Michigan Court: Insurance Fund Must Disclose Financial Records

A ruling handed down last week says that financial records of fees paid by drivers into a fund for high-cost claims should be made public, as the Michigan Catastrophic Claims Association (MCCA) managing that fund reviews the decision and mulls a court appeal.

The ruling says that the MCCA must disclose general information indicating how it determines the size of the annual fee that gets charged to insurers and, by extension, consumers. The annual fee size has increased for at least the past five years.

The decision, from Ingham County Circuit Court Judge Clinton Canady III, follows lawsuits from the Coalition Protecting Auto No-Fault (CPAN) and the Brain Injury Association of Michigan (BIAMI) that sought to get the MCCA to open up records related to its financial standing.

Michigan’s no-fault auto coverage system is one of a kind in the U.S., giving policyholders limitless compensation for medical treatment over a lifetime for crash-related injuries, regardless of who was at fault for the accident.

The nonprofit MCCA manages a fund that compensates insurers when they have a no-fault claim that exceeds $500,000. Anything above that level is covered by the MCCA. The MCCA reimbursed insurers $927 million in 2011 for such claims.

Ruling: Public Fee Demands Public Disclosure

The MCCA’s funded by a per-vehicle fee that insurance carriers pay, and the size of that fee has risen in recent years. The fee was:

–$104 in 2008
–$125 in 2009
–$143 in 2010
–$145 in 2011
–$175 as of July 2012

The association has argued that fee increases are necessary to deal with rising costs of no-fault claims and a growing deficit.

Growing no-fault costs borne by the MCCA have been blamed for the generally high prices for consumers looking for auto insurance in Michigan.

Based on 2012 data, Runzheimer International ranks Detroit, for example, as the most expensive city in the U.S. for auto coverage.

According to Canady’s ruling, the public has the right to information on how the MCCA formulates its rates based on the relationship the association shares with the state’s drivers and insurance companies.

“Because the MCCA rate charged to insurers is passed on to the insured individuals as part of the premium they pay, it is reasonable to conclude that citizens essentially fund the MCCA reserves by paying that premium,” he wrote in the decision. “Thus, individual citizens have a financial interest in the rate calculation process and how it is conducted.”

Gloria Freeland, executive director for the MCCA, said that all relevant financial records are already public on the association’s website.

The MCCA is “currently reviewing the decision,” she said in an interview with Online Auto Insurance News.

Freeland said that the MCCA first received word about the ruling on Wednesday after a copy was provided by media; she added that the association had not yet received an official copy from the court.

The MCCA will decide on whether or not to file an appeal by next week, according to Freeland.

CPAN and BIAMI cheered Canady’s decision, with both groups saying the ruling supported their efforts to preserve the state’s no-fault system in its current form.

“It’s plain and simple; this is the public’s money and the public has a right to know all the facts about how their money is managed and whether what they pay in premiums is adequate to handle future claims,” said John Cornack, CPAN president, in a statement.

The lawsuit stems from a Freedom of Information Act (FOIA) request from CPAN submitted in November 2011 seeking records of claims and policyholders who filed them. Also, BIAMI filed an additional FOIA request for MCCA’s financial records, including its reserves.

The group rejected both requests, and stated in a May 2012 letter to BIAMI that the MCCA, as an “unincorporated, nonprofit, private association,” could not be compelled to produce records that were “not subject to disclosure.” The BIAMI and CPAN lawsuits were combined in July 2012, according to the ruling.

No-Fault Reform a Major Issue in Michigan

Those expensive no-fault claims paid by the MCCA have become increasingly costly, according to David Snyder, president of the American Insurance Association (AIA), who, in testimony before a House committee in 2011, warned its members that overall auto insurance costs would also continue to balloon without no-fault reform.

In 2011, lawmakers brought a bill to establish four tiers, ranging from $250,000 to $5 million, of personal injury protection (PIP) coverage from which motorists could choose. Insurers would benefit from the lower limits for PIP coverage that pay for no-fault claims.

This past summer, a four-bill bundle of no-fault bills was passed out of the state House Committee on Insurance, adding more exclusionary criteria for no-fault claims including provisions prohibiting drunk drivers and illegal immigrants from receiving compensation. All of those bills are still on the House floor and have not yet been voted on.

Most recently, HB 5864 was introduced by Rep. Lisa Lyons (R-Alto). The bill seeks to redefine how no-fault insurance law classifies serious injuries and medical conditions. In September, the legislation was moved to the House Committee on Insurance for consideration, where it currently sits.

CPAN opposed the legislation, saying that its new eligibility requirements were so prohibitive that they would bar virtually all third-party claims from being brought under the no-fault system.

“The Michigan no-fault system will become so out of balance and so politically unstable that it probably will not survive,” the group said in a statement.

Groups Supporting Current No-Fault System Claim Public Backing

Hoping to curry public support, the BIAMI commissioned a survey released in November, finding that 86 percent of respondents agreed with the current system’s full benefits for injury and rehabilitation, while 91 percent supported disclosure of MCCA financial data and records.

The survey showed that voters are sending state lawmakers “a very clear takeaway,” according to Michael Dabbs, BIAMI president.

“Don’t mess with Michigan’s no-fault insurance benefits!” Dabbs said in a statement.

Created in 1978 by legislators, the MCCA is led by insurers including Farmers and State Farm that sit on the group’s board of directors. Between that time and June 2012, the association has received almost 28,800 claims and made $9.9 billion in claims payments, according the association.

The vast majority of MCCA claims are to treat brain- and spinal-related injuries. Between 2010 and 2012, nearly 58 percent of payments were for residential care in a facility or attendant care by a family member or agency, according to the association.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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