Federal lawsuit asks the courts to declare no-fault auto insurance laws in Michigan are unconstitutional.
Detroit Mayor Mike Duggan filed a claim in the U.S. District Court for the Eastern District of Michigan seeking equitable remedies and a declaratory judgment with binding adjudication holding Michigan’s high insurance rates violate people’s due process under federal law.
For years state lawmakers have argued over no-fault insurance reform but have taken no legislative action in overhauling fifty-year-old insurance regulation that Duggan claims discriminates against Detroit drivers and motorist living in dense urban areas across the state.
Senior District Judge George Caram Steeh III approved the lawsuit in August 2018, and after allowing for seven defendants and eight plaintiffs to intervene and join, Judge Steeh is now ready to rule on the defendant’s motion to dismiss or, alternatively, adjourn the case to the Michigan Supreme Court.
Duggan wants the District Court to declare Michigan’s no-fault insurance law violates the civil rights of Detroiters; yet, advocates for the defendants hold “Duggan’s lawsuit is more political than legal,” and that Judge Steeh will most likely “toss the cause of action for lack of merit,” or for “mootness,” since “state legislators have two no-fault insurance reform bills on the Governor’s desk [for consideration].”
State Democrats have opposed the House and Senate bills, and Governor Whitmer is considering vetoing the legislation.
Detroit drivers today pay the highest auto insurance rates in the nation, and they are growing impatient for a legislative fix. Mayor Duggan believes no-fault insurance reform could happen immediately if the courts declare the present rules violate federal law.
What Is the Duggan Lawsuit?
Mayor Duggan and eight intervening plaintiffs living in different parts of the state say Michigan’s no-fault insurance regulation, enforced in 1973 and revised in 1979, is “oppressive and burdensome” on drivers, and the rules infringe on their constitutional rights.
The lawsuit names Michigan insurance commissioner, Patrick McPharlin and claims his office has failed to provide citizens with “fair and equitable” auto insurance rates.
According to Duggan’s complaint, the plaintiffs want the Court to order McPharlin to amend insurance laws in the state within six months and to add mandates that compel insurance companies to lower their rates.
And if the state consequently can’t reform no-fault rules within six months, the lawsuit reads, the Court should declare no-fault insurance laws in Michigan “null and void” and order the commissioner’s office to revert the state’s rules into a “tort-based insurance system,” like in the border states of “Ohio and Indiana… where auto insurance is cheaper.”
The Detroit mayor hence wants no-fault insurance to disappear altogether. Other states that employ tort-based systems “haven’t dropped off into the ocean,” Duggan claims, and in other states, “it’s not illegal to use your personal health insurance to pay for auto injury recovery after your policy’s personal protection benefits run out.”
The plaintiffs in this lawsuit contend auto insurance premiums in Detroit would drop by fifty percent under a tort system, and such a ruling against Michigan’s no-fault laws would end the current “proffering off of medical costs” by healthcare providers and “curb the greed and fraud” that has emerged in recent auto-accident-related litigation.
Under Michigan‘s unique no-fault rules, all motorists must purchase unlimited medical coverage that carries no caps on reimbursements to medical providers. Drivers must further pay into the Michigan Catastrophic Claims Association to reimburse auto insurance companies on claims exceeding $550,000, benefits the plaintiffs allege they never use.
Who Are The Intervening Plaintiffs?
- Fifty-three-year-old, Joseph Vaughn of Detroit, who drives uninsured because he cannot afford to pay $4,000 for SIX months of auto insurance.
- Thirty-nine-year-old Jacintha Pittman, who pays $325 per month in the suburbs to cover a ten-year-old vehicle.
- Sixty-nine-year-old, Carrol Lockett, who owns a perfect driving record and paid $3948 in 2018 for auto insurance.
- Seventy-six-year-old, Gladys Noble, a Detroit retiree with an excellent driving record who pays $2628 annually on her seventeen-year-old vehicle.
- Forty-nine-year-old, Stephanie Huby, who lives in the suburbs and pays $250 per month for basic protection.
- Twenty-five-year-old, Clayton Wortmann, a Detroit citizen who pays $3360 a year for basic PIP coverage.
- Twenty-year-old Ann Arbor student, Haley Roell.
- Twenty-seven-year-old, Ian Davis, who pays nearly $200 per month.
Why Do The Plaintiffs Say Today’s Insurance Laws Violate Substantive Due Process?
The U.S. Constitution guarantees Americans substantive due process under the law, a principle that prevents government interference with fundamental rights. Due process therefore ensures no-fault insurance rates in Michigan must not be excessive, inadequate or unfairly discriminatory if the state compels its citizens to purchase it.
