• Time Limits and Documentation
• Coordination of Benefits
• Government Setoffs
• Insurer Priority
• Penalties for Non-Payment of Benefits

 

 

1. Statutory Time Limitations Applicable to No-Fault Claims

The No-Fault Act contains two very strictly enforced time limitations for processing claims for no-fault PIP benefits. These rules must be carefully followed in order to properly protect the claim. Failure to observe these procedures and limitations can result in a loss of benefits. These two important rules are summarized below.

 

The One-Year-Notice Rule

 

Section 3145 of the No-Fault Act specifies that a plaintiff must provide written notice to the appropriate insurance company within one year of the date of the accident. This notice must include the name and address of the claimant/injured person as well as the time, place, and nature of the injury. Failure to provide this notice within the one-year period will result in the complete forfeiture of the claim unless some legally recognized exception applies.

 

The One-Year-Back Rule

 

Assuming written notice has been given to the insurance company within the first year of the accident, a claimant must be prepared to take legal action if a particular expense is not paid by the insurance company within one year of the date the expense is incurred. If legal action is commenced, the claimant may not recover benefits for any portion of the expense incurred more than one year before the legal action was commenced, unless some legally recognized exception applies.

 

2. Exceptions to the Statutory Time Limitations

Minors and Mentally Incompetent Persons

 

For many years, Michigan appellate case law recognized an important exception to the one-year-back rule in cases brought by minors or mentally incompetent persons. The courts held that because of certain provisions in the Michigan Revised Judicature Act (MCL 600.5851), neither the one-year-notice rule nor the one-year-back rule applied to claims brought by minors or those who were mentally incapable of comprehending their legal rights.

 

In the case of Cameron v ACIA, 476 Mich 55 (2006), the Michigan Supreme Court overturned all of this earlier law and ruled that there was no exception to the enforceability of the one-year-back rule for minors or mentally incompetent persons. Therefore, that portion of the claim incurred by the minor or mentally incompetent person more than one year from the date suit was filed was declared unenforceable by the Cameron decision.

 

On July 31, 2010, the Michigan Supreme Court overruled its decision in Cameron v ACIA in the case of University of Michigan Regents v Titan, 487 Mich 289 (2010). In this decision, the Court held that Cameron was wrongly decided, and therefore, the one-year-back rule is not applicable to bar the claims of minors and mentally incompetent persons. Therefore, as long as UM Regents v Titan remains enforceable case law precedent, the claims of minors and mentally incompetent persons should be filed even though the claims were incurred prior to one year before filing suit.

 

Bill Submission

 

For many years, Michigan appellate case law recognized another exception to the one-year-back rule. This exception applied to suspend the running of the one-year-back rule from the date an insurance company received a request for payment of a particular expense until the date the insurance company formally denied payment of that particular expense. In other words, the Michigan appellate courts held that the one-year-back rule did not run during the time that a no-fault insurance company was considering whether it was going to pay or not pay the claim. Unfortunately, however, the cases which recognize this “bill submission” exception to the one-year-back rule were specifically overruled by the Michigan Supreme Court in the case of Devillers v ACIA, 473 Mich 562 (2005). Therefore, under the Devillers case, unless some other legal exception applies, payment of a no-fault claim can only be enforced if a lawsuit is filed within one year of the date the expense in question is incurred. Moreover, in the case of Community Resource Consultants v Progressive, 480 Mich 1097 (2008), the Court held that for purposes of applying the one-year-back rule, an expense is deemed to be incurred on the date the services are actually rendered. Therefore, patients and providers can no longer rely upon the “bill submission” exception to the one-year-back rule and must move quickly to enforce their legal rights.

 

3. The Requirement of Reasonable Proof

A no-fault insurance company is not obligated to pay any benefits until the insurer “receives reasonable proof of the fact and of the amount of loss sustained.” See Subsection 3142(2). If an insurer does not pay benefits within 30 days after receiving such reasonable proof, the benefit is deemed “overdue.” Unfortunately, the statute does not define the concept of “reasonable proof.” In one decision, the Michigan Court of Appeals held that a claimant is not required to document “the exact amount of money that is [owed]. The statute requires only reasonable proof of the amount of loss, not exact proof.” See Williams v AAA Michigan, 250 Mich App 249 (2002). Ordinarily, no-fault insurance companies require that the claimant submit several types of claim forms before payment on a claim is made. Typically, these three forms are: (1) an application for no-fault benefits; (2) an attending physician's report form; and (3) an employer's wage loss verification form. It is advisable for the claimant to provide these forms to the no-fault insurance company so that the claimant cannot later be accused of failing to provide “reasonable proof.”

