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A Better Partnership
December 06, 2012

COA Opinion: Work loss benefits under the No-Fault Act include flow-through S corporation earnings

Under Section 3107(1)(b) of the No-Fault Act, insurers are liable for benefits consisting of 'the loss of income from work.' In Brown v. Home Owners Insurance Company, the Michigan Court of Appeals held that the profits generated by an S corporation should be included when calculating the work loss benefits payable under that section, MCL ' 500.3107(1)(b).

The plaintiff slipped and fell on ice while exiting his car. The incident left him unable to work at an S corporation he wholly owned. When he filed his claim, the defendant-insurer paid him based on his W-2 wages but deliberately excluded his flow-through S corporation profits. The plaintiff sued and the trial court granted summary disposition in his favor, reasoning that the underlying purpose of the No-Fault Act is to make people whole; excluding a substantial amount of the plaintiff's income contravened this goal. The trial court distinguished a prior case, Ross v. Auto Club Group, 748 N.W.2d 552 (Mich. 2008), where S corporation income was excluded, as applying only to situations involving unprofitable S corporations.

The Court affirmed the trial court's decision, stating that the phrase 'loss of income from work' in Section 3107(1)(b) is broader than 'loss of wages.' Since the S corporation profits were derived from the plaintiff's work, the Court found they were a part of his income from work. The Court did reverse the trial court's award of attorney fees to the plaintiff, however, because the court found the defendant did not act unreasonably by paying the plaintiff work-loss benefits based on his W-2 wages alone.

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