The Shavers Decision

The Insurance Bureau's 1977 reform program was not enacted by the legislature. In June of 1978 the Supreme Court of Michigan issued its decision on the constitutionality of the state's no-fault law. The Court's four-to-three decision in Shavers v Attorney General (402 Mich 554) provided substantial impetus for the Michigan legislature to restrict underwriting and rate classification. [27] The Court upheld the right to limit tort liability for bodily injury liability, but it held that no-fault property damage was constitutional. More importantly, it held chat compulsory no-fault coverage violated due process and was thus unconstitutional because insurance regulation failed to ensure that coverage would be available at "fair and reasonable" rates.

In order to satisfy due process, the Court held that it would be necessary to give substantial meaning to the statutory requirement concerning rate levels that rates be adequate but not excessive or unfairly discriminatory, to clearly identify rating factors and rate differentials and disclose such factors to consumers, and to provide prompt administrative review to consumers who desired to challenge underwriting or rating decisions. The Court provided 18 months for the legislature and Insurance Commissioner to act before the no-fault law would become unconstitutional. [28] The Essential Insurance Act, with its restrictions on insurer underwriting and rating and detailed provisions allowing policyholders to review rates and rate factors, was enacted by the legislature in 1979 prior to the end of the 18 month period specified in Shavers.