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Court decides catastrophic claim fund cannot "second-guess" PIP settlements

Under the no fault act, when no fault PIP expenses (medical and the first three years of wages and replacement domestic services expenses) exceed a statutory minimum, they are deemed "catastrophic" and the insurer is indemnified through a fund established under the statute, and governed by an association of insurers called the Michigan Catastrophic Claims Association.  The MCCA was given statutory authority to establish rules governing the management of the fund among its member insurers, but it sued recently seeking the authority to deny indemnification for PIP payments it deemed "unreasonable."

This case made its way to the Supreme Court, ultimately, and the argument boiled down to whether it was more efficient and ultimately made for cheaper car insurance to allow the MCCA (or "Cat fund") to challenge every large PIP settlement or indemnification.  Some insurers argued that the MCCA was not given the statutory authority to create a second layer of investigation over the reasonableness of settlements, and that the creation of this burden for insurers would discourage settlements and add to investigative and legal costs by allowing another entity to second-guess every important decision they made in catastrophic injury cases.  They argued that the rules of the members of the Association provided adequate protection against members who might not honor their duty to reach "reasonable" pay-outs.

Other insurers supported the MCCA's claim that it should be allowed to review, investigate, litigate, and deny indemnification, and that individual insurers should be required to prove that any contested settlement was, in fact, "reasonable".  These insurers claimed that not allowing for such a second review would allow member insurers to game the system by failing to protect the Fund from unreasonable claims; in essence, they felt that in individual cases, insurers might choose to settle a claim by agreeing to pay an unreasonable amount, rather than fulfilling the insurer's duty to limit payouts for a catastrophically injured motorist to reasonable levels.  They argued that without the added layer of direct supervision under the MCCA, catastrophic claim costs would become prohibitively expensive.

A day or two before he left office, Justice Taylor joined with the Engler Majority to decide this case and his 4-3 majority allowed the MCCA to second-guess the member insurer's decisions by denying indemnification if they deemed payments to be unreasonable.  This month, the Court re-examined that decision and came to the opposite conclusion.  The four-member majority determined that the Catastrophic Claims Association had adequate procedural protections to control its members in managing catastrophic claims, and that the no fault statute, by its plain terms, did not authorize the MCCA to establish a new layer of investigation, litigation and approval of claims.  The current court majority determined that MCCA's proposed supervision of claims reimbursement would add expense to the system and was entirely unnecessary, given the insurer's members' rights to write rules for the Association's members.

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