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What are Michigan no-fault PIP benefits?

Under the original no‑fault law, the PIP allowable expense benefit was payable for life and did not have any monetary cap.  However, the major changes to the Michigan no‑fault law enacted in 2019 dramatically altered and limited the scope and extent of the PIP allowable expense benefit.  In addition, the 2019 law made significant changes regarding the tort liability claim.  The 2019 legislation has created considerable uncertainty and confusion with regard to the operation of the no‑fault system.  Although the original no‑fault law was intended to simplify motor vehicle accident claims, in actuality, this area of law has become very complicated, with a number of important rules and requirements that must be followed in order to protect the legal rights of auto accident victims.  This is particularly true with regard to the 2019 legislation.  Therefore, it is critically important for consumers, medical providers, and auto accident victims to thoroughly understand this area of law so that important rights and benefits are not jeopardized.

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A. The Four Basic PIP Benefits

Under the Michigan No-Fault Act, there are four specific categories of no-fault PIP benefits.  These four benefits are summarized below:

  1. PIP Benefit #1:  Allowable Expense Benefits — Section 3107(1)(a) of the No-Fault Act requires insurance companies to pay “allowable expenses” which are defined as “all reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person’s care, recovery, or rehabilitation.”  These benefits are very broad and include a number of things, including traditional medical expenses; barrier-free residential accommodations;1 vocational and physical rehabilitation; in-home attendant care; special transportation; medical mileage; guardianship and conservatorship expenses; and expenses for the services of an independent case manager.

Under the original No-Fault Act enacted in 1973, allowable expense benefits were payable for life and had no monetary cap.  The 2019 legislative changes have dramatically altered this basic rule.  Under the new law, allowable expense PIP benefits are only payable for life if the consumer chooses to buy uncapped, lifetime coverage.  If the consumer does not want to purchase the lifetime coverage, there are several lesser options available which cap allowable expense PIP benefits at different dollar maximums.  Under the new legislation, allowable expense PIP benefits can be purchased at the following option levels:  $50,000 (only for Medicaid eligible consumers); $250,000; and $500,000. In addition, in certain limited situations, consumers can completely “opt-out” of any allowable expense PIP benefits.  These new coverage options will be discussed in greater detail in Section 3.

Set forth below is a brief discussion of important issues related to the allowable expense benefit:

(a)       In-Home Attendant Care—Under §3107(1)(a), an injured person has a right to hire commercial or non-commercial in-home health care to render personal services to the injured person that are reasonably necessary for that person’s care, recovery, or rehabilitation.  This in‑home attendant care benefit is very important for seriously injured auto accident victims and their families.  It enables the injured person to remain in their own home with proper assistance.  The injured person has a right to hire commercial agencies or family, friends, neighbors, and others to render this in-home attendant care.

Michigan Courts have held that attendant care benefits cover a wide range of “hands on” services, including bathing, dressing, feeding, personal assistance, personal hygiene, transportation to and from medical care, administration of medications, overseeing in-home therapies, etc.  In addition, the court decisions have made it clear that attendant care benefits go beyond “hands on” care and include the monitoring and supervision of the patient.

Frequently, attendant care benefit claims result in disputes with no‑fault insurers that typically involve two major issues:  (1) how many hours of attendant care are “reasonably necessary” for the injured person’s care, recovery, or rehabilitation; and (2) what hourly or per diem rate is a “reasonable charge.”  The statute does not specifically address these two issues, nor do any specific appellate court decisions.  Therefore, each case is evaluated on its own merits.  Regarding the reasonableness of the charges, there are court decisions that hold it is appropriate to consider commercial rates charged by professional agencies for similar services.  However, other cases have cast doubt on the utilization of commercial rates to establish the value of family‑provided attendant care.  Rather, they have suggested that the more appropriate valuation approach is to analyze the total compensation package that is payable to employees of commercial agencies who render in-home attendant care.  Thus, claims involving family-provided attendant care can become contentious, given the uncertainty that exists regarding the valuation methodology.  Under the 2019 legislative changes, attendant care rendered by family members and friends of the patient is capped at 56 hours per week beginning in July 2021.