 

4. The Incurred Requirement

No-fault insurance companies have a legal obligation to pay claims for allowable expenses under Subsection 3107(1)(a) and replacement service expenses under Subsection 3107(1)(c) only when the expense has been “incurred.” The statute does not define the word “incurred.” However, a number of Michigan appellate cases have held that to incur an expense, a person must have either paid for the expense or become legally obligated to pay the expense. The incurred requirement has been very problematic for many patients, particularly those with catastrophic injuries who require products, services, and accommodations that are very expensive, e.g., handicapper housing, special vehicular transportation, residential facility admission, etc. Unless the injured person has “incurred” expenses for such items, the insurer has no legal responsibility to pay the expense. There are several ways that patients can “incur” expenses other than by paying the full cost of the item in cash. These include entering into contracts to purchase the product, service, or accommodation or borrowing money to pay for the needed item. In addition, patients can file “declaratory judgment” lawsuits asking for a court to rule that an insurer will be liable to pay for the cost of certain specific products, services, and accommodations once the injured person has incurred the expense for such items. However, declaratory-judgment actions typically do not permit the plaintiff to recover penalty sanctions under the No-Fault Act for interest and attorney fees. Therefore, declaratory-judgment actions are frequently not as effective as traditional lawsuits for unpaid benefits that are filed after the plaintiff has incurred the expenses which are the subject of a claim.

 

5. The Independent Medical Examination (IME)

Section 3151 of the No-Fault Act provides that when the mental or physical condition of a person is at issue, the no-fault insurance company can request to have the claimant examined by a physician of its choice. The right to conduct such an examination (often referred to as an “independent medical examination” (IME)), however, is subject to a general requirement of “reasonableness.” Section 3152 of the Act states that a claimant who undergoes such an independent medical examination may request a copy of the report. Section 3153 of the Act provides that if a claimant refuses to submit to an independent medical examination, a court can issue orders that are appropriate under the circumstances, including prohibiting the claimant from introducing any evidence of his or her mental or physical condition. Clearly, independent medical examinations are often biased in favor of the insurance company. Many independent medical examiners work for disability evaluation groups who are closely aligned with insurance companies. Thus, they may have a built-in bias or prejudice against injured claimants. If bias or prejudice on the part of the independent medical examiner can be demonstrated, the examiner’s opinions or conclusions may possibly be excluded from evidence. However, claimants should never ignore a notice from their insurer that an IME has been scheduled. An unjustified failure to appear for such an exam could jeopardize the claim.

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1. Basic Concept

Under the Michigan no-fault system, an insured person may purchase either an “uncoordinated benefits” or a “coordinated benefits” no-fault insurance policy. If the insured purchases an uncoordinated benefits policy, the no-fault insurance company is obligated to pay no-fault benefits even though similar benefits may be payable to the injured person under another health insurance policy. On the contrary, if the insured person has purchased a coordinated benefits no-fault insurance policy, the no-fault insurer is only obligated to pay those expenses and benefits that are not paid by other applicable health or accident insurance coverage. In other words, a no-fault benefits policy that is coordinated is secondary to traditional health insurance plans such as Blue Cross Blue Shield, health coverage through health maintenance organizations (HMOs), and health coverage through preferred provider organizations (PPOs). In light of the fact that the premium charged for a coordinated benefits policy is less than the premium for an uncoordinated policy, the majority of Michigan auto insurance consumers have purchased (either knowingly or unknowingly) coordinated no-fault coverages. The statutory section that permits coordinated no-fault policies is Section 3109a, which states that a coordinated no-fault policy is coordinated only with respect to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household. Therefore, unless the injured person falls into one of those three categories, no-fault benefits payable under such a coordinated policy cannot be coordinated with other health coverages.

