Navigating No-Fault Exceptions: Court of Appeals Clarifies Limits on Allowable Expenses in Auto Tort Claims

In Michigan, the no-fault auto insurance system eliminates tort liability for auto accidents, except for specific instances outlined in MCL 500.3135. One important exception is the liability for damages related to allowable expenses and other personal injury protection (PIP) benefits. Injured individuals can recover these damages in certain situations: either beyond policy limits if the PIP coverage is limited, or from the first dollar if PIP coverage was excluded due to an opt-out related to Medicare or qualified health coverage. This exception is outlined in MCL 500.3135(3)(c) and references other statutory provisions such as MCL 500.3107c, .3109a(2), and .3107d.

A recent case, Canty v Mason (Mich. App. 2024), addresses whether third-party claims for allowable expenses under § 3135(3)(c) are subject to the same fee schedule and reasonableness requirements as first-party PIP benefits under § 3107(1)(a). The Michigan Court of Appeals ruled that they are.

The Reasonableness Requirement

The Court in Canty first focused on the language of § 3135(3)(c), which allows for recovery of "allowable expenses" as defined in § 3107. Since § 3107(1)(a) mandates that allowable expenses must be reasonable and reasonably necessary for the injured person’s care, recovery, or rehabilitation, the Court concluded that this standard also applies to tort claims for allowable expenses under § 3135(3)(c).

Applicability of the Fee Schedule

Despite a dissenting opinion from Judge Mariani, the Court further ruled that the fee schedule established in MCL 500.3157 applies to third-party claims for allowable expenses. The Court reasoned that because § 3107(1) is subject to the "exceptions and limitations" of the no-fault act, and the fee schedule is one of these limitations, it necessarily extends to damages recoverable under § 3135(3)(c).

The Duty to Mitigate Damages

Additionally, the Court addressed whether a claimant must mitigate allowable expenses damages. The decision, relying on common law principles and MCL 500.3109(1), affirmed that this duty exists. In Canty, for example, the injured individual failed to submit his medical bills to Medicare before seeking to recover those costs from the at-fault driver, as his auto policy included a Medicare opt-out for PIP medical coverage. This failure to mitigate required a remand to determine the appropriate setoff.

Key Takeaways from the Canty Decision

The Canty ruling outlines three essential points for allowable expenses damages under MCL 500.3135(3)(c):

1. The expenses must be reasonable and reasonably necessary for the injured person’s care, recovery, or rehabilitation.

2. These damages are subject to the fee schedule set forth in MCL 500.3157.

3. Claimants must adhere to the duty to mitigate damages, and any potential setoff under MCL 500.3109(1) must be considered.

   
   

As more individuals opt for lower PIP coverage limits or opt out entirely under Michigan’s no-fault reforms, claims for excess allowable expenses are becoming more frequent. The Canty decision sets important boundaries for defense attorneys, placing clear limits on recoverable damages in these cases and offering a favorable defense precedent for future litigation.