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How insurance companies helped create the PIP fraud problem in Michigan

June 10, 2013 by Steven M. Gursten

Insurance companies help with PIP fraud Michigan

Last week I wrote about the much needed new bills aimed at stopping the growing problem of attorney solicitation in this state.  Injury attorneys are looking up accident victims’ police reports, and using the information to call them, send them mail and even knock on their doors in hopes of drumming up business. This has become a major problem, and it should be stopped now.

My blog post about attorney solicitation probably hasn’t made me many friends amongst certain lawyers in the plaintiff’s bar. I expect this post to likely be the same.

But what is so ironic about the insurance fraud problem that we see in  Michigan today is that it was the auto insurance companies, not the auto lawyers and medical providers, who  created it.

It’s an  example of the  saying, “Be careful for what you wish for. You may just get it.” It is a wonderful example of the law of unintended consequences.

A brief lesson in how the auto insurance companies helped create the current fraud problem

Back in 1995, the insurance companies decided to make third-party auto accident litigation harder. With the Republicans controlling all three branches of state government, and at the urging of the insurance industry, the Republican Legislature enacted aggressive “tort-reform.”  For the first time ever, the legislature created a  definition of “serious impairment of body function.”

Then, a case called Kreiner v. Fischer came before the Michigan Supreme Court in 2004.
Kreiner essentially wiped out much of the third-party auto accident tort litigation in this state (pain and suffering lawsuits from car accidents). Kreiner created enormous (judge-made) obstacles to legal recovery that resulted in  thousands of tort cases being tossed from the trial courts.

The Republican majority in Kreiner, throwing “judicial restraint” and “strict statutory construction” to the wind, enacted (judicially) all sorts of new legal obstacles to prevent recovery for auto accident victims. Mind you, none of these judicially-created obstacles — such as physician imposed restrictions and changing the trajectory of an auto accident victim’s life — were in the actual statutory definition of serious impairment of body function that the Republican Legislature had passed years before.

It should be noted that these judicially-created hurdles were created out of thin air by the Engler “Gang of Four”— a term first coined by Justice Elizabeth Weaver, also a Republican, to describe the four-justice majority that then embarked upon a very aggressive, judicially activist agenda.

The critical balancing act in No Fault  that existed for over 30 years was tipped. One side of the scale – the side weighted toward the insurance companies – came crashing down. The consumer side shot upward. The trade-off that our entire No Fault Act is predicated upon  is that generous first party No Fault insurance benefits, including all reasonably necessary medical care and three years of wage loss, be paid if people are unable to work after a car accident. In exchange, Michigan has a third-party auto accident threshold law that is meant to deter clearly frivolous, de-minimus injuries from filing lawsuits seeking pain and suffering compensation after minor car accidents.  That was the trade-off that the Michigan Legislature adopted in 1973 when it enacted No Fault in this state.

But the Kreiner Court went far beyond this. Suddenly serious fractures, even major surgeries like spinal surgeries and fusions, were being dismissed by trial courts around the state. People who missed months of work were told they had no case. And in the years following Kreiner, the law became more and more extreme. Many trial court judges ruled that any serious injury that was not permanently disabling was not a serious impairment of body function.  The “course or trajectory” language from Kreiner was so broad, so ambiguous, that virtually any person’s case could be dismissed by a judge with the political agenda or motivation to do so.

The bigger picture – 3rd party tort payouts as a percentage of the No Fault dollar

The payouts on third-party tort (injury) settlements and jury verdicts from automobile accidents are quite small. They are just a fraction of what the insurers spend on collision coverage and  medical payouts.

And for Michigan’s auto insurance companies, who already lead the nation in profitability margins, these third-party tort cases have never been a significant driver of claims costs. The payouts on injury settlements is  a fraction of the costs for first party PIP or No Fault claims involving medical bills.  The amounts paid for settlements are dwarfed by claims for collision coverage. I’ve read, but have not been able to independently confirm, that the costs for tort payouts for injury settlements in this state to insurance companies are only approximately six pennies of the No Fault dollar.

The law of unintended consequences: Unethical auto  lawyers start PIP fraud to stay afloat

What happened next is an illustration of the law of unintended consequences.  Those pesky trial lawyers who used to do a lot of smaller third-party auto work — including lots of soft-tissue whiplash and smaller injury cases, normally on cases where defendants were insured with $20,000 policy limits — didn’t disappear.

Instead, some of the more entrepreneurial (and ethically challenged) auto lawyers found a new way to survive. This new business has led to the current problem of PIP fraud in this state.  And it has cost the auto insurance companies more than the old tort system ever did.

Remember, these lawyers who “did auto cases” before Kreiner v. Fischer were bringing relatively small “third-party” lawsuits. Since the vast majority of people insured in this state drive around with minimum insurance policy limits of $20,000 or $50,000, the insurance companies’ exposure was largely capped. These types of auto cases are a lot of work for what in the end is a very little amount of money for these lawyers.

So what happened after Kreiner v Fischer took these “third-party” auto accident tort cases away from the auto lawyers who used to handle a lot of $20,000 policy limit cases for a living?

Some of them found a new way to make money.

This is where that proverb of being careful of what you wish for becomes a reality for the auto insurance industry. This also ties in directly to the growing problem of attorney solicitation and increasingly, solicitation by chiropractors and medical proxy groups created by these attorneys.

