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Duggan’s new D-Insurance plans will be great for the auto accident lawyers, but terrible for everyone else

Does Mayor Duggan want to ‘repeal and replace’ Michigan’s auto No Fault law?

Does Detroit Mayor Mike Duggan want to scrap Michigan’s auto No Fault law?

It sure sounded that way last night.

Last night, during his State of the City address, the mayor signaled that, instead of moving “forward with D-Insurance” (which I’ve heavily criticized in the past on the pages of this auto law blog), that he was moving toward a new statewide proposal that will slash the costs of auto insurance.

Whether that statewide approach includes getting rid of Michigan’s auto No Fault insurance system entirely, or capping our auto laws with much lower amounts of insurance coverage remains to be seen. Presumably, everything that is above and beyond these first-party cap amounts on No Fault would then be the financial responsibility of the driver who causes a car accident. In pure tort states, a person injured in a car accident can bring a tort personal injury lawsuit against the wrongdoer driver who caused the crash (which really means his or her auto insurance) for all of the medical bills and all of the economic losses caused by the wrongdoer driver. This sounds good, but as you’ll see below, this usually means personal bankruptcy and financial ruin for any seriously injured auto accident victims.

The mayor did allude to the State of Ohio last night, which has a pure tort system for automobile accidents. He said: “In Ohio, it costs $900 a year to get car insurance. In the State of Michigan, it costs $1,700 a year. Double. But, in Detroit, it costs $3,400 a year.”  He also said “there’s a reason why only 12 states in the country still have No Fault. It’s ridiculously expensive.”

Under Duggan’s new plan, injury lawyers win, but injured Detroit drivers lose big

The reason I’ve always supported Michigan’s auto No Fault law is because it is the right thing to do for my clients. People seriously injured in car accidents can receive all the necessary medical care they need under No Fault. The quality of medical care is higher in Michigan than it is in many pure tort states. Most importantly, accident victims will not face financial ruin and personal bankruptcy the way that most seriously injured car accident victims will in pure tort states, where the wrongdoer driver’s auto bodily injury accident insurance is usually limited, and people do not have enough assets to cover all of the medical bills of the people they injure.

While Michigan’s auto No Fault law is great for the people I represent, it’s not great for the lawyers.

Lawyers in pure tort states who can sue for all of the medical bills and wage loss incurred by their clients can make a lot more money than lawyers can in Michigan, where tort claims are limited only to pain and suffering and excess economic loss past the first three years of No Fault.

Pure tort states make small cases bigger because the lawyer can sue for everything. But if you or someone you love has been seriously hurt and is not lucky enough to have outstanding health insurance, the costs are devastating.

Even though auto lawyers like me would make more money if Michigan moved away from No Fault, either partially or fully, and more towards a new pure tort state model as Mayor Duggan alluded to last night, it would be a terrible price to pay for the people I represent.

For this reason alone, I’ve always come down in strong support of Michigan’s auto No Fault system.

It is the right thing to do.

Why Mayor Duggan might be moving D-Insurance towards a tort system model

Last night we heard more from Mayor Duggan about what’s wrong with No Fault.  Mayor Duggan’s criticism of No Fault was blistering.

Overall, the mayor’s address touched on two main ideas about Michigan car insurance, which I’ll discuss in greater detail below:

  • We “know” what the problems are with No Fault that are causing auto insurance rates to be so high.
  • “Everybody in this state is getting screwed by the No Fault system …”

Fixing the No Fault problems that drive up car insurance rates

In his State of the City address last night, Mayor Duggan stated:

“We know what the problems are. The hospitals and the medical community are charging triple what they’re getting for Blue Cross and those rates. Lawyers … are taking not money from the injuries. They’re taking a good chunk of the medical bills and they’re taking ‘em in legal fees, driving the cost up more. And, of course, the insurance companies pass all of this on with a profit.”

Given how he’s framed the causes of high car insurance prices, the mayor, as someone who, in his own words, “know[s] something about the medical field and insurance,” should know that the obvious and most effective and direct solution is what I’ve called for many times before:

  • A No Fault medical-provider fee schedule.

As I explained yesterday, a fee schedule based on the Workers’ Compensation fee schedule – while being more generous, fair and realistic than the fee schedules that medical providers receive under Workers’ Compensation – would slash the costs of auto insurance while leaving the legal protections intact.  It would almost immediately accomplish the following things for Detroit:

  • It would stop Detroit medical providers from charging No Fault auto insurance companies 340% more (or 3.4 times more) than what they charge to Workers’ Compensation for the same procedure.
  • A more generous No Fault fee schedule but one that was modeled on Michigan’s Workers’ Compensation fee schedule could generate savings of approximately 71% on No Fault medical claim costs in Detroit.

