his family. Without unlimited coverage, his only alternative would have been to be institutionalized in a nursing home facility paid for by Medicare.

Option 3 – $500,000 Option

This Option is also available to anyone purchasing No-Fault Insurance. This option only covers up to $500,000 incurred for the injured person’s care, recovery, and rehabilitation. Under this Option the new law mandates premium reductions to be “an average of 20% or greater per vehicle.” These premium reductions are not guaranteed for each policyholder. This reduction only applies to the PIP portion of your insurance premium. Other portions of your premium may actually increase. The insurance company is only required to reduce its statewide average premium charges, meaning you may not get it. Insurance companies can also apply for an exemption.

Case Study –

A young boy riding a bicycle suffered brain damage when hit by a car. Because of unlimited coverage he was able to get tutors, coaching and attendant care that allowed him to complete his high school education, college, and ultimately achieve gainful employment. Under Option 2 coverage would have run out long before high school.

Option 4 - $250,000 Limit with Exclusions (Limited Availability)

This option is only available if the named insured is not on Medicare and has qualified health coverage. This Option excludes the named insured and resident relatives who must also have qualified health coverage and provides only $250,000 coverage to those persons not excluded. If you select this option you will also have very strict notification requirements if you or any of your household relatives ever lose qualified health coverage.

Option 5 – $50,000 Medicaid Option (Limited Availability)

This option is only available to persons covered under Medicaid and whose spouse and household relatives are also either on Medicaid, have other health insurance, or have other PIP coverage through a different policy. Under this Option the new law mandates premium reductions to be “an average of 45% or greater per vehicle.” This reduction only applies to the PIP portion of your insurance premium. Other portions of your premium may actually increase. These premium reductions are not guaranteed for each policyholder. The insurance company is only required to reduce its statewide average premium charges, meaning you may not get it. Insurance companies can also apply for an exemption.

Case Study –

When a gentleman was institutionalized after a catastrophic accident his family did not believe he received adequate care. Because of unlimited coverage, the family set up a mini-care facility in their home leading to the highest quality of life. This would not be possible under Option 4.

Option 6 – Opt Out (Limited Availability)

This option is only available if you and your spouse and household relatives meet certain criteria including that you and household relatives are “qualified persons” under either Medicare Parts A and B or other qualifying health insurance policies narrowly defined in the No-Fault Act. If you select this option you will also have very strict notification requirements if you or any of your household relatives ever lose qualified health coverage.

Case Study –

After a severe crash, a Michigander became a quadriplegic who could no longer navigate Michigan winters but under unlimited no-fault was able to move to Florida to improve his condition and mobility. His home was modified to allow for adaptive needs and a van was purchased for him to drive given his physical limitations. This would not happen under Option 5.

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The Timeline

June 11, 2019

Governor Whitmer signed Senate Bill 1, and the first round of No-Fault changes went into effect. Initial changes included a new definition of what constitutes “serious impairment of body function,” new rules covering independent (insurance) medical examinations and new rules for crash victims who are out-of-state residents.

Two important things to note here:

1. Michigan legislators opted not to include a “grandfather clause,” ensuring the changes do not apply to people injured in accidents before the change in the law. The result is many of the changes in the current legislation affect people who were injured in accidents many years ago despite the fact that those people paid premiums for better coverage. Premiums that were paid were based on higher coverage; now, much of that coverage is reduced or eliminated without any refund to motorists.

2. While the law went into effect immediately, the public cannot purchase new insurance policies with lower coverage (and supposedly less expensive premiums) until over a year later. Insurance companies will benefit from higher profits almost immediately as a result of these changes.

July 2, 2020

The first date when insurance companies can legally begin offering new policies.

July 2, 2021

Hospitals, doctors, and many health care providers must align their charges under government price controls. That might sound like a good thing for accident victims, but it establishes an impossible and unsustainable price structure on many providers of medical care that will ultimately limit available care options and may close hospitals and clinics.

July 2, 2021

Insurance companies are no longer required to pay family members, friends, and prior acquaintances for all of the attendant care they provide. Insurance companies are only required to pay 56 hours per week of attendant care provided by family and friends, forcing victims and their advocates to hire more expensive home care agencies. Family-provided attendant care is not only one of the most cost-effective forms of care, but most doctors agree it results in better outcomes for the patient.

A NOTE ON THE “SAVINGS” EXPECTED

It is important to note that the mandated savings for each of the coverage options above do not apply to the entire policy, but only to the PIP portion (around 45%) of the total insurance cost. For example, if you paid $2,000 for your total automobile insurance in May, 2019, under the new law, if you picked a $500,000.00 PIP policy, your savings would likely only be $180.00. Meanwhile, you and your family are now exposed to possible bankruptcy if you are involved in a crash resulting in catastrophic loss and can now be sued for the other person’s medical expenses if you cause the crash.  

Also, the new law “does not prohibit an increase for any individual insurance policy premium if the increase results from applying rating factors,” so it is quite possible if your insurance company “re-rates” you or your family members, your premium will increase.