(b)       Causation Issues—Frequently, one of the major legal issues involved in allowable expense benefit claims is the question of causation.  The causation issue deals with the legally required connection that must be demonstrated between a motor vehicle injury and the claimed expense in order to make that expense payable under the allowable expense provisions of §3107(1)(a).  In other words, to what extent must the auto accident injury be the cause of the need for the expense?  This issue has been analyzed in several different scenarios by our appellate courts.  Some of these scenarios are discussed below.

(c)       Pre-Existing Injuries/Multiple Causes—Many years ago, court decisions established that if an accident victim sustains an aggravation or exacerbation of a pre-existing injury or condition as a result of the motor vehicle accident, that person is entitled to claim allowable expense benefits for the aggravated/exacerbated condition.

In addition, Michigan Courts have made clear that motor vehicle accidents need not be the only cause or the major cause of the need to incur the allowable expense at issue.  These cases hold that a sufficient causal connection was demonstrated if the motor vehicle accident is “one of the causes” of the need to incur the expense, even though there may be other unrelated and independent causes.  However, the Courts have cautioned that the causal connection between the motor vehicle accident and the need for the claimed benefits must be more than “incidental.”

(d)       Ordinary Needs Versus Accident-Related Needs—Another aspect of the causation issue deals with those cases where the claimed allowable expense resembles an expense that the injured person would have incurred, even if he or she had not been injured in the subject accident.  There have been several Michigan Supreme Court cases that have addressed this issue in various contexts.  These cases make the point that any allowable expense benefit claimed under §3107(1)(a) must be demonstrated to be “for” the claimant’s “injury.”  In other words, the claimant’s injury or disability must cause the need for the allowable expense at issue.  Accordingly, unless the claimed expense is reasonably necessary for the care, recovery, or rehabilitation of the injured person, it is frequently not compensable.  For example, the Supreme Court has held that the cost of non‑medical, non-special dietary food consumed by an injured person who is cared for at home, but which is unrelated to his or her motor vehicle injury, is not a recoverable allowable expense.  However, there is an exception to this exclusionary rule for food served to an injured person in a hospital setting.  In addition, the Supreme Court has applied this general principle to cases involving handicap‑accessible vehicles.  In one case, the Supreme Court held that the base price of a van that was subsequently specially adapted to be handicap accessible, was not compensable as an allowable expense, because it was a “ordinary every day expense” that would have been incurred by the injured person regardless of the injury.  However, the Court did make clear that the cost of modifying the van was compensable.  In reaching this holding, the Supreme Court recognized that expenses that were of a “wholly different essential character” than those expenses incurred by the injured person prior to the accident, are compensable as an allowable expense.  In addition, those products and items that are considered to be “integrated products” may be compensable in their entirety if the cost of the item or product cannot be separated easily between that which represents a pre‑existing need and that which represents an expense of a wholly different essential character related to the accident.

  1. PIP Benefit #2:  Work Loss Benefits — Section 3107(1)(b) provides that when an injured person cannot perform their normal work as a result of an auto accident, work loss benefits are payable for up to three years for “loss of income from work an injured person would have performed . . . if he or she had not been injured.”  These work loss benefits are payable at the rate of 85% of gross pay, including lost overtime.  However, the work loss benefit cannot exceed the monthly maximum, which is adjusted every October to keep pace with the cost-of-living.  These annual adjustments are only applicable to accidents occurring after the adjustment date.  The maximum work loss benefits for the last five (5) years are as follows:

    October 1, 2021- September 30, 2022: $6,065

    October 1, 2020 – September 30, 2021: $5,755.00

    October 1, 2019 – September 30, 2020: $5,718.00

    October 1, 2018 – September 30, 2019: $5,700.00

    October 1, 2017 – September 30, 2018: $5,541.00

    October 1, 2016 – September 30, 2017: $5,452.00

    October 1, 2015 – September 30, 2016: $5,398.00

    The Act also provides for the payment of wage loss benefits to those individuals who are considered to be “temporarily unemployed” from full‑time employment.  Whether a person can be considered “temporarily unemployed” can be a complicated legal issue requiring careful consideration.  Some important legal issues relating to work loss benefits are discussed below:

(a)        Applicable Disability Standard—Under the No-Fault Act, it is not necessary to prove that the injured person is completely disabled from performing any type of employment.  On the contrary, the statute requires payment of work loss benefits if the injured person cannot perform the work the injured person “would have performed” had the accident not occurred.  In addition, Michigan Courts have held that work loss benefits must include salary increases, overtime, and other merit raises that would have been received during the person’s disability.  However, any income earned by the injured person during a period of disability reduces the wage loss benefit otherwise payable for that same period.

