Stephen H. Sinas, Sinas Dramis Law Firm
As the state Legislature debates changing the Michigan Auto No-Fault Insurance Act, there is one simple revision that will vastly improve the no-fault insurance system for all Michigan citizens: extend the so-called “one-year-back rule,” to give people more time to resolve their insurance disputes without unnecessary litigation.
The one-year-back rule is an unforgiving legislative creature found in MCL 500.3145. The rule says that, for any medical expense that goes unpaid by a no-fault insurance company, if a lawsuit is not filed against the insurance company within one year from the date the medical service was rendered, the insurance company will never have to pay the expense. This is true even if the expense was properly submitted to the insurance company and satisfies all other requirements for payment under the No-Fault Act.
The harsh reality of the one-year-back rule derives from §3145, which says that an action to recover no-fault benefits “may be commenced at any time within 1 year after the most recent allowable expense, work loss or survivor’s loss has been incurred. However, the claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced.”
In addition to the language in §3145, the Michigan Supreme Court in Devillers v ACIA, 473 Mich 562 (2005), said the one-year-back rule must be strictly enforced and can never be extended or tolled while an insurance company is investigating or reviewing a claim for benefits. Previously, tolling of the rule had been allowed under the Michigan Supreme Court’s decision in Lewis v DAIIE, 426 Mich 93 (1986). The tolling doctrine set forth in Lewis allowed the no-fault system to function in a common-sense way, where people did not need to rush to the courthouse to file suit while waiting to hear from their insurance company about whether their bills would be paid within one year from the date services were rendered. Unfortunately, however, Devillers completely obliterated any tolling or extension of the one-year-back rule.
Notably, Justice Michael Cavanagh, in his Devillers dissent, predicted the majority’s decision to harshly enforce the one-year-back rule would not only increase the burden on insured individuals, but would also cause a spike in no-fault litigation. Justice Cavanagh wrote:
“[Plaintiff’s] insurer waited nearly two years to formally deny her claim for attendant benefits. Although plaintiff could have brought suit earlier, before defendant formally denied her claim, such a tactic hardly advances our Legislature’s goal of reducing litigation. In fact, it appears from the limited record before us that plaintiff and defendant were involved in extensive dealings and communication regarding many types of benefits from the time plaintiff’s son was injured onward. An insured engaged in the complex day-to-day dealings with an insurer that are common after a serious accident would quite conceivably destroy any semblance of goodwill and cooperation by filing a lawsuit before the insurer has even denied a particular claim. Further, an insurer could simply defend by stating that the plaintiff’s claim is premature because the insurer is still investigating the claim, at which point the lawsuit would not only have precipitated antagonism, but would have amounted to a colossal waste of time and resources.
Insurers, too, are hurt by today’s ruling. With the proliferation of litigation that is now bound to occur, insurers will be paying the costs of defending the lawsuits, and converting resources that could otherwise go toward investigating claims and communicating with their insureds into payments for billable hours. This will, in turn, translate into higher premiums, further denigrating the opposite goal of the no-fault act.”
As it turns out, Justice Cavanagh’s prediction was spot-on. After holding steady between 2003 and 2004, the number of new no-fault cases filed in Michigan Circuit Courts has continuously increased every year since Devillers was decided in 2005. The list below sets forth the number of new no-fault cases filed in Michigan Circuit Courts between 2003 and 2015. As you can see, there has been nearly a three-fold increase in lawsuits since the Devillers decision.
2003: 3,009; 2004: 3,090; 2005: 3,604; 2006: 3,741; 2007: 3,955; 2008: 4,027; 2009: 4,402; 2010: 5,156; 2011: 6,359; 2012: 7,485; 2013: 7,898; 2014: 7,996; 2015: 8,296.
Clearly, the Michigan Supreme Court’s decision in Devillers to strictly enforce the one-year-back rule has prompted the filing of more no-fault lawsuits. This makes perfect sense because, in many situations, one year is not enough time to make sure a no-fault insurance company pays every single medical expense that arises from a motor vehicle accident. Therefore, it is inevitable there will be numerous unnecessary lawsuits filed on behalf of auto accident survivors, simply because the no-fault insurance company has not yet paid for medical services rendered within a year.
