What should patients and providers know about processing Michigan no-fault PIP claims?

The No-Fault Act contains some very strictly enforced rules and time limitations for processing PIP claims.  In addition, there are important rules applicable to medical examinations requested by no-fault insurers.  It is critically important that patients and medical providers understand these rules so that vitally important insurance benefits are not lost.  Some of these important rules and limitations will be discussed briefly below.

A. Time Limits

1. THE ONE-YEAR NOTICE RULE—Section 3145 of the No-Fault Act requires that a plaintiff 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.

2. THE ONE-YEAR BACK RULE—Assuming that written notice has been given to the proper insurance company within one year of the date 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.

3. TOLLING OF THE ONE-YEAR-BACK RULE—Before the 2019 legislative changes, submitting a bill to a no-fault insurer within one year of the date the bill was incurred was not sufficient to toll (suspend) the running of the one-year-back rule. However, the 2019 legislation adopts a new tolling rule which, if properly implemented, will result in the one‑year‑back rule being “tolled from the date of a specific claim for payment of the benefits until the date the insurer formally denies the claim.”  However, the new legislation goes on to say that this rolling rule does not apply if the person claiming the benefits “fails to pursue the claim with reasonable diligence.”  [§3145(3)].  This new tolling rule took effect on June 11, 2019.

4. MINORS AND MENTALLY INCOMPETENT PERSONS—The Michigan Supreme Court has ruled, in two cases, that the one‑year‑back rule applies to claims brought by minors or mentally incompetent people.  However, our appellate courts have declared that the one-year notice rule is not applicable to the claims of minors or incompetent persons under the tolling provisions of the Michigan Revised Judicature Act (RJA).  Therefore, the failure of a minor or a mentally incompetent person to serve written notice of the accident within one year of its occurrence will not result in forfeiture of the claim.

B. The Reasonable Proof Rule

Under §3142(2) of the No-Fault Act, a no-fault insurer is not obligated to pay any benefits until the insurer “receives reasonable proof of the fact and of the amount of loss sustained.”  If an insurer does not pay benefits within 30 days after receiving such reasonable proof, then payment of 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.”  Ordinarily, no-fault insurers 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 insurer so that the claimant cannot later be accused of failing to provide “reasonable proof.”

C. Independent Medical Examinations

Section 3151 of the No-Fault Act provides that when the mental or physical condition of a person is at issue, a no-fault insurer can request to have the claimant undergo a “mental or physical examination by physicians.”  These exams are sometimes referred to as “independent medical examinations” (IME).  Section 3151 does not give the insurer the right to send claimants to other types of practitioners, such as psychologists or neuropsychologists.

The 2019 legislation adopts new limitations on the right of insurance companies to conduct an independent medical examination.  The new legislation requires that medical evaluations performed at the request of insurance companies be performed by physicians with specializations similar to those of the injured person’s treating physician.  Specifically, the new statute states, “If care is being provided to the person to be examined by a specialist, the examining physician must specialize in the same specialty as the physician providing the care, and if the physician providing the care is board certified in the specialty, the examining physician must be board certified in that specialty.” [§3151(2)(a)]. The new legislation also provides that in all cases, an examining physician, during the year prior to the medical evaluation, must have devoted a majority of his or her time to the active clinical practice of medicine or to teaching in a medical school, or in an accredited residency or clinical research program for physicians.  [§3151(2)(b)].  These new general qualification and specialization rules took effect on June 11, 2019.

Section 3152 of the No-Fault Act also states that a claimant who undergoes 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.  Therefore, claimants should never ignore a request from their insurer to appear for an independent medical examination, as an unjustified failure to appear could jeopardize the claim.

D. Penalties for Non-Payment of PIP Claims

The No-Fault Act contains specific penalties that can be assessed against no-fault insurers who do not honor their legal obligations to pay claims as required by the law. These basic penalties are: (1) penalty interest; and (2) penalty attorney fees.  The statute does not make reference to any other penalties that can be imposed on a PIP insurer that does not honor its obligation to pay benefit.  These two statutory penalties are summarized below.