 

2. The Mechanics of No-Fault Coordination of Benefits

Conflicting Coordinated Policies

Sometimes an injured person will be insured under a coordinated no-fault policy and a health insurance policy that also has language that coordinates its coverages with other health and accident coverages, such as no-fault insurance. When that happens, the two policies are conflicting, with each attempting to make itself secondary to the other coverages. In this situation, the Michigan Supreme Court has held that where there are two conflicting coordination of benefits clauses, the conflict is resolved in favor of the auto no-fault insurance company, thus making the health insurance primary and the auto no-fault insurance secondary. See Federal Kemper Ins Co v Health Ins Admin, 424 Mich 537 (1986). However, where the no-fault policy is uncoordinated and the health insurance policy is coordinated, the no-fault policy is primary and the health insurance policy is secondary. See Smith v Physicians Health Plan, Inc, 444 Mich 743 (1994).

 

Uncoordinated Policies

 

Although it is not a common occurrence, sometimes an injured person has an uncoordinated no-fault policy and an uncoordinated health insurance policy. In that situation, neither of the two policies will be able to coordinate with any other coverages. Therefore, this creates a potential “double dip” situation where medical expenses are payable under both policies. The courts have held that where both the no-fault policy and the health insurance policy are uncoordinated, the injured person is indeed legally permitted to double recovery (payment under each policy) as a higher premium was theoretically paid to obtain two uncoordinated coverages. See Haefele v Meijer, Inc, 165 Mich App 485 (1987).

 

3. ERISA Health Plans — A Different Rule

Many individuals are insured through their employment under an employer self-funded health plan established pursuant to a federal statute known as the Employee Retirement Insurance Security Act (ERISA). ERISA plans are different than traditional health insurance coverage such as Blue Cross Blue Shield. If the injured person is insured under an ERISA plan and if the plan contains a coordination of benefits clause making it secondary to auto no-fault coverages, the courts have enforced such provisions even where the no-fault plan also has a coordinated benefits provision. In other words, where a no-fault policy is coordinated and an ERISA plan is coordinated, unlike the situation with health insurance, the auto no-fault plan will be primary and the ERISA plan will be secondary. See Auto Club Ins Ass'n v Frederick & Herrud, 443 Mich 358 (1993). The result may be different, however, if there is some ambiguity in the language of the ERISA plan. See Auto-Owners v Thorn Apple Valley, 31 F.3d 371 (6th Cir. 1994).

 

4. Special Concerns for Patients with Coordinated No-Fault Policies and Managed Care Health Plans

Consumers who are insured under a coordinated no-fault policy and who also are members of HMOs are confronted with special rules if they seek treatment outside of the HMO program. The Michigan Supreme Court has held that if the service or treatment is available within the HMO and the patient seeks the service or treatment outside of the HMO without following proper procedures to obtain HMO approval, the no-fault insurer is not obligated to pay for any of the cost of the service or treatment obtained outside of the HMO. See Tousignant v Allstate Ins Co, 444 Mich 301 (1993). This rule, however, should only apply where the specific medical service is available within the HMO program. Where it is not, the no-fault insurer should not be released from its obligation to pay for treatment, if the treatment is otherwise “reasonably necessary” under Subsection 3107(1)(a). For example, if chiropractic treatment was deemed “reasonably necessary” under Subsection 3107(1)(a) and chiropractic services were not available through a patient's HMO, the patient's no-fault insurance company would be obligated to pay for that chiropractic treatment. See Sprague v Farmers Ins Exch, 251 Mich App 260 (2002).

 

The Tousignant decision dealt with patients who have health coverage through an HMO plan. Recently, however, some no-fault insurers have attempted to extend the Tousignant holding to patients who have health insurance coverage with preferred provider plans (PPO’s). In other words, if a patient has health insurance that will pay the full cost of a particular service if rendered by a participating provider, a coordinated no-fault insurer may attempt to deny payment of all or some of the medical expenses that the patient incurs by treating with a non-participating provider. As of the present date, no appellate court has specifically approved such an extension of the Tousignant holding to PPO’s. Nevertheless, great caution should be used in these situations.