The one-year-back rule is especially too short for persons claiming no-fault benefits on a coordinated basis, which is a vast majority of claimants. Persons claiming benefits under coordinated coverage must first submit their bills to their health insurance company before submitting any remaining amount to their no-fault insurance company. In many of these situations, the process of first submitting bills to the health insurance company and then to the no-fault insurance company can take several months. If for any reason the no-fault insurance company fails to issue payment for any of the expenses within the one-year time period, the strict application of the one-year-back rule leaves people no choice but to immediately file a lawsuit against the no-fault insurance company.
It should also be noted that no-fault insurance companies have done nothing to alleviate the harshness of the one-year-back rule. There is no evidence that any insurance company is leniently enforcing the rule. On the contrary, it appears that every major insurance company will argue the rule should always be strictly enforced, so it is immunized from paying medical expenses incurred more than one year from the date a lawsuit is filed. By taking this stance, the insurance industry is telling injured people and their medical providers that they have only one choice: sue now.
To make matters worse, through a series of court decisions concluding with Joseph v ACIA, 491 Mich 200 (2012), the Michigan Supreme Court has said the one-year-back rule must also be strictly applied to mentally incapacitated individuals and children. In these decisions, the Michigan Supreme Court determined that the tolling mechanisms on statutes of limitations provided to mentally incapacitated people and children under the Revised Judicature Act (RJA) (MCL 600.5851) are also unavailable for purposes of tolling the one-year-back rule in the No-Fault Act. In reaching this conclusion, the Michigan Supreme Court reasoned that the RJA only tolls a “statute of limitations” and that the one-year-back rule is not a “statute of limitations.” Rather, according to the Michigan Supreme Court, the one-year-back rule is a “limitation on damages” provision and, therefore, it cannot be tolled. Accordingly, children and people who are incompetent to handle their own legal affairs are forever barred from recovering payment for medical services arising from a motor vehicle accident if a lawsuit is not filed on their behalf within one year from the date the services were rendered.
Granted, there may be other contributing factors to the increase in no-fault lawsuits since Devillers was decided. However, there is no question that the strict application of the one-year-back rule established in Devillers is forcing attorneys to file more lawsuits to recover no-fault benefits than would be necessary if people had longer than one year to address unpaid benefit claims with their no-fault insurance company.
A fair and appropriate extension of the one-year-back rule is to change it to a three-year-back rule. Alternatively, the Legislature could amend the No-Fault Act so the one-year-back rule is tolled from the time the insurance company receives the benefit claim through the time the claim is formally denied, as was once allowed under the Lewis tolling doctrine. If the Legislature extended or tolled the one-year-back rule, it would bestow several benefits, including:
• trial courts would be less inundated with no-fault lawsuits.
• injured people would not have to frantically file lawsuits against no-fault insurance companies each time a medical bill was not paid within a year.
• children and mentally incapacitated individuals would have more time to make sure their auto-accident medical expenses are paid.
• no-fault insurance companies would not need to hire as much legal representation to defend against claims that could be resolved without litigation.
There are many other changes to the No-Fault Act that could be implemented to better protect Michigan consumers from being wrongfully and unreasonably denied payment from their insurance companies.
However, as the Legislature continues to debate ways to improve Michigan’s no-fault insurance system, it is difficult to comprehend how anyone can argue against extending or tolling the one-year-back rule.
Attorney Stephen H. Sinas, a shareholder in the Lansing office of the Sinas Dramis Law Firm, focuses his practice on Michigan’s auto no-fault law and represents plaintiffs in motor vehicle, semi-truck, motorcycle and bicycle accident cases. He also handles cases involving constitutional rights violations. Sinas is on the board of the Michigan Brain Injury Provider Council, is associate general counsel for the Coalition Protecting Auto No-Fault, is a member of the Michigan Association for Justice and its executive committee, and is a member of the State Bar of Michigan’s Character & Fitness Committee (District E). He is also an adjunct professor at Michigan State University College of Law, where he teaches a “Michigan Automobile No-Fault Insurance Law” course.