There is one final note on the “savings” supposedly built into the new law. The language of the statute very carefully states the new premiums “must result, as nearly as practicable, in an average reduction per vehicle from the premium rates for personal protection insurance coverage that were in effect for the insurer on May 1, 2019.” Essentially, the intent of the clause is to not mandate a specific savings for motorists but to provide for an average savings for everyone insured by a particular insurance company. However, expect insurance companies to simply claim it isn’t “practicable” to make the reductions. Remember, the reductions refer to the insurance company’s average, not your policy.

ADDITIONAL NOTES & COVERAGE CONSIDERATIONS

  • New No-Fault places limitations on insurance companies’ liability to pay family members/friends/acquaintances who provide attendant care to catastrophically injured persons to only 56 hours per week.

  • Anyone who purchases a $50,000, $250,000, or $500,000 PIP Option is eligible to purchase an Attendant Care Rider to cover attendant care costs “in excess of the applicable limit” coverage. This care is already provided in a Lifetime Option policy. Unfortunately, the Attendant Care Rider does not alter this 56 hour per week limitation of coverage for family members, friends and acquaintances who provide attendant care. Pricing and coverage for Attendant Care Riders will be determined by individual insurance companies.

  • A Managed Care Option is available to anyone purchasing No-Fault Insurance if offered by their insurance company. Coverage details are unknown at this time, but would impose insurance company-mandated limitations on doctor and treatment options.

  • Motorists can also select a Coordination of Benefits Option, which are “deductibles and exclusions reasonably related to other health and accident coverage.” This option has always been available, but the cost-savings for coordinated policies have been altered by the changes to the No-Fault law. Under the old law this coverage was sold at “appropriately reduced premium rates” but now it is to be offered at “a reduced premium that reflects reasonably anticipated reductions in losses, expenses, or both.”

Under the New No-Fault System all owners and drivers are potentially responsible for millions of dollars in damages they were never responsible to pay before.

BODILY INJURY COVERAGE

Under both the Old and New No-Fault Systems all motorists must purchase a minimum amount of bodily injury coverage. This coverage is the amount an insurance company will cover the driver and owner of a motor vehicle who is negligent and injures another person. Under the Old No-Fault System, the minimum amount all motor vehicle owners had to purchase was coverage for $20,000 because of bodily injury or death of 1 person in any 1 accident and $40,000 because of bodily injury or death of 2 or more persons in any 1 accident. These were known as 20/40 policies.

As of July 1, 2020, all motor vehicle owners must now purchase higher bodily injury coverage amounts. The new coverage minimum amounts are $250,000 per person and $500,000 per accident. When applying for insurance, if you want less coverage, an option exists to reduce this coverage to $50,000 per person and $100,000 per accident. To exercise this option to reduce coverage, insurance companies require motorists to sign a form approved by the Director of Insurance and Financial Services. This form is required because making this election for lower coverage is very financially risky, especially because drivers and owners of motor vehicles are now potentially liable for medical bills.

Under the New No-Fault System all owners and drivers are potentially responsible for millions of dollars in damages they were never responsible to pay before. Because motorists are now potentially responsible for someone else’s medical expenses, they would be wise to select the highest coverage best suited to protect their assets, including their home, cars, and bank accounts.

UNINSURED MOTORIST & UNDERINSURED MOTORIST COVERAGE

This coverage provides protection for anyone hit by a driver without insurance—or without sufficient insurance to cover your damages. While there are no minimum amounts mandated in Michigan, most motorists would be wise to purchase as much Uninsured Motorist and Underinsured Motorist Coverage as they can afford.

Anyone who selects one of the non-Lifetime Options for no-fault coverage and is subsequently struck by someone with either no or low Bodily Injury coverage could be left with no means to pay their bills—unless they have purchased Uninsured Motorist and Underinsured Motorist Coverage (and provided that they were not more than 50% at fault for causing the crash).

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The Bottom Line

Every Michigan motorist will be affected by these sweeping changes to the law.While premium reductions have been touted, the new limited coverage options do notensure that an individual motorist’s insurance rates will actually go down. Advertised savings can be misleading, as specific numbers that have been cited are an average across all policies.

Numbers like $250,000 and $500,000 might sound substantial, but they are a drop in the bucket for someone recovering from a serious injury. Michigan residents would be wise to ask “What can I notafford?” rather than “What can I afford?”

Every driver (and passenger) in the State of Michigan now faces an elevated level of risk and liability. And that’s a problem, becausethis complex new legislation makes thoughtful risk assessment difficult and informed decision-making a challenge for Michigan motorists. Whether or not it was intended, the bottom-line result is that Michigan drivers now have to make potentially life-altering choices with possibly dramatic financial implications.

With the stakes so high, Michigan motorists should make it a priority to educate themselves and understand their options – even if they’ve already purchased coverage – so they may adjust their elections to best protect their families, assets and themselves.