Michigan’s No Fault Act was a well-intended experiment by the Legislature to address the multiple problems created by an unchecked, wide open tort system. The prevailing logic was to eliminate fault as a consideration in auto accident litigation so that each party to an accident would instead use their own insurance company for medical coverage, wage loss and other benefits such as PIP. It was thought that this would reduce the large volume of auto accident lawsuits clogging the court system and make it simpler and easier for everybody to receive benefits after being injured in an accident. In an effort to ensure that the system would work and out of an apparent concern for injured victims of auto accidents, the Legislature created unlimited medical benefits, easily the most generous in the nation.
At the same time, the no-fault law provided exceptions to the rule that an injured person can only claim benefits from their auto insurance company. This exception essentially allows people with serious injuries to still sue the at-fault driver, despite the existence of unlimited PIP benefits. Decisions from the Michigan Supreme Court have gone back and forth over the years in determining what qualifies as a serious enough injury, with the prevailing view giving the exception a much broader interpretation than what the court was previously willing to do.
The effect of this is that the Michigan’s no-fault system doesn’t really operate as a true no-fault system. The tradeoff of restricting victims’ right to sue in exchange for unlimited medical coverage is illusory. There’s little doubt that these factors play a major role in driving up the costs of auto insurance premiums in Michigan, making them some of the highest in the nation.
One must question the continued viability of the no-fault system in its current form and it is reasonable to conclude that the no-fault law’s original goal of insuring all drivers and eliminating or reducing lawsuits while at the same time providing unlimited benefits has failed.
Recognizing the failure of the current system, the Legislature should take actions to reform it. It need not throw out the entire no-fault system, but rather modify it in ways that will help reduce the costs of insurance premiums. The good news is that policymakers do not need to reinvent the wheel — several other states have no-fault systems but do not experience the same high cost premiums Michiganders are currently forced to pay. The ideas recommended in this paper would simply make Michigan’s auto insurance system more similar to those in other states and are aimed at putting downward pressure on the cost of insurance. The result should be lower premiums for all Michigan drivers and fewer uninsured cars and drivers out on the road.