When insured drivers received a $400 check in the mail this spring, insurance companies and Governor Whitmer trumpeted it as proof that the state's 2019 auto no fault reform law was working to drive down car insurance costs.
In fact, the checks came out of a surplus from previously paid assessments into a survivors fund managed by the Michigan Catastrophic Claims Association, not from lowered premiums. The MCCA is charged by law with keeping enough money in the fund to guarantee payment for future care for the most seriously injured car crash survivors.
Yet that surplus has swiftly turned into a big deficit, and critics accuse the MCCA of recklessness in the management of drivers' assessment fees.
Here's how the fund went from a reported surplus of $5.04 billion in the summer of 2021, to a reported deficit of $3.67 billion, a little over a year later.
Governor Whitmer asks MCCA to issue "refunds" to drivers from the surplus
In early November in 2021, Governor Gretchen Whitmer asked the MCCA to expedite payments to drivers based on the catastrophic fund's surplus at the time of $5.04 billion. Much of that surplus stemmed from investments the fund had made with drivers' assessments.
Within weeks, the MCCA agreed, saying it would send a $400 check to each insured driver in the state of Michigan by early 2022. The MCCA said "independent actuaries were asked to determine how much of the surplus could prudently be returned to drivers."
But just a few weeks later, on December 31, 2021, the $5.04 billion surplus had already shrunk to $3.045 billion, according to the MCCA's report to the state legislature.
Still, the MCCA says in the spring, when the checks totaling $3.08 billion went out, there was a surplus in the fund of "approximately $2 billion."
One critic says the numbers simply don't add up
Gerald Paulovich is an attorney for medical care providers, and a close observer of changes in the MCCA fund over time.
Paulovich says it's difficult to see how the fund, which had a surplus of $3.045 billion in December, and which dispensed $3.08 billion in checks to drivers in the spring, could have had $2 billion dollars left in the fund.
The MCCA says it did, despite "much-lower-than-expected" investment returns.
But to Paulovich, the swift one-year decline in the fund balance shows the MCCA's cavalier treatment of a fund for which they bear little responsibility.
"They can simply make up any losses in their investments by increasing the assessment on drivers," he said. "They're operating in their own self interest, it's very clear. And their self interest is to be riskier with that money. That's what they did."
The MCCA blames the Court of Appeals decision in Andary for the new deficit
In October, 2019, attorneys filed a class action lawsuit challenging the no fault law. Known as the Andary case (for plaintiff Ellen Andary) it has been making its way since then through the Michigan court system.
On August 25, 2022, the Michigan Court of Appeals ruled that part of the no fault law was unconstitutional - the part that slashed payments for care for 18,000 car crash survivors who were injured prior to 2019.
That, says the MCCA — not investment losses, and not the $400 checks — caused its independent actuaries to determine the fund was in a deficit position of approximately $3.7 billion.
Drivers will now have to restore the fund by paying increased assessments on their insurance premiums- in essence, giving up part of the $400 they received in the mail just a short time ago.
Paulovich said the MCCA knew all along the Andary case could be decided against the interests of insurance companies and the fund, and at a minimum, it should have held off on issuing checks to drivers.
He's not the only one who finds the MCCA's timeline of decisions questionable and its actions irresponsible.
"Having invested drivers' fees in the stock market, the MCCA lost its shirt, and is now forcing all customers to cover for the MCCA’s mistakes," said Devin Hutchings, president of the Coalition to Protect Auto No Fault, a group that opposes the 2019 law.
A waiting game in the months ahead
On September 29th, the Michigan Supreme Court agreed to hear an insurance company appeal of the Court of Appeals ruling in Andary. The hearing has been scheduled for some time in March.
Erin McDonough is Executive Director of the Insurance Alliance of Michigan. She hopes for a reversal.
“The Andary decision unravels key bipartisan reforms designed to rein in skyrocketing costs," she said, "and will hit ratepayers and consumers at a time when the cost of everything is going up. We are hopeful the Michigan Supreme Court will restore these important reforms and protect the relief Michigan ratepayers have been demanding.”
But in the meantime, attorney Gerald Paulovich said he hopes the MCCA's actions get close scrutiny.
"What the MCCA did is so irresponsible that I would hope that the legislature does something about this in the future," he said.
"In the very, very near future," he added.