Similarly, a 2014 infographic released by then-Speaker Bolger and the House Republicans showed that, on a statewide basis:

  • A No Fault fee schedule modeled on the Workers’ Compensation fee schedule would stop medical providers from charging No Fault car insurance companies 300% more than what they charge to Workers’ Compensation for the same procedures (e.g., X-Rays, ER Visits, CT Scans and MRIs).
  • A No Fault fee schedule modeled on Michigan’s Workers’ Compensation fee schedule could generate savings of approximately 67% on No Fault medical claim costs statewide.

Finally, as I also explained yesterday and in previous blog posts, including “How I would change Mayor Duggan’s D-Insurance Plan to actually protect Detroiters,” a No Fault medical-provider fee schedule would:

  • Remove the financial incentive that drives many “billboard lawyers” and “ambulance chasing” lawyers that are currently violating Michigan law and committing insurance fraud by participating in medical-legal referral services that drive up medical costs unnecessarily, with the lawyer then taking a one-third attorney fee on the medical bills.
  • Remove a lot of the ugliness and PIP fraud that we all see from a small but growing number of lawyers and law firms.
  • Streamline billing for medical providers, doctors and hospitals; facilitate prompt payment and eliminate the need for costly litigation.
  • Eliminate most of the lawyer provider lawsuit industry entirely, as doctors and medical providers would be paid reasonably charges promptly.
  • End the networks of runner, cappers, soliciting “case managers” that are currently camped out in many Detroit-area hospital waiting rooms and who walk into patient’s rooms handing out lawyer business cards.
  • End the misuse and abuse of our No Fault system by “ginning” up costly PIP claims and flooding the courts with needless first-party no fault lawsuits.

If ‘everybody’ is ‘getting screwed’ by Michigan auto No Fault, what should be done?

Mayor Duggan took a no-holds-barred approach to expressing his discontent and displeasure with Michigan’s No Fault system:

  • The No Fault “system is completely out of control.”
  • “Everybody in this state is getting screwed by the No Fault system …”
  • “In Ohio, it costs $900 a year to get car insurance. In the State of Michigan, it costs $1,700 a year. Double. But, in Detroit, it costs $3,400 a year.”
  • “[W]hile Detroit is hurting the worst, the truth of the matter is … it’s affecting everybody.”
  • “There’s a reason why only 12 states in the country still have No Fault. It’s ridiculously expensive.”
  • The No Fault “system is immoral when half of Detroiters are driving illegally, when people across this state are being overcharged …”

Planting the seeds for dismantling Michigan’s Auto No Fault Law

One does not have to imagine that Mayor Duggan is planting the seed that the solution to fix the problems that plague Michigan’s No Fault law is to get rid of No Fault.

All you had to do was listen.

But Mayor Duggan is wrong.  If this is what Mayor Duggan has in mind, then he’s as wrong as he was about his D-Insurance Plan, but a thousand times more wrong about dumping our auto No Fault law for a tort-based liability system like the one that Ohio has or the one that Michigan had before it enacted No Fault in 1973.

As I explained in my December 2015 blog post, “Dear reader: Mayor Duggan’s ‘D-Insurance’ Plan is not the solution to Detroit’s insurance problems”:

The alternatives to our auto No Fault insurance system are far, far worse. Michigan’s tried it. It didn’t work. Before No Fault, Michigan had a tort-based (and, thus, lawyer and lawsuit-driven) auto insurance system. It is important to note that this was such a failure that it drove lawmakers to enact Michigan’s No Fault Law in 1973. Michigan’s former Insurance Commissioner Thomas C. Jones in the 1970s summarized the failings of Michigan’s tort-liability system far better than I could. He wrote as follows: “incomplete, inequitable, inefficient and slow”; it does “a poor job of providing for seriously injured auto accident victims”; it had an “inequitable payment structure” because a “high percentage of persons injured in automobile accidents received no reparations under the tort system” and the system “systematically undercompensated the most seriously injured” victims; “lengthy delays existed under the tort system in compensating those injured in automobile accidents — often in cases where the need for prompt compensation was strongest”; and, given the “long payment delays,” “[s]everely injured people [were forced] to bear devastating financial burdens while waiting for lawsuits to be settled.”

Sure, it would be great for the auto accident lawyers.  The lawyers would make a lot more money, just as they do in pure tort states.  Many lawyers who operate on volume with law offices that have high caseloads – the “churn and burn, settlement mill” law firms that I’ve discussed before on this auto law blog – might make two or three times as much money as they do now under No Fault.

But that doesn’t make it right. Abandoning our auto No Fault law in Michigan, which I’ve called possibly the greatest bargain Michigan residents have, is just the wrong thing to do.

Mayor Duggan can have the best of both worlds.  He can dramatically lower the cost of auto insurance, and leave the legal protections for catastrophically injured drivers intact.

The answer is a fully fair fee schedule, not dismantling our auto No Fault law.

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