TRANSPORTATION LAW CLIENT ALERT: City of Detroit Mayor Mike Duggan’s Lawsuit Challenging the Michigan No-Fault Act’s Constitutionality Gains Traction

As many are aware, City of Detroit Mayor Mike Duggan, along with several other handpicked plaintiffs, filed suit challenging the constitutionality of Michigan’s No-Fault Insurance Act. The lawsuit is premised on Mayor Duggan’s belief that the No-Fault Act violates procedural and substantive due process under both the Michigan and United States Constitution. No-Fault insurance is mandatory for the lawful registration and operation of a motor vehicle and the Plaintiffs believe they possess a constitutional right to fair, equitable, and reasonable insurance premiums, which they allege are not currently available in the City of Detroit.

The relief sought by Mayor Duggan is for the Court to declare the No-Fault Act (“the Act”) unconstitutional under the Michigan and U.S. Constitutions and grant the State of Michigan 6 months to amend the Act to cure these constitutional defects. If the State of Michigan fails to reform the Act, Mayor Duggan has requested the Court order the State of Michigan to return to the previous common law tort system. Recent developments in this case indicate that real reform to the Act is imminent.

Motion to Dismiss

On October 1, 2018, Defendant McPharlin moved to dismiss the case or alternatively certify the questions of constitutionality to the Michigan Supreme Court. Defendant asserted (1) there is no due process right to reasonable insurance premiums, (2) Plaintiffs do not have standing to bring this lawsuit as they failed to exhaust their administrative remedies, and (3) the State is protected by sovereign immunity.

One of the main contentions made by the Defendant is that there is no “fundamental right” to fair and equitable insurance premiums established by the U.S. Supreme Court. When a fundamental right is not in question, to be substantively constitutional, a rational basis for the law to advance a government interest that does not “shock the conscious.” Additionally, the amount of coverage mandated in Michigan is “uniquely robust” as it requires more coverage than any other State and, therefore, the Court cannot consider the rates in other states to determine the fairness of the Act. Defendant explained that the Act does not provide insurance rates but relies on the insurance marketplace to determine competitive rates for this coverage.

Mayor Duggan, of course, filed a response to the Motion and noted that the Michigan Supreme Court previously held that the Act would fail to be constitutional if insurance was no longer available on a fair and equitable basis. See, Shavers v Kelley, 402 Mich 554 (1978) (“We therefore conclude that Michigan motorists are constitutionally entitled to have no-fault insurance made available on a fair and equitable basis. The availability of no-fault insurance and the no-fault insurance rate regulatory scheme are, accordingly, subject to due process scrutiny.”). In Mayor Duggan’s opinion, the time is now to end a system that is neither fair nor equitable.

Interestingly, Plaintiffs bring up the fact that there is no fee schedule for medical expenses similar to Workers’ Compensation, a subject of discussion amongst Segal McCambridge attorneys on a weekly basis. No-Fault medical expenses have outpaced healthcare inflation by nearly 90% according to the statistics cited in Plaintiffs’ complaint. The Plaintiffs even point out that “there is little to prevent people from charging insurance companies for care that is not actually needed or care that is not being provided.”

Plaintiffs also advance a novel argument that the right use a motor vehicle for independent mobility should be fundamental, especially in a state like Michigan where it is a near necessity. Plaintiffs rely on the recent U.S. Supreme Court decision finding the fundamental right to marry for all people as support for the proposition that an affirmative right to independent mobility should be possible as well. Plaintiffs believe the No-Fault Act is subject to strict scrutiny from the Court and the Act is not narrowly tailored to not inhibit the so-called fundamental right to independent mobility.

The Judge’s Decision

Following briefing and oral argument on the motion, Judge George Caram Steeh of the United States District Court of the Eastern District of Michigan seemed to be leaning towards agreeing with Mayor Duggan’s positions. Specifically, he called the Act “shameful.” He took the motion under advisement but strongly suggested that the Michigan Legislature address the problems of insurance rates and inequality in the near future before he is forced to issue his decision. Judge Steeh went so far as to suggest that the State would not like his answer should he have to rule on the Motion. As such, it appears that the Legislature may be forced to finally reform the Act, whether they like it or not.

Of note, there were hearings in Michigan’s Senate Insurance and Banking Committee on No-Fault Insurance reform efforts immediately prior to Judge Steeh’s comments. However, those efforts and previous efforts which occurred over the course of several years stalled out “amid intense lobbying from trial lawyers, hospitals and insurers” according to The Detroit News. Judge Steeh’s direction may bring the players back to the table for further discussions.

The pending lawsuit, if not resolved in the Legislature, will require Judge Steeh to make decisions on matters that have not been previously decided in Michigan or Federal courts, which primes this case for appeal regardless of how he rules. Either way, this may be the beginning of the end of the Act as we know it.

For more information about the Michigan No-Fault Act and the potential impact of this case, contact partner Eric P. Conn or associates Stephanie B. Burnstein and Thomas N. Lurie.

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