To Understand no-fault, we need a little history...
Did you know that Michigan wasn't always a no-fault state?
Before Michigan's legislature passed sweeping No-Fault legislation in 1973, we had what was known as a Tort Liability system. There are states that still adopt this practice today, and it is important to know what your Michigan policy actually does if you travel to these states...but the short story is this: In a tort-based system, every insured's policy paid for everyone else's damage or medical bills. Sure, that sounds fine in principle, if you are not at fault, why should you pay? Think of it this way: You may be a responsible driver, and through no fault of your own, someone hits your car. You insure your brand-new car, but that other driver does not have insurance. If your car is damaged, you would need to rely on their insurance to fix your car. If they didn't carry insurance, you would have to take them to court to get your car fixed. Let's not even mention the medical bills...Have you heard the old adage, you cannot take blood from a stone??
To make matters worse for victims, people didn't even have to carry insurance if they paid $45 per year into a fund for uninsured people. This system was playing havoc in the courts as they were flooded with lawsuits. It was estimated that one third of all insurance premiums went to pay legal fees according to state reports. In 1973, that all changed....
The no-fault revolution had begun!
In 1973, Michigan's legislature passed legislation to reform auto insurance. The goal was to lower the costs, and speed up payments to doctors by eliminating the need for accident victims to sue the other driver after a crash. With the new legislation, drivers make claims against their own insurance company, regardless of fault. That means your insurance actually covers you! The number lawsuits dropped significantly because liability lawsuits had to meet the threshold of permanent disfigurement or death.
It was predicted that No-Fault insurance was going to lower the costs for insurance because there wasn't be many lawsuits, and it was mandated that everyone needed to carry it. It was proven later that the opposite was true. In the late 1970's Michigan's Supreme court upheld the no-fault law, but added that if car insurance is mandatory, it must be available at "Fair and equitable" prices. This lead to a territorial-based system that prevented insurers from charging rates that were less than 45% of the highest territory and no more than 10% difference than an adjacent territory.
Insurers argued that the system forced non-city dwellers to pay higher rates to subsidize artificially low premiums in large cities were theft was higher.
Michigan's Unlimited PIP
Prior to the latest no-fault reform on July 1, 2020, Michiganders enjoyed unlimited medical Personal Injury Protection(PIP). Michigan PIP really did three important things:
- Provided Medical payments as a result of auto-related-accidents. We say "related" because if you were a pedistrian, a bicyclist, a motorcyclist, or you entering or exiting a vehicle and were struck by a vehicle; your medical bills would be covered by PIP.
- Provide wage-loss while you were unable to work. Michiganders would have a benefit of up to 85% of their wages in disability payments for up to three years while recovering.
- Provide long-term care and modifications to your home. For example: if a person looses the use of their legs as a result of a car accident, modifications would be made to the home to allow for wheelchair access. These modifications could include a ramp, modifications to the shower, counters, widening of doors, etc. Assistance could also include payments for yard care, skilled nursing, and meal preparation.
The MCCA Is Created
In 1978, the Michigan Catastrophic Claims Association (MCCA) was created as a way to pay for the most serious and expensive auto injuries through an annual per-vehicle fee that auto insurers passed on to customers. Prior to 2020, it was roughly $160 per year. The fund would reimburse companies once the expenses exceeded $545,000 per injured person.