I should add here that while I think the auto insurance industry created the economic incentive and opportunity for the insurance fraud that exists today, it is a small number of unethical auto lawyers who have jumped in with both feet and have made this the problem that it is today.

Attorney solicitation in Michigan and how it’s related to Insurance PIP fraud

For the past few years, people who are injured in car accidents are getting bombarded with letters from lawyers, and increasingly, phone calls at home by third-party organizations set up by groups of lawyers and doctors. Chiropractors have jumped onto the bandwagon, too.

Here’s how it works: UD-10 accident reports (police reports) are being purchased on the Internet, and attorneys and other groups are using these police reports to target car accident victims.

The attorney sends the automobile accident victim to a chiropractor or medical provider.  Very large bills are racked up, and the attorney takes his attorney fee on the medical expenses.

For example, the lawyer refers a case (i.e. a person) to his chiropractor, and let’s say the chiropractor charges $60,000 in treatment over the next six months, treating the person five times a week. The auto lawyer takes 1/3 or 50% of the bill, which comes out to $20,000 to $30,000. The chiropractor is getting lots of cases from the lawyer, and both are very happy and making a lot more money than ever before.

After all, an auto lawyer taking 1/3 of a doctor’s $60,000 medical bill just made 3 times more than he could if he had settled that person’s auto tort case (the third-party pain and suffering case against the wrongdoer driver’s insurance company) for the policy limits of $20,000. In that case, the exposure is capped for the insurance company, and the auto lawyer can only make $6,000.

The brilliant thing about this is that whereas in my practice I have to approximately reject seven of every 10 car accident injury victims who call me, the auto lawyers who are engaging in PIP fraud are signing 10 out of 10 people who call them (normally after they’ve received the solicitation packages).

Every single call is a case, because these lawyers are making all of their money on the PIP side, off of the treating doctors.

The third-party pain and suffering cases for these people are just the gravy. The really sad part about this is that the people who are injured in these automobile accidents are being horribly taken advantage of by these lawyers and medical providers.

One can also say that by removing the balance that existed in this state, it was the activist Republicans on the Michigan Supreme Court who also helped to create this PIP insurance fraud problem.  The Kreiner decision was so extreme, and went so  beyond what even the Republican Legislature had ever intended when it changed the short, simple and clear definition of serious impairment.

And it was the insurance companies that pushed these Republican justices on the Michigan Supreme Court who never saw the big picture, and who never stopped to wonder why the attorney-chiropractor insurance fraud that had already existed in states like Texas and Florida couldn’t be transported to Michigan once these auto lawyers saw their entire third-party auto practices disappear.

Together, the Michigan Supreme Court took something that was very hard before for most auto accident lawyers, like making money on $20,000 policy limit third party cases (it takes a lot of work to make those $6,000 attorney fees, assuming you could settle these cases for close to policy limits). Instead, they made it so much easier for these lawyers.

By taking attorney fees on medical bills, they created a gold mine that has become increasingly exploited by many lawyers who are now creating machines through solicitation and advertising to do this in volume. These lawyers don’t even really care about the third-party settlement. The real money is taking attorney fees on the provider bills in volume.

This has created these new PIP mill law firms, and the bombardment of letters and phone calls to car accident victims in cities like Detroit.  It’s caused the increase we’ve all seen in first party No Fault claims on smaller injury cases. In turn, this has cost the auto insurance companies in Michigan so much more than third party auto claims ever did before Kreiner v. Fischer.

Certainly not every law firm that is sending attorney solicitation letters out is committing PIP insurance fraud.  Most, in fact, are not. And this must be emphasized.

But the current attorney solicitation loophole allows the few law firms that are committing insurance fraud and who are working in cahoots with a network of medical providers and chiropractors to engage in insurance fraud at a level that could not exist without it. Think of an assembly line at a factory.  The people being sent to this network of doctors and medical providers by these lawyers are the parts.

And State Farm, Allstate, AAA, we know exactly which law firms are doing this right now, don’t we?

Michigan auto insurance companies are dropping the ball with No Fault “reform”

The other irony is that the auto insurance companies still are dropping the ball. They still don’t see the big picture.

I’ve been an outspoken opponent to Gov. Snyder’s efforts to “reform” the auto No Fault law in this state. To me, it makes no sense to devastate the futures of the most catastrophically injured accident victims — the ones who depend upon No Fault and need it the most. It also makes no sense to increase the costs to taxpayers by giving the auto insurance companies a giant boondoggle, at least without a very close accounting of just how much money they are making in this state first.

But instead of focusing on the insurance PIP fraud that is certainly costing the auto insurance companies a fortune on smaller claims— and the auto lawyers who are perpetuating this PIP fraud in volume —  the insurance industry is focusing on medical benefits caps for the most severely injured crash victims.

It makes no sense.

I truly do not know why the insurance companies or the state of Michigan do not target and aggressively go after the personal injury lawyers and law firms that are abusing PIP, and the medical providers they’re conspiring with. I wish they would. But for whatever reason, this has yet to happen. Despite the evidence all around us. Despite the rumors and the so-called fraud units I hear from my friends in the defense bar every time I go to court.

I predict that if (or more likely when) our current Michigan Supreme Court does get around to reversing McCormick v Carrier, the problem of medical insurance fraud and PIP fraud will skyrocket in this state.

So far, the Republicans and the insurance industry has been too blind to see the problem that they helped create. They wonder why the costs for first party claims are going up for them.

Be careful what you wish for. You just may get it.

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