(b)       Duty to Mitigate—Michigan appellate courts have imposed an obligation on an injured person who is receiving wage loss benefits to “mitigate damages” by seeking alternative employment if such employment is available and if it is otherwise reasonable under the circumstances for the injured person to accept such alternative employment.  The exact scope and nature of this duty to mitigate remains unclear.

(c)        Interplay With Employment Benefits—Earlier court decisions have recognized that a no-fault insurer cannot reduce work loss benefits by an injured person’s sick leave or vacation time.  However, in certain circumstances, no-fault work loss benefits can be reduced by “wage continuation benefits” that the employee is receiving.  Such a setoff can occur if the injured person has purchased “coordinated no-fault” coverage that is applicable to work loss benefits.  This issue will be discussed in further detail in Section 5.

(d)       Self-Employed Persons—Self-employed accident victims are entitled to recover work loss benefits, but oftentimes experience difficulty with insurance companies in establishing the appropriate level of benefits.  The Courts have generally held that a self-employed person’s business expenses should be deducted from his or her gross receipts in order to determine the proper no-fault work loss benefit level.  However, the Courts have rejected the principle that all business expenses reported on Schedule C of the individual’s tax returns are fully and automatically deductible from gross receipts.  Therefore, the question of which business-related expenses can be deducted from the gross receipts of a self-employed person to arrive at the proper work loss benefit level is a question that typically must be determined on a case-by-case basis.

  1. PIP Benefit #3:  Replacement Service Expenses — Section 3107(1)(c) of the Michigan No‑Fault Act provides that an injured person may also receive reimbursement in an amount not to exceed $20 per day for expenses incurred in having others perform reasonably necessary services that the injured person would have performed for the benefit of themselves or their dependents.  This benefit primarily consists of domestic type services, such as housekeeping, lawn work, snow removal, etc.

There is an important distinction between replacement service expense benefits and in-home attendant care benefits.  This is a gray area that frequently can lead to disputes.  Generally speaking, if the services are related to the injured person’s “care, recovery or rehabilitation (i.e., personal care),” it is considered to be an allowable expense payable under §3107(1)(a) discussed above.  However, if the service is not related to personal care, recovery, or rehabilitation, but is more in the nature of a domestic service, it is probably a replacement service expense, payable under §3107(1)(c).  This distinction is crucial, because replacement service expenses are limited to $20 per day and terminate three years from the date of the accident, whereas allowable expense benefits are not subject to the $20 per day, three‑year cap.  Therefore, service providers rendering care to injured persons in the injured person’s home must be careful to separate these two types of service claims, so as to avoid improper application of the replacement service expense limitations.

  1. PIP Benefit #4: Survivors’ Loss Benefits — When a motor vehicle accident results in death, dependents of the decedent are entitled to recover survivors’ loss benefits under §3108 of the Act.  Survivors’ loss benefits are payable for three years and are subject to the same monthly maximum benefit ceiling that is applicable to work loss benefits.  These survivors’ loss benefits essentially consist of the after-tax income that would have been earned by the decedent, plus the value of fringe benefits that have been lost as a result of the death of the decedent, plus replacement service expenses incurred because of the decedent’s death.  Some important legal issues relating to survivors’ loss benefits are discussed below:

(a)        Nature of the Benefit—The nature of the survivors’ loss benefit is expressed in rather convoluted language set forth in §3108(1) of the Act.  This section states that survivors’ loss benefits are payable for “loss . . . of contributions of tangible things of economic value . . . that dependents of the deceased . . . would have received for support during their dependency . . .  if the deceased had not suffered the accidental bodily injury causing death and expenses, not exceeding $20 a day, reasonably incurred by these dependents during their dependency . . . in obtaining ordinary and necessary services in lieu of those that the deceased would have performed for their benefit if the deceased had not suffered the injury causing death.”