1. PENALTY INTEREST—Section 3142 of the No-Fault Act states that when an insurance company does not pay PIP 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% 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.”  Therefore, an insurance company cannot legally withhold payment on the entire claim if only a portion is in dispute.  If this happens, the portion that is not in dispute is overdue and the 12% interest penalty is collectible.  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.

The 2019 legislation redefines when a benefit is deemed to be overdue. In this regard, the legislation states that if a bill is not provided to an insurer within 90 days after a product, service, accommodation or training was provided, the insurer has 60 additional days on top of the basic 30 days to issue payment before the payment is deemed to be “overdue.” [§3142(3)].

2. 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 PIP benefits are “overdue” and “if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment.”  This requires a showing of two elements.  First, it must be shown that the claim is “overdue” because an insurance company did not make payment within 30 days after receiving reasonable proof.  Second, the court must find that the delay or denial was “unreasonable.”  This latter point is significant because it requires a judicial finding of unreasonableness.  As a practical matter, such a judicial finding cannot occur until there has been a trial or other motion that sets forth evidence of the insurance company’s conduct.  Nevertheless, if an injured person can meet the required showing, Michigan courts have held that an award of attorney fees under §3148 may be based upon an hourly rate or, where otherwise appropriate, on the basis of a contingency fee.  A claimant’s ability to claim attorney fees turns about the unique facts and circumstances of each case.

The 2019 legislation adds some important rules to the attorney fee provisions contained in §3148 of the Act. These are summarized below:

(a)       Attorney Fee Liens on PIP Benefits—The legislation states that an attorney advising or representing an injured person concerning a claim for payment of personal protection insurance benefits from an insurer “shall not claim, file, or serve a lien for payment of a fee or fees until both of the following apply: (a) a payment for the claim is authorized under this chapter; and (b) a payment for the claim is overdue under this chapter.”  [§3148(1)(a)-(b)].

(b)       Attorney Fee Sanctions for Solicited Clients—The legislation provides that a court may award an insurer “a reasonable amount against a claimant’s attorney as an attorney fee for defending against a claim for which the client was solicited by the attorney in violation of the laws of this state or the Michigan rules of professional conduct.” [§3148(2)].

(c)        Limitations on Court-Ordered Attorney Fees—A court cannot order payment of attorney fees “in relation to future payment” of attendant care or nursing services “ordered more than 3 years after the trial court judgment or order is entered.” [§3148(4)].  A court cannot order payment of attorney fees when the attorney or a related person of the attorney has or had, “a direct or indirect financial interest in the person that provided the treatment, product, service, rehabilitative occupation training, or accommodation.” The legislation defines a direct or indirect financial interest as including, but not limited to, “the person that provided the treatment, product, service, rehabilitative occupational training, or accommodation making a direct or indirect payment or granting a financial incentive to the attorney or a related person of the attorney relating to the treatment, product, service, rehabilitative occupational training, or accommodation within 24 months before or after the treatment, product, service, rehabilitative occupational training, or accommodation is provided.” [§3145(5)].

E. Medical Provider Direct Legal Actions

1. THE COVENANT DECISION—Prior to the 2019 legislative changes, the Michigan Supreme Court had issued its Opinion in the case of Covenant v State Farm. In that case, the Court held that under the text of the original no-fault law,  a medical provider did not have a direct legal cause of action against a no-fault insurer to collect for unpaid medical services rendered to auto accident victims.  However, providers were permitted to accept “Assignment of Benefits” from their patients to allow them to take legal action against insurance companies who did not pay patient bills.

2. QUALIFIED REVERSAL OF COVENANT—The 2019 legislation conditionally restores a medical provider’s independent cause of action against a no-fault insurer for non-payment of expenses. In this regard, the legislation amended §3112 of the Act to state that a “health care provider listed in section 3157 may make a claim and assert a direct cause of action against an insurer, or under the assigned claims plan under section 3171 or 3175, to recover overdue benefits payable for charges for products, services, or accommodations provided to an injured person.” [§3112].  A provider’s independent cause of action does not accrue until after a benefit is “overdue.”  The legislation revises the definition of when a benefit is overdue, as discussed above.  Therefore, if providers wish to enforce their restored direct legal cause of action against insurance companies, providers must make sure that the unpaid charge is truly “overdue” so that the medical provider has proper standing to file a legal action.