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A Better Partnership
January 06, 2009

U.S. Fidelity Ins. & Guaranty Co. v. Michigan Catastrophic Claims Ass'n

On December 29, 2008, the Michigan Supreme Court issued a 4-3 decision in the consolidated cases of United States Fidelity Insurance & Guaranty Co. v. Michigan Catastrophic Claims Association and Hartford Insurance Company of the Midwest v. Michigan Catastrophic Claims Association. In U.S. Fidelity, the Court addressed the issue of whether the Michigan Catastrophic Claims Association ("MCCA") could refuse to indemnify member insurers for unreasonable charges. The No Fault Act requires the MCCA to indemnify member insurers "for 100% of the amount of ultimate loss sustained under personal protection insurance coverages in excess of [$250,000]." MCL 500.3104(2). The Court held that if the member insurer's policy provides coverage only for "reasonable charges," the MCCA has the authority to refuse to indemnify unreasonable charges.

The cases arose after the MCCA refused to indemnify the insurers for what the MCCA considered to be unreasonable attendant care service charges of $54.84 and $30 per hour. In each case, the insurer was obligated to pay those amounts either by settlement agreement or by consent decree. The insurers initiated separate actions for declaratory relief asking separate judges of the circuit court to order the MCCA to reimburse the full rate of attendant care services. The circuit court entered conflicting rulings. Appeals from both cases were consolidated, and a divided panel of the Court of Appeals concluded that "the MCCA is statutorily required to reimburse an insurer for 100 percent of the amount that the insurer paid in PIP benefits to an insured in excess of the statutory threshold . . . regardless of the reasonableness of those payments." The Michigan Supreme Court granted leave to appeal in both cases.

The Court initially considered whether the Legislature intended to permit the MCCA to conduct any review of the claims submitted by member insurers. The Court concluded that the broad grant of authority in MCL 500.3104(8)(g) authorizing the MCCA to perform any act "necessary or proper to accomplish" its purpose was sufficient to permit it to review members' claims under MCL 500.3104(2).

The insurers argued that because Section 3104(2) does not include a reasonableness requirement, MCCA is strictly obligated to pay 100% of claims above the statutory threshold even if the claim is unreasonable. The Court disagreed, emphasizing that the claim "must be 'sustained under personal protection insurance coverages'" (quoting MCL 500.3104(2)). Under Michigan law, a no-fault policy provides coverage for "reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person's care, recovery or rehabilitation." MCL 500.3107(1)(a). The Court reasoned that where a policy provides only the minimum coverage, i.e. coverage only for "reasonable charges," then unreasonable charges are not sustained under personal protection insurance coverages. Accordingly, the Court concluded that the MCCA has the authority to refuse to indemnify insurers for unreasonable claims where the underlying policy provides coverage only for "reasonable charges." The Court remanded the cases to the trial courts to determine whether the underlying policies provided coverage for the claims made by the insurers without regard for the insurers' settlement agreement and consent decree.

This decision was one of two 4-3 decisions issued in the waning days of 2008 in which the out-going Chief Justice was in the majority. Given the incoming justice's self-stated jurisprudential differences with her predecessor, it may well be that this victory for the MCCA will be short-lived.

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