(b)       Multiple Elements of the Survivors’ Loss Claim—In light of this broad language in §3108(1), the Courts have held that the survivors loss benefit is a multifaceted benefit that includes several things, including:  the after-tax income earned by the decedent; the value of fringe benefits that were available to the decedent and his/her family but are now lost or diminished because of his/her death; any other activity that resulted in the production of “contributions of tangible things of economic value;” and the same replacement service expense benefits that are payable in non-death cases.  The Courts have also held that survivors’ loss benefits are not to be reduced by the amounts that would have been attributable to the personal consumption of the decedent.

(c)        Dependency—Under §3108, only those persons who are classified as a “dependent” of the decedent may make a claim for survivors’ loss benefits.  Section 3110 of the Act identifies certain persons who are conclusively or presumably deemed to be dependents of the deceased.  Clearly, spouses are dependent on their deceased spouse and minor children are dependent upon a deceased parent.  However, in other cases, the determination of “dependency” can be a complicated factual and legal issue and must be approached on a case-by-case basis.

(d)       Funeral and Burial Expenses—In addition to the survivors’ loss benefits described above, §3107(1)(a) of the Act also allows recovery of certain expenses incurred for the funeral and burial expenses.  For these expenses, no-fault insurers must cover at least $1,750, but no more than $5,000.

B. The Incurred Requirement

No-fault insurance companies have a legal obligation to pay claims for allowable expenses under §3107(1)(a) and replacement service expenses under §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.  This also means that a no-fault insurer is not obligated to pre‑authorize payment of a particular bill.  Thus, the patient has to either pay for the expense or become legally obligated to pay the expense before requesting reimbursement from the no-fault insurer.

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, i.e., handicap-accessible 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 by borrowing money to pay for the needed item.  In addition, patients can file “declaratory judgment” lawsuits asking for a court to rule whether the insurer is liable to pay for the cost of a specific product, service, or accommodation once the injured person has incurred the expense for such an item.  However, declaratory judgment actions do not permit the plaintiff to recover penalty sanctions that are otherwise available under the No‑Fault Act when expenses have actually been incurred.  Therefore, declaratory judgment actions are not as effective as traditional lawsuits filed for the recovery of unpaid benefits after the plaintiff has actually incurred the expense that is the subject of the claim.

C. The Michigan Catastrophic Claims Association (MCCA)

Frequently, discussions regarding the Michigan no-fault law involve references to the Michigan Catastrophic Claims Association, which is typically referred to as the “MCCA.”  This is an entity that was created by §3104 of the No-Fault Act.  The MCCA is, in essence, a reinsurance organization that reimburses auto no-fault insurers for an injured person’s PIP benefits that exceed a certain monetary threshold amount.  The PIP insurer that is responsible for the claim continues to pay the claim but is subsequently reimbursed by the MCCA once the claim hits the threshold limit.  The threshold limit that was in effect from July 2019 through June 2021 is $580,000.  Once the servicing PIP insurer pays this amount, any expense in excess of that amount is reimbursed by the MCCA.

Several years ago, the Michigan Supreme Court rendered a decision which held that the MCCA had the right to impose certain procedural guidelines that no-fault insurers would be required to follow in order to have claims reimbursed by the MCCA.  The net practical effect of that court case is that it has empowered the MCCA to now act as a “super claims adjuster” in virtually every catastrophic injury claim.  Consequently, the MCCA frequently tells no‑fault insurers what it will and will not reimburse, thereby effectively controlling what gets paid.  As a result, the decision regarding claims for home accommodations, special vehicular transportation, and in-home attendant care are frequently made by the MCCA, rather than the injured person’s insurance company.  Unfortunately, this direct involvement by the MCCA in processing catastrophic injury claims has, in many situations, resulted in delay and has caused unnecessary litigation.

As a result of the 2019 legislative amendments, the MCCA will only be involved in cases where the injury occurred before July 2020, or in cases where the injury occurred after that date and the injured person had purchased uncapped allowable expense PIP coverage.

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