Legislation would repeal No-Fault auto insurance system by 2022, replacing it with a fault based system in tort where crash victims would sue for medical expenses, lost wages due to injury
Bills to repeal Michigan’s No-Fault car insurance system and replace it with a fault based system in tort have been introduced by Republicans in the Michigan House of Representatives.
If the changes to the law proposed in House Bill 4397 and other bills go through, Michigan’s No-Fault auto insurance system could be gone by January 1st of 2022 and replaced by what’s commonly referred to as a “tort liability” system.
No longer would a car crash victim turn to his or her No-Fault auto insurance company (regardless of whether he or she was at-fault in causing the accident) to get his or her medical bills paid or for reimbursement for lost wages because he or she was disabled from working.
Instead, under a fault based system in tort or a “tort liability” system – where fault is critically important – the victim would have to sue the other driver to recover for those losses and, in order to recover, would have to prove the other driver was the one who was at-fault. Otherwise, the victim would have to bear the full cost of those losses him- or herself.
For drivers – not to mention insurance companies, courts and medical providers – who have lived under the No-Fault system’s way of doing things for 46 years, that represents a significant change.
Two other significant aspects of the bills proposing to repeal Michigan No Fault insurance include:
- Limiting mandatory car insurance to liability coverage only so that, in order to drive legally, all people would need to buy is liability insurance with, at least, the minimum legally-required limits.
- Drastically restricting car accident victims’ ability to seek fair compensation for their injuries by imposing arbitrary caps on legal recoveries for pain and suffering compensation. (House Bill 4404)
But those are just the highlights. I will discuss the legislation in greater detail below.
What people need to know about the bills to create a fault based system in tort in Michigan
In the sections that follow, I’m going to address the issues raised by this latest push for No-Fault repeal that people – consumers, drivers and car accident victims – most need to know about.
For instance, I’ll address when No-Fault would go away, whether No-Fault benefits would be affected, how the Michigan Catastrophic Claims Association may or may not be affected, whether auto insurance will still be required and what future obstacles may exist for crash victims seeking pain and suffering compensation.
If the bills to create a fault based system in tort pass, when would No-Fault end?
Michigan’s No-Fault auto insurance system would end on January 1, 2022, according to House Bill 4397.
The bill provides that after December 31, 2021, auto insurers cannot issue or renew No-Fault policies for the benefits currently guaranteed by the No-Fault Law as contained in MCL 500.3101 through 500.3179. (HB 4397, Page 18)
With No-Fault gone, how would victims get their medical bills paid and reimbursement for lost wages?
They would have to sue the at-fault driver – and hope he or she had enough auto insurance coverage and/or personal assets to cover all of the victim’s losses.
Of course, in reality, it’s unlikely the at-fault driver will be able to do so, especially with HB 4397 proposing no increase in Michigan’s mandatory minimum liability limits of 20/40/10.
Alternatively, for medical expenses for accident-related care and treatment, victims may have to rely on health insurance (so long as it is not employer-provided and could be terminated when a victim’s injuries disable him or her from working), Medicaid, Medicare or pay out-of-pocket (using savings, retirement, college funds).
Under these new circumstances – assuming the bills to fault based system in tort pass – we may even see more drivers buying uninsured (UM) and underinsured (UIM) motorist coverage – or increasing their existing limits – to ensure they have adequate coverage for medical expenses in the event of a crash.
Will car accident victims have their No-Fault benefits cut off as a result of the bills to replace No Fault with a fault based system in tort?
No. It appears that they will not. Importantly, HB 4397 does not contain a “cut-off” provision terminating auto insurers’ liability to pay benefits on policies that were issued or renewed before January 1, 2022.
Will crash victims lose their catastrophic injury coverage through the Michigan Catastrophic Claims Association (MCCA)?
No. HB 4397 provides that the MCCA “shall” continue to provide catastrophic injury coverage not only on existing policies, but also on “motor vehicle accident” policies issued or renewed through December 31, 2021. (HB 4397, Pages 34-36)
In the event the bills to repeal Michigan No Fault insurance and replace it with a fault based system in tort are enacted, funding for the continued payment of benefits to catastrophically injured crash victims will be accomplished through the continued use of assessments. Even after No-Fault has ended on January 1, 2022, the MCCA will continue to charge assessments and auto insurers will continue to be required to pass along those assessment costs to drivers in the form of higher auto insurance premiums – just as they do currently. (HB 4397, Pages 38, 43)
However, it’s important to remember that No-Fault catastrophic injury coverage by the MCCA as it currently exists – and is guaranteed under the No-Fault Law – will not be available in new policies going forward. Specifically, the bill provides that the MCCA “does not have liability . . . for loss occurrences under motor vehicle accident policies issued or renewed after December 31, 2021.” (HB 4397, Page 44)
Would the end of No-Fault mean the end of mandatory auto insurance in Michigan?
No. Even though legally-mandated No-Fault would cease to exist if the bills pass to repeal No Fault insurance and replace it with a fault based system in tort, Michigan drivers would still be obligated to purchase auto insurance.
Specifically, they would be required to purchase liability coverage with minimum policy limits of $20,000 (bodily injury or death to one person in one accident), $40,000 (bodily injury or death to two or more persons in one accident) and $10,000 (“injury to or destruction of property of others in any accident”). (HB 4397, Page 17)
This is a continuation of the existing requirement under MCL 500.3009(1) which mandates that all drivers carry an “automobile liability or motor vehicle liability policy insuring against loss resulting from liability imposed by law for property damage, bodily injury, or death suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle . . .”
To recover pain and suffering compensation under the fault based system in tort proposed in HB 4397, would car crash victims still have to meet the “serious impairment of body function” threshold?
No. For auto insurance policies issued or renewed on or after January 1, 2022, the “serious impairment of body function” would no longer stand as an obstacle to car crash victims seeking compensation for their pain and suffering. (HB 4397, Page 46)
However, House Republicans propose erecting a new and possibly equally daunting obstacle in its place.
In House Bill 4404, which is part of the package of bills to repeal Michigan No Fault insurance and replace with a fault based system in tort, they propose the following:
- A general $280,000 cap on car crash victims’ awards for “noneconomic loss” damages (also known as pain and suffering compensation).
- A specific $500,000 cap on car crash victims’ awards for noneconomic loss or pain and suffering compensation in cases involving “(a) hemiplegia, paraplegia, or quadriplegia, resulting in a total permanent functional loss of 1 or more limbs caused by either of the following: (i) injury to the brain (ii) injury to the spinal cord” or “(b) permanently impaired cognitive capacity, rendering the plaintiff incapable of making independent, responsible life decisions and permanently incapable of independently performing the activities of normal, daily living.” (HB 4404, Pages 1-2)
Another push to repeal No Fault insurance and replace it with a fault based system in tort?
Significantly, the proposal in HB 4397 and its accompanying bills is not the first time that lawmakers have made a push to repeal No-Fault and replace it with a tort liability system.
In February 2018, the same Republican lawmakers who are backing HB 4397 and HB 4404 introduced House Bills 5517 and 5518. Neither was taken up by the House and “died” due to inaction at the conclusion of the 2017-18 legislative session.
At the time, I discussed HB 5517 and HB 5518 in my blog post, “Bills to replace No Fault with pure tort liability insurance system introduced.”