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Bills to replace No Fault with pure tort liability insurance system introduced

February 7, 2018 by Steven M. Gursten

Here is what a pure tort liability system will mean for car accident victims and drivers in Michigan

House Republicans introduce bills to replace No Fault with pure tort liability

Yesterday House Republicans introduced legislation to repeal Michigan’s 45-year-old No Fault auto insurance law and replace it with a pure tort liability system.

House Republicans, including Rep. Lana Theis (R-Brighton), chair of the House Insurance Committee and sole sponsor of the defeated Theis-Duggan-Leonard No Fault plan, introduced a package of bills, including House Bill 5517 and House Bill 5518 which, if passed, would make the following changes to Michigan’s auto insurance laws:

  • Michigan’s 45 year experiment with No Fault ends.
  • Michigan becomes a pure tort liability state, meaning that car accident victims can sue an at-fault driver who causes a car accident for all of their economic and non-economic losses. There will no longer be a threshold test for pain and suffering claims as there currently is, and the wrongdoer driver is now responsible for all of a victim’s medical expenses, attendant care, wage loss and vehicle damage that he or she causes. The majority of states in the country today are considered pure tort liability states.
  • Even though drivers would no longer be entitled to catastrophic injury coverage after a car crash, they would still have to pay annual assessments to the Michigan Catastrophic Claims Association.
  • The only auto insurance that Michigan drivers would be required to carry is liability insurance with 20/40/10 policy limits.

On Monday, I wrote a more critical analysis of what No Fault repeal will look like, and who some of the winners and losers may be if a No Fault repeal is enacted and Michigan becomes a pure tort liability state.

When would No Fault officially end if Michigan switches to a pure tort liability system?

No Fault coverage as we have known it since 1973 – with its accompanying benefits and protections, such as unlimited medical benefits (for as long as they are “reasonably necessary”) – will no longer be available after December 31, 2019.

Specifically, No Fault will not apply to car accidents that occur after December 31, 2019, nor will it be an available coverage in car insurance policies issued after December 31, 2019.

On these points, HB 5517 provides:

  • “Unless expressly provided otherwise in this chapter, this chapter does not apply to a motor vehicle accident if loss resulting from the accident is insured against under an automobile insurance policy issued or renewed after December 31, 2019.” (HB 5517, Page 54)[No Fault is known as “Chapter 31 Motor Vehicle Personal and Property Protection” under Michigan’s Insurance Code of 1956, Act 218 of 1956]
  • “After December 31, 2019, an insurer shall not issue or renew with respect to a motor vehicle registered or principally garaged in this state an automobile insurance policy that provides security for payment of benefits under personal protection insurance or property protection insurance under chapter 31.” (HB 5517, Page 17)

If No Fault repeal goes through, when would a pure tort liability system begin?

For the most part, Michigan would become a pure tort liability system (with no threshold requirement for pain and suffering claims) for purposes of car accident litigation on January 1, 2020.

That’s because HB 5517 provides that the existing “subsection” of Michigan’s No Fault threshold law (MCL 500.3135 [subsection (3)]) that “abolished” “tort liability” will no longer apply “after December 31, 2019,” except under limited circumstances. (HB 5517, Page 43)

The limited circumstances exception wouldn’t extend by much the decades-old, existing “tort liability” abolishment.

Under HB 5517, No Fault’s “tort liability” abolishment could continue temporarily, but would, ultimately, cease upon the expiration or lapse of auto insurance policies that were “issued or most recently renewed before January 1, 2020.” (HB 5517, pages 42-43)

If Michigan becomes a pure tort liability state, will there still be a legal threshold to sue for personal injury and pain and suffering compensation?

No. Once No Fault’s “tort liability” abolishment ceases to exist, so will No Fault’s threshold requirement that auto accident victims must first show a serious impairment of body function to be able to sue for pain and suffering compensation.

Under the existing No Fault law, the “threshold” requirement provides that a car accident victim can sue for pain and suffering compensation (i.e., “noneconomic loss” damages) only if he or she has suffered a “serious impairment of body function.” (MCL 500.3135(1)).

This “threshold” requirement is an exception to No Fault’s otherwise broad abolishment of “tort liability arising from the ownership, maintenance, or use within this state of a motor vehicle …” (MCL 500.3135(3))

Therefore, under HB 5517, when the “tort liability” abolishment ends, so, too, will the pain and suffering threshold (as an exception to the rule, the threshold can’t continue to exist once the rule is gone). This will occur either “after December 31, 2019” or when all of the pre-January 1, 2020, policies expire or phase out. (HB 5517, pages 42-43)

How will the switch to a tort liability system affect the Michigan Catastrophic Claims Association?

The MCCA’s liability to pay for the medical benefits of new catastrophically injured car accident victims ends with “motor vehicle accident policies issued or renewed after December 31, 2019,” but drivers’ obligation to pay MCCA assessments as part of their overall auto insurance bill will continue. (HB 5517, Page 35, 41)

What insurance requirements will drivers have if Michigan goes to a pure tort liability system?

Starting on January 1, 2020, Michigan drivers will no longer be required to carry No Fault PIP car insurance for their cars and trucks.

Specifically, HB 5517 provides:

“Before January 1, 2020, the owner or registrant of a motor vehicle required to be registered in this state shall maintain security for payment of benefits under personal protection insurance [which is more commonly known as No Fault PIP or “personal injury protection”] …” (HB 5517, Page 24)

Additionally, HB 5518 amends Michigan’s “proof of insurance” statute (MCL 257.328(1)) to require:

A driver must, “upon request of a police officer,” show proof that the vehicle he or she is driving “is insured under a policy of insurance that complies with section 3009 of the insurance code …” (HB 5518, Page 14)

Section 3009 or MCL 500.3009(1) requires drivers to carry liability 20/40/10 coverage with the following limits:

  • $20,000 to cover “bodily injury to or death of 1 person in any accident”;
  • $40,000 to cover “bodily injury to or death of 2 or more persons in any 1 accident”;
  • $10,000 to cover “injury to or destruction of property of others in any accident.”

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