Auto insurance debate begins as Duggan suit heads to court

Jonathan Oosting
The Detroit News
Detroit Mayor Mike Duggan has been lobbying to reform Michigan's no-fault auto insurance law, including through a lawsuit in federal court.

Lansing — Michigan’s no-fault insurance system is under fire in federal court and the state Capitol as Detroit Mayor Mike Duggan and lawmakers push to reduce premiums that routinely rank among the highest in the nation.

Duggan and several motorists sued the state last year, arguing that Michigan’s no-fault auto insurance law has led to “excessive” rates that violate the constitutional rights of Michigan citizens.

A federal court in Detroit on Thursday is scheduled to consider arguments over a state motion to dismiss the suit, which seeks to force action by the Legislature or revert Michigan to a tort system in which an at-fault driver would be responsible for damages, medical expenses and other costs resulting from a crash.

There is no constitutional right to car insurance premiums that align with rates in other states, Assistant Attorney General DJ Pascoe argued in a court filing seeking to toss the case. And if there is a claim worth considering, “such an important question of state law should be determined by Michigan courts,” he wrote.

But attorneys for Duggan and other plaintiffs contend Michigan’s auto insurance law is unconstitutional because it “lacks adequate mechanisms to ensure that the law does not unduly infringe on the right to the use of a driver’s license and a right to use and operate personal motor vehicles.”

David Fink, Bloomfield Hills-based counsel for the plaintiffs, said Wednesday “based upon the facts in our complaint and the arguments in our brief, we’re confident in our position.”

The state House in 2017 rejected a bipartisan plan backed by Duggan and then-House Speaker Tom Leonard that would have given motorists the choice to buy reduced-coverage auto insurance policies. Michigan is the only state that requires lifetime medical benefits for injured motorists.

MoreMichigan lawmakers target no-fault auto insurance law in push to cut high rates

Current law makes Michigan's insurance “the most expensive plan there is, but it’s also the highest quality plan there is,” Eric Lupher, president of the nonprofit Citizens Research Council, told lawmakers Wednesday.

Lupher testified before the Senate Insurance and Banking Committee, which met for  the first time and is expected to spend several weeks or months debating potential reforms. A new House Select Committee on Reducing Car Insurance Rates was also set Wednesday to convene for an organizational meeting.

The main question with Duggan’s lawsuit is, “What’s the end game?” Lupher told The Detroit News.

“We saw in the '90s a (ballot measure) attempt to artificially reduce prices, but if you don’t give insurers the tools to reduce prices, what are we really doing here?”

Having a federal judge tell lawmakers to prioritize cost-cutting measures “would be helpful,” Lupher said, “but I think we heard here today that they all recognize the importance of it. A judge just can’t tell them they have to tackle it.”

Leaders in both chambers of the Michigan Legislature have identified auto insurance reform as a top priority this session and expressed hope of breaking through a decades-long log jam. Previous reform efforts have stalled amid intense lobbying from trial lawyers, hospitals and insurers. 

Senate Republicans used their first bill introduction of the year to signal an intent to allow motorists to choose medical coverage levels with required savings, create a fee schedule for medical providers and crack down on fraud.

Democrats want to curb “red lining” by prohibiting insurance companies from using non-driving factors such as zip code to set rates.

Sen. Lana Theis, a Brighton Republican who chairs the Senate Insurance panel, declined comment on the Duggan lawsuit, noting she is not a lawyer. But she stressed the urgency of reforms.

“We need to fix this,” Theis said. “We need a system that is actually affordable. We need rates that people can afford to pay. We need them to be able to get to and from work legally.”

Michigan’s no-fault auto insurance law of 1973 is designed to ensure that injured motorists receive compensation from their own insurance provider rather than having to show fault by another driver.

It was supposed to curb costs by reducing litigation, but the opposite has actually occurred, Lupher told lawmakers. “What we found over the years… of looking at no-fault in Michigan and other states is that, in fact, we have more lawsuits in no-fault states than we do in the tort states," he said. 

Michigan premiums have proven expensive, in part because health care providers typically charge auto insurance companies more than most other payers, according to a report by the Citizens Research Council.  Because of generous coverage, Michigan auto accident victims also tend to use more medical services.

As of 2013, medical claims in Michigan cost insurers approximately 57 percent more than claims for similar crashes in other states, according to the report.

Implementing a fee schedule for medical providers could reduce costs, but hospitals could shift costs to other payers to recoup lost revenue, the research council said. Capping medical benefits for auto injuries could reduce health care spending and premiums, but it may also reduce overall care.

In at-fault tort states, motorists who suffer traumatic head or spine injuries often end up having to pay long-term costs out of pocket or spend down their assets to qualify for Medicaid health care coverage, Lupher said. The costs can be “exorbitant” and lead to bankruptcies, he said.

“The options are out there, but it’s a tough political issue, because it’s a zero-sum game,” Lupher told lawmakers. “As you change the system, there’s going to be winners and losers. And it’s really hard when you think about this to create winners and winners.”

Detroit News Staff Writer Christine Ferretti contributed