It’s Mostly Dems Pushing Auto Insurance ‘Alternative’ Bills That Benefit Trial Attorneys

Editor's note: The headline and story were altered to add clarification.

A package of bills sponsored primarily by Republicans but with far more Democratic cosponsors and touted as an alternative to an auto insurance reform proposal supported by legislative leaders and Detroit Mayor Mike Duggan would likely raise Michigan insurance prices. That’s the conclusion of the author of a recent study on the issue published by the Mackinac Center for Public Policy.

Matt Coffey, an attorney who wrote a recent study on Michigan’s auto insurance system, identified a number of provisions in the alternative package that are more likely to drive rates higher. This includes making it easier for individuals and trial lawyers to sue insurance companies and collect larger damage awards. The cost of the awards then gets passed to vehicle owners in the form of higher insurance premiums.

One of the measures in the package would let courts award punitive damages against auto insurers based on potentially subjective claims of auto insurers not acting “in good faith and fair dealing.” This idea has been proposed more than 20 times by legislative Democrats since 2001. If the bill passes, auto insurers would have to prove that they dealt in good faith in case of a lawsuit.

Insurance companies say that the state insurance code already prescribes in detail the duties of insurance companies to settle claims in a prompt, fair and equitable manner.

Another provision would limit insurance companies’ ability to require individuals collecting benefits to get an independent medical exam if there are reasons to believe a health care provider is billing for unnecessary medical treatments. Under House Bill 5105, auto insurers would be limited to using medical examiners who were approved by a state oversight body. The health care provider and the driver are not, by contrast, limited to who can be uses as a medical examiner.

Two bills in the package would lower the “causation standard” that prevents auto insurance from being used to get treatment for conditions unrelated to a crash. For example, a driver could sue an insurer for health care payments for the rehabilitation of an injury that wasn’t directly tied to the original accident.

Coffey argues that these provisions lower the barrier to lawsuits too much, and he believes drivers already have reasonable access to the courts if an auto insurance provider fails to provide benefits.

"It’s easy to sue ... and there’s plenty incentive to do so," he said. "The [alternative package of] bills actually makes it easier when it was already too easy with too much incentive to run to court."

Supporters of the alternative reform package including the Coalition Protecting Auto No-Fault and the Michigan Association for Justice, which represents trial attorneys. They argue that it would reduce fraud and abuse in the handling of auto insurance claims.

A press release issued by the Michigan Association for Justice makes no mention of the effect the alternative package will have on the number of auto accident-related lawsuits in the state.

House Speaker Tom Leonard and Detroit Mayor Duggan support House Bill 5013, sponsored by Rep. Lana Theis, R-Brighton. Both that bill and the alternative proposal place caps on how much hospitals and other medical service providers can charge insurers for treating injuries sustained in vehicle crashes. Unlike the Leonard-Duggan bill, however, the alternative package contains no limits on the extent or amount of charges for long-term attendant care.

According to an analysis by Crain’s Detroit Business and Bridge Magazine, the cost of treating crash victims in Michigan is over five times higher than in any other state. Crain’s also reports that auto insurance companies have seen zero profits, on average, over the past 10 years.

Coffey says that if the state’s problems are not addressed, they could lead to less competition and higher prices in the auto insurance market.

“Companies aren’t making money on these things,” he said. “If these bills (the alternative package) stay the same, I think you’ll start to see companies pull out” and stop selling vehicle insurance policies here.