A divided court recognizes wage loss where the sub-S Corporation is losing money
Under the Michigan No Fault Act, injured persons are not compensated for the loss of "earning capacity"; they can only recover actual lost wages. AAA argued that an injured worker shouldn't be able to recover lost wages from his own sub-chapter S corporation if the corporation appeared to be losing money. In a 5-2 decision, with Justices disagreeing over the pertinent logic, the Michigan Supreme Court handed a rare defeat to an insurer. It held, in essence, that the statutory language and the recognition of a corporation's separate legal identity required it to honor the victim's lost wage claim.
AAA wanted the Court to ignore the sub-chapter S entity, and selectively ignore some of the tax considerations which allowed the entity to show a loss for tax purposed while paying a wage to its sole shareholder-employee. The Court refused to countenance this approach, noting that to do so would do violence both to the Federal tax code and the State's Corporation Act. In essence, where a bona fide sub-S Corp had been created and the entity paid the victim a regular wage, the no fault act allowed him to continue that wage without fly-specking the long-term viability of the corporation.
It should be noted that there are various trade-offs associated with using "wage loss" as a victim's income measuring unit and not "earning capacity", and that most of those trade-offs benefit the insurer rather than the victim. (For example, a 21-year old college graduate with no outstanding job offer might have enormous earning "capacity", but no demonstrable "wage loss".) It was a rare exercise in even-handedness for the high court to treat these issues with consistency that enhanced a worker's recovery and did not reward the insurer's truculence. Of course, the majority did take away the attorneys fees that the trial court had awarded the injured wage-earner, so the insurer didn't do that badly. The decision is Ross v. Auto Club Group.