Duggan’s lawsuit claims Michigan’s no-fault insurance is unfairly expensive and discriminatory because:
- Over eighty-five percent of policyholders pay for mandatory unlimited PIP coverage but will never use it.
- Healthcare providers overcharge for their services when treating auto accident injuries, often to the ceiling of the policyholder’s limits.
- No legal safeguards exist to restrain auto insurance companies from using discriminatory practices when pricing policies.
- Some unethical personal injury lawyers have abused no-fault rules by urging excessive and unnecessary treatment for their clients’ minor no-fault auto injuries.
Why Do Plaintiffs Have No-Confidence In Lawmakers?
Duggan says he distrusts state legislators after lawmakers voted down 63-45 a no-fault reform bill in November 2018 that would have put limits on healthcare reimbursements and would have given Michigan policyholders the choice of opting out of PIP medical coverage for auto accidents.
“I no longer have faith in Lansing to do the right thing,” says the Detroit mayor who advocated for the November bill in vain and tried to convince lawmakers that medical providers and a handful of personal injury lawyers were stealing from state resources and from consumers via inflated insurance premiums.
The plaintiffs in this lawsuit argue they can use the pleaded court-ordered remedies as a “Plan B” for lowering insurance premiums in Michigan if the Republican-led no-fault overhaul bills introduced in this year fail to become law.
Detroit resident and intervening plaintiff, Joseph Vaughn, told reporters this month, “Michigan lawmakers support no-fault PIP protection, which represents seventy percent of auto insurance premiums.”
The drawback to this consent is “the lucrative coverage incites lawyers to litigate accident claims to the fullest [because] they receive over thirty-three percent of their client’s maximum PIP protection in retainer fees,” according to Vaughn
“Hospitals are also getting paid triple their normal rates… and trial lawyers take a third [and sometimes] double,” Vaughn added, “a practice that contributes to Michigan consumers paying the highest rates in America.”
The mayor blames politics for last November’s failed no-fault repair. Republicans feared the bill would have ended unlimited no-fault protections, Duggan claimed, “a valuable safety net that wealthy people depend on” when accidents lead to catastrophic injuries.
“Millionaires were scared they’d end up in Medicaid-paid nursing homes,” says Vaughn, who says less than two percent of the rich actually receive the promised PIP in-home care protection under current no-fault rules.
Proponents disregarded the plaintiff’s allegations, insisting the defeated November bill allowed for drivers of catastrophic injuries to use their regular health insurance for quality care after their no-fault PIP protection exhausts.
What Legal Precedent Does Duggan’s Lawsuit Face?
In 1978, the Michigan Supreme Court affirmed no-fault theory in Shavers v. Kelley; the landmark decision however held implementation of the concept may become “unconstitutionally deficient” if insurance rules subsequently compelled all Michigan motorists to purchase premiums that are not “fair and equitable.”
Verbatim: ‘The No-Fault Act is “unconstitutionally deficient in its mechanisms for assuring that compulsory no-fault insurance is available to Michigan motorists at fair and equitable rates … [D]ue process, at a minimum, requires that rates are not, in fact, ‘excessive, inadequate or unfairly discriminatory’ and, further, that persons affected have notice as to how their rates are determined and an adequate remedy regarding that determination.”
The Shavers Doctrine hence did not expressly sanction no-fault laws in Michigan, and as such, the Court ordered the state to remedy its insurance rules within eighteen months.
Lawmakers responded by passing reforms in 1979, which the Supreme Court has since accepted because it hasn’t received challenges to the law until the Duggan lawsuit filing; the Court however issued a no-confidence warning in 1982 on Michigan’s no-fault laws moving forward:
Verbatim: “[T]his order [closing the Shavers litigation] should not be construed as foreclosing future attacks on the constitutionality of the [no-fault] based upon the concerns expressed in our opinion [in Shavers].”
If Duggan’s lawsuit continues, the state Supreme Court may have to determine if insurance rates and no-fault laws have grown worse since 1979 to a degree where they now are unlawful.
Proponents for no-fault reform measures say Michigan motorists with safe driving records paid an average of $2,610 in 2018 for auto insurance, which accounts for roughly five percent of their income. In Detroit that same year, auto insurance premiums for persons with the identical driving records doubled to $5,414, representing twenty percent of income.
Duggan holds these figures alone prove the state’s no-fault rules are no longer fair and equitable and that the courts must strike down Shavers because the insurance rates violate due process for citizens living in Detroit and Flint.
The Detroit Police Department issued over twenty-three thousand citations for driving without insurance in 2018, and city hall estimates sixty percent of Detroit drivers operate motor vehicles without insurance because they can’t afford the premiums. According to Vaughn, “the state’s insurance laws are unconstitutionally deficient given they force Detroit residents to drive without coverage.”
Does The Shavers Doctrine Apply In 2019?