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1. Basic Concept

Under the Michigan No-Fault Act, a no-fault insurance company is permitted to reduce no-fault PIP benefits by any governmental benefits paid or payable to the injured person. This governmental benefit setoff provision is set forth in Subsection 3109(1) of the statute, which states: “Benefits provided or required to be provided under the laws of any state or federal government shall be subtracted from the personal protection insurance benefits otherwise payable for the injury.” The question of what kind of governmental benefit can be set off against PIP benefits and what cannot, is often a complicated issue. The courts have adopted a two-fold test that must be met before a governmental benefit can be subtracted from PIP benefits: first, the governmental benefit must be payable as a result of the auto accident, and second, it must serve the same purpose as the no-fault benefit. See Jarosz v DAIIE, 418 Mich 565 (1984). Some governmental benefits have “flunked” this two-part test and, therefore, cannot be set off against no-fault benefits. For example, the $225.00 “death benefit” payable under the U.S. Social Security Act cannot be offset against the no-fault funeral and burial expense benefit. See Gier v Auto-Owners Ins Co, 244 Mich App 336 (2001). In the case of Wood v Auto-Owners, 469 Mich 401 (2003) the Michigan Supreme Court adopted a specific formula for calculating no-fault survivor’s loss benefits in cases where claimants are receiving governmental benefits and a portion of the survivor’s loss benefit represents replacement services. Subject to this formula, the Court ruled that governmental benefits cannot be set off against that part of no-fault survivor’s loss benefits that represents replacement services.

 

2. Types of Governmental Benefits Resulting in Setoff

The courts have issued many decisions regarding the governmental benefit setoff provision of the Act and have held that, depending upon the facts of the case, the following kinds of governmental benefits can be deducted from PIP benefits: (1) Social Security disability benefits; (2) Social Security survivor’s benefits; (3) Workers' Compensation benefits; and (4) certain kinds of veterans or military benefits.

 

3. Medicare Benefits

Unlike other types of governmental benefits, Medicare benefits are not payable for any expense that is compensable under an automobile no-fault insurance system. Therefore, a no-fault insurance company cannot take the position that an auto accident victim must first turn to Medicare because the federal law prohibits Medicare from paying benefits to persons insured under a no-fault system. Therefore, an accident victim should never knowingly submit, nor permit a treating medical provider to submit, any medical expenses to Medicare for payment if the expenses are otherwise covered under the Michigan No-Fault Act. If Medicare mistakenly pays medical expenses that should have been paid by no-fault insurance, the Medicare program has the legal right to seek reimbursement from a variety of sources, including the responsible no-fault insurer, the medical provider receiving the Medicare payment, and under certain circumstances, even the patient. This is an area that requires great caution for both patients and providers.

 

4. Medicaid

As with Medicare, persons insured by Medicaid cannot submit auto accident-related expenses to Medicaid for payment if they are covered by auto no-fault insurance. Medicaid only pays the medical expenses of those individuals who are “medically indigent.” A person who is entitled to recover reimbursement for medical expenses under the Michigan No-Fault Act is not medically indigent and, therefore, not eligible for Medicaid benefits for that particular expense. Accordingly, the no-fault insurance company must pay the full amount of all medical expenses even though the accident victim might otherwise be entitled to Medicaid. As with Medicare recipients, persons insured by Medicaid should not submit, nor allow treating medical providers to submit, auto-accident-related medical expenses to Medicaid for payment. If the Medicaid program mistakenly pays medical expenses that should have been paid by no-fault insurance, Medicaid has powerful reimbursement rights similar to the Medicare program referenced above.

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The Michigan No-Fault Act contains a “priority of payment” system that determines which no-fault insurer has primary liability for payment of PIP benefits. This priority system is set forth in Sections 3114 and 3115 of the Act.

 

1. The General Rule

The general rule contained in these sections is that an injured person receives no-fault PIP benefits from his or her own no-fault insurance company (assuming they are insured under a no-fault policy) or from a no-fault policy issued to the injured person’s spouse or a relative of either domiciled in the same household. This general rule applies regardless of whether the injured person is driving or occupying his or her own motor vehicle, is a passenger in another vehicle, or is a pedestrian or a bicyclist.

