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Michigan’s excess economic loss law for auto accident cases is broken

May 10, 2012 by Steven M. Gursten

Why it’s time to change Michigan’s excess economic loss law

I’ve been thinking a lot lately about how unfair Michigan’s economic loss law is for people seriously injured in car accidents. Our economic loss law as it applies to auto-negligence cases is broken, and it’s in need of repair from the Michigan Legislature. Unfortunately, the Michigan Supreme Court is about to make the problem even worse.

Excess replacement services

Our economic loss law is about to become even more unfair. The Michigan Supreme Court will rule soon on whether seriously injured car and truck accident victims can claim and recover excess replacement services (help with services around the house) as part of an injured party’s excess economic loss claim.

Lawyers helping auto accident victims have been doing this for years, and I’ve been making these claims for my own injured clients for nearly 20 years in trial. But now there is a case pending before the Michigan Supreme Court on the issue, and any observer of Michigan Supreme Court jurisprudence since 2000 will understand why I do not hold out much hope. Once again, I expect our activist Republican Court will change well-settled law, overturn precedent, and change our law to the disadvantage of innocent consumers and in favor of insurance companies.

Replacement services are an important Michigan No-Fault benefit because they pay for someone — i.e., a replacement — to perform the “ordinary and necessary services” a car accident victim would have done for herself had she not been seriously injured.

The way it works in Michigan is as follows: your own No-Fault insurance pays for the first three years of replacement services at $20 a day, as needed. After the three years is over if you are still disabled and will be paying out of pocket for someone to perform these services for you, then responsibility for this future cost shifts to the person who caused your injuries.

That’s how replacement services has worked until now. The excess replacement services case before the Michigan Supreme Court is Johnson v. Recca and the court heard arguments on the case on April 4, 2012. For more about Michigan replacement services and the Johnson case, check out our blog.

Earning Capacity is more fair to auto accident victims than earning loss

It’s important to keep in mind that Michigan’s economic loss law is already unfair in its current form. That’s because Michigan fixes your economic loss claim to a moment in time – the time of your automobile accident. Our economic loss law operates as an X-Ray – it freezes what you were earning at the time of your auto accident to that moment of time – and it is that economic loss only that you can claim in any auto negligence (auto tort) lawsuit filed in this state.

In almost all other states, and even in Michigan in other areas of personal injury law excluding auto accident injury cases, an economic wage loss claim is based upon someone’s “earning capacity.” Earning capacity is a measure of what a person could have reasonably expected to earn as future economic income if the car crash did not occur. It is based on your education, training and experience, and then it takes a look at what someone in the accident victim’s position could expect to earn based upon government studies, peer-reviewed economic literature, and other sources to show would be reasonable.

Michigan does not use earning capacity in auto accident claims when someone is seriously injured and will have future economic loss. Michigan goes the other way, and the result is both illogical and draconian. It fixes people to a moment in time, and it takes away everything that an injured person has been working, striving, and aspiring to reach.

The law flows from a case called Ouellette v. Kenealy (and the companion case Argenta v. Shahan) from 1985. The Supreme Court ruled that No-Fault wage loss benefits compensate only “for ‘actual’ ‘loss of income from work an injured person would have performed’ if he had not been injured,” not for “loss of earning capacity.” (424 Mich 83)

To understand how unfair this law has become, one just has to see how lower courts in Michigan have applied it to real people. For example, students, even students a year or less away from graduation have lost out entirely. In Gerardi v. Buckeye Union Insurance Company, the Michigan Court of Appeals denied a nursing student’s claim for wage loss benefits based on the nursing income she lost due to her delayed graduation. Her car crash-related injuries forced her to postpone her studies for one year. The court was unsympathetic, rejecting her claim. Wage loss benefits must be based on “actual earnings, the court said, “not on future possibilities.”

How the excess economic loss law hurts young adults and those changing careers

The law is also devastating for people changing careers and young adults just landing their first job. In both cases, economists can show with certainty that the money they are making is a fraction of what they will make over time, but “future probabilities” don’t count.

Nor do years spent acquiring an expensive higher education in pursuit of a degree. The medical student gets nothing. Michigan law neither accounts for nor cares about what her “future probabilities” when someone is seriously injured in an auto accident.

This law is an insult to every hard working Michigan citizen, who for any one of a million different reasons wasn’t at the economic pinnacle of their careers, before those careers are wiped out by another person’s carelessness and negligence.

On the other hand, this law is an incredible gift and boon to the people who cause car accidents that change and destroy another’s life, injuring them so severely that they cannot ever return to work. It is hard to fathom why Michigan law protects the people who cause serious auto accidents, at the expense of the people they injure.

Our economic loss law in auto accident cases needs to be changed.

Unfortunately, after the Michigan Supreme Court rules on the excess replacement services case (Johnson), the economic loss law in Michigan will be changed, all right.

But for the worse. Much worse.

Steven M. Gursten is an accident lawyer and head of Michigan Auto Law. He is president of the Motor Vehicle Trial Lawyers Association and has received the highest verdict or settlement for a car or truck accident case in 2008, 2009, 2010 and 2011, according to Michigan Lawyers Weekly.

Related information:

Pan and suffering lawsuit

Non-economic damages

What’s in store for auto accident victims in 2012?

Michigan Auto Law exclusively handles car accident, truck accident and motorcycle accident cases throughout the entire state of Michigan. We have offices in Farmington Hills, Sterling Heights, Ann Arbor, Grand Rapids and Detroit. Call (248) 353-7575 or to speak with one of our Michigan accident lawyers.

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