In deciding Shavers, Chief Judge T. John Lesinski held Michigan’s lawmakers must create no-fault insurance laws:
- that are fairly priced;
- that make auto insurance “widely accessible” among consumers; and,
- that are “non-discriminatory.”
Judge Quinn concurred in Shavers holding the state’s no-fault laws of 1973 infringed on the constitutional rights of Michigan drivers because the regulation lacked “mechanisms” that would force insurance companies to “fairly price” premiums and not discriminate among consumers; thus, no-fault laws at the time were, in Judge Quinn’s words, “unconstitutionally deficient.”
Duggan claims the state’s estimates on motorists driving uninsured in Detroit is evidence that today’s no-fault laws defy Judge Quinn’s “fairly priced” holding.
The mayor’s lawsuit further raises contentions that the Legislature never adequately reformed the due process failures in no-fault law as the Court ordered in 1978 because its present language does not ensure compulsory no-fault insurance is not discriminatory and available to all.
(i) Unfair and Biased – Michigan insurance companies do not “fairly price” no-fault premiums in cities such as Detroit and Flint;
(ii) Inaccessible – Automobile insurance is not “widely accessible” because over half of motorists in Michigan urban areas drive without it; and,
(iii) Discriminatory – Michigan insurance companies “discriminate” against consumers by using non-driving factors to establish auto insurance rates in poor city neighborhoods where motorists pay two or three times more than wealthy drivers (even when driving records are identical).
What Is The Opposition Saying?
Trial lawyers, healthcare providers and law professors from the Coalition Protecting Auto No-Fault (CPAN) openly opposed Duggan’s lawsuit in February, calling the cause of action “a political stunt” that wrongly attacks auto insurance rules instead of the companies that demand high premiums.
CPAN President John Cornack says Duggan’s suggested reforms would devastate Michigan’s unique no-fault laws and “will allow insurance companies to sell worse plans with no guaranteed reduction in rates.”
Lead counsel for CPAN, George Sinas, indicated the plaintiff’s lawsuit does not punish insurance groups for using non-driving factors, such as credit scores, zip codes, education and professional backgrounds to set their rates, a practice that Sinas deems is “inherently unfair and bias by nature.”
“Manipulation of no-fault laws is the real problem here,” claims Sinas, and Duggan’s lawsuit does not address this issue of “which implicitly blesses the [current discriminatory] practices of the insurers.”
Cornack wants the Court to scrutinize Shavers based on how insurance companies calculate premiums, and he believes Duggan’s lawsuit could have been averted if the Governor had previously set up an insurance task force to conduct hearings on whether the auto insurance industry was adopting “fair and equitable practices” in establishing rates in Michigan.
What Is The Opposition’s Fix-It Solution?
Advocates for the defendant have suggested the state must fine tune the constitutional due process violations in its current auto insurance laws before the Court can justifiability dismiss Duggan’s lawsuit.
A brief filed in November 2018 by Shaun Bonkowski, an attorney for an intervening defendant, held lawmakers may reduce consumer auto insurance premiums and concurrently save Michigan’s unique no-fault laws by enacting the following three proactive measures:
ONE: Remove the language buried in 1979 insurance legislation that allows insurance companies to base their rates on the “reasonable degree of competition.” Instead, empower the insurance commissioner’s office to establish “premium thresholds,” and allow the department to proscribe the insurance industry from demanding “excessive” automobile insurance rates. The Michigan’s Commissioner asked for this authority in 2009, but the legislator refused to act.
TWO: Empower the Commissioner to monitor and to regulate excessive profit margins for insurance companies conducting business in Michigan. Market studies have shown insurance companies in the state receive $2-3 billion more in premiums than they pay out in auto accident claims. Bonkowski’s client deems this margin is “excessive,” asserting the Commissioner should have the authority to prohibit insurance providers from exploiting the state’s no-fault legal loopholes, which currently allows them to make more money in Michigan than they do anywhere else.
THREE: Ban all non-driving and redlining practices in the state. Applying non-driving factors to determine auto insurance rates is “illegal in many states,” writes Bonkowski, and after lengthy legal battles, the courts have held such practices are “discriminatory.”
Taking into consideration Michigan drivers’ zip codes, sex, or credit scores instead of their driver histories when quoting insurance premiums “punishes the poor and minorities,” according to the brief, and the practice “indirectly attacks drivers financially” in cities such as Detroit.
Bonkowski’s client insists non-regulation of the insurance industry over the last forty years is the sole reason why individuals in Detroit and Flint can’t afford auto insurance. Past administrations were reluctant “to modify the law” or “to pursue insurance companies for exploiting policy holders in Michigan”, and according to lead counsel, “blaming lawyers” will certainly not correct the problem either.