 

2. Exceptions to the General Priority Rule

There are exceptions to the general rule of priority stated above. For example, if the injured person was occupying a vehicle furnished by his or her employer, then the employer’s no-fault insurance company must pay PIP benefits. Likewise, if the injured person was operating a motorcycle and is injured in an accident involving a motor vehicle, the motorcyclist must first turn to the insurer of the owner, registrant or operator of the motor vehicle involved in the accident for payment of PIP benefits.

 

3. Injured Persons Who Have No Auto Insurance

If an injured person does not have a personal no-fault insurance policy and does not live with a relative who has a no-fault insurance policy, then priority of payment obligations are determined based upon whether the person was an occupant or a non-occupant of a motor vehicle at the time of the accident. If such a person sustained injury while an occupant of a motor vehicle, then the injured person obtains no-fault PIP benefits from the owner or operator of the vehicle occupied. If, however, such a non-covered individual sustains injury while a non-occupant of a motor vehicle (e.g., a pedestrian or a bicyclist), then the person obtains PIP benefits from the “vehicle involved” in the accident.

 

4. Owners of Uninsured, Involved Vehicles

The Act is very strict with accident victims who own uninsured vehicles that are involved in the accident. Subsection 3113(b) states that a person is completely disqualified from recovering no-fault PIP benefits if the person was the owner or registrant of an uninsured motor vehicle that was involved in the accident.

 

5. Assigned Claims Facility

If no-fault coverage is not available through any of the previously mentioned sources and if the injured person is not statutorily disqualified from receiving benefits, then the injured person must submit his or her claim for no-fault benefits to the Michigan Department of State, Assigned Claims Facility. This is a governmental office that has been established as the “place of last resort” for auto-accident victims. When a claim is submitted to the Facility, it is randomly assigned to one of the many auto insurance companies authorized to do business in the State of Michigan. As of the date of this brochure, the address and phone number of the Assigned Claims Facility is:

 

Michigan Department of State
Assigned Claims Facility
7064 Crowner Drive
Lansing, MI 48918-1412
(517) 322-1875

 

 

 

Statutory Penalties for Non-Payment of Benefits

 

The No-Fault Act contains specific penalties that can be assessed against no-fault insurance companies who do not honor their legal obligations to pay claims as required by the law. There are basically two penalties contained in the statute: (1) penalty interest and (2) penalty attorney fees. These are summarized below.

 

Penalty Interest

 

Section 3142 of the No-Fault Act states that when an insurance company does not pay no-fault benefits within 30 days after receiving reasonable proof of the fact and the amount of the loss sustained, the insurer must pay simple interest at the rate of 12 percent per annum on the overdue expense. Moreover, the statute provides that “if reasonable proof is not supplied as to the entire claim, the amount supported by reasonable proof is overdue if not paid within thirty days after the proof is received by the insurer.” This means that an insurance company cannot legally withhold payment on the entire claim if only a portion is in dispute. If this happens, the portion which is not in dispute is overdue and the 12-percent-interest penalty is collectible. See Farquharson v Travelers, 121 Mich App 766 (1982) and McKelvie v ACIA, 203 Mich App 331 (1994). Moreover, the courts have held that if an injured person is required to file a lawsuit against the insurance company to collect benefits and if the lawsuit results in an actual judgment in favor of the injured person, then the injured person is also entitled to recover “civil judgment interest” under the provisions of the Revised Judicature Act and the Michigan Court Rules.

 

Penalty Attorney Fees

 

Section 3148 of the No-Fault Act states that an injured person is entitled to collect reasonable attorney fees against an insurance company “if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment.” Therefore, if a claim is “overdue” because an insurance company did not make payment within 30 days after receiving reasonable proof and if the court further finds that the delay or denial was “unreasonable,” then the insurance company will be ordered to pay attorney fees to the injured person. Appellate case law has held that an award of attorney fees under Section 3148 may be based upon an hourly rate or, where otherwise appropriate, on the basis of a contingency fee. See Butler v DAIIE, 121 Mich App 727 (1982); In Re Estate of L’Esperance, 131 Mich App 496 (1084); and University Rehab Alliance v Farm Bureau, 279 Mich App 691 (2008).

 

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