IS MICHIGAN’S NO-FAULT ACT (STILL) CONSTITUTIONAL? PART II

 

In my last article post, I discussed the issues underlying Michigan’s No-Fault scheme, and how the facts and circumstances on which an earlier Court decision found the statute to be Constitutional. Today, I’ll review possible Constitutional challenges currently available (and some that may not be) to attack the statute and show that legislative reform is needed quickly.

The Shavers decision

     To re-cap, in 1978, the Michigan Supreme Court addressed equal protection and due process challenges to several provisions of the Michigan No-Fault Act. The Court upheld the constitutionality of a no-fault insurance regime generally but went on to hold that the system as implemented was unconstitutional.[1] The Court found that a driver’s license, once issued, is subject to constitutional due process protections, as is the interest in registering and operating a motor vehicle. Significantly, the Court then held that “Michigan motorists are constitutionally entitled to have no-fault insurance made available on a fair and equitable basis,” and that the “availability of no-fault insurance . . . [is] subject to due process scrutiny.”[2] The Court held that although the Legislature may provide for the setting of rates by the marketplace, but at a minimum, due process requires that rates not be excessive, inadequate, or unfairly discriminatory.[3] 

       To rectify the constitutional problems with the statute, Shavers required:

• 1. The Legislature to “give substantial meaning” to the term “excessive, inadequate, or unfairly discriminatory”;[4]
•  2. The insurers to set out reasonable premiums and explanations for differentials in their filed rates as well as publication of such information; and
•  3. “[P]rompt and effective administrative review” of the insurer’s calculation of insurance rates and cancellation of the policy.[5]

       Although the no-fault statute met none of these criteria, in deference to the reliance interests that the statute had engendered, the Court allowed it to continue operating for 18 months while the Legislature made the necessary adjustments.[6]  

          With regard to specific provisions of the statute, the Michigan Supreme Court upheld the personal injury protection (PIP) scheme against both due process and equal protection challenges. As to the former, the Court held that abolition of a common-law tort remedy did not require an “adequate substitute,” and the PIP scheme was rationally designed to provide quicker, more appropriate reparations to automobile accident victims and decrease litigation.[7]

         The Court also upheld the statute’s property damage protection scheme against the same challenges, deferring to the Legislature’s decision on “experimental” economic legislation and finding that the scheme was rationally directed at constraining costs and incentivizing safer vehicles.[8] In rejecting the equal protection claim, the Court dismissed the alleged dichotomy between damaged vehicular property versus all other property damaged in a collision.[9] Finally, the Court found that the decision to exclude motorcycles from the no-fault regime did not violate equal protection since “the inclusion of motorcycles . . . would result in insurance premiums so high as to preclude most motorcyclists from purchasing insurance.”[10]

Equal protection claims

        In examining whether a statute denies equal protection of the laws, courts apply varying standards of scrutiny, depending on the classification at issue. Courts evaluate classifications based on race, ethnicity, or national origin, as well as those that implicate a fundamental right, with strict scrutiny; for the statute to survive, the means must be narrowly tailored to serve a compelling government interest.[11] Classifications based on gender and illegitimacy receive intermediate or heightened scrutiny and will survive only if they are substantially related to an important governmental objective.[12] All other legislation—specifically, economic and social programs—must only meet the lower “rational basis” standard, meaning that the legislation will be upheld as long as any set of facts can be mustered to support it, even if such facts may be debatable.[13] However, the law cannot be arbitrary or invidiously discriminatory.[14]

      As we discussed last time, there is a strong argument that, as currently applied, no-fault insurance strongly disadvantages the largely minority population of the City of Detroit. However, it is unlikely that the statute meets the requirements for strict scrutiny, since it neither facially classifies by race nor was it enacted with racially discriminatory intent despite being facially neutral.[15] Moreover, while both the United States Supreme Court and Michigan Supreme Court once appeared sympathetic to applying heightened scrutiny to classifications based on wealth, this trend sharply reversed in 1973 when the federal Supreme Court soundly rejected wealth classifications as a basis for invoking strict scrutiny.[16] Michigan courts have recognized a corresponding standard.[17]

      Thus, in spite of the disproportionate impact of the high cost of no-fault insurance on Detroit residents, a court evaluating the law’s constitutionality would almost certainly apply rational basis review. Rational basis challenges are often exceptionally difficult to win, given the “any state of facts” standard applied by the courts.[18]

      The Supreme Court has acknowledged, however, that “the constitutionality of a statute predicated upon the existence of a particular state of facts may be challenged by showing to the court that those facts have ceased to exist.” [19] Relying on this pronouncement-- and that of the Michigan Supreme Court in Shavers, that Michigan motorists are “constitutionally entitled to have no-fault insurance made available on a fair and equitable basis-- a person who lives in the City of Detroit could argue that she is being denied equal protection of the laws since, due to factual circumstances that have changed since the no-fault law was enacted (namely, the astronomically high premiums required of Detroit residents, particularly in relation to their income level) no-fault insurance is no longer fairly and equitably available. To frame it simply, while auto insurance is available and affordable for suburban residents, and even for upper-income Detroit residents, the same does not hold true for lower-income Detroit residents, who consequently are being denied equal protection.

      However, this claim is has issues. Specifically, the Legislature appears to have set a high bar in the administrative regulations for what constitutes an excessive and unfairly discriminatory insurance rate.[20] The regulations emphasize that rate differentials are appropriate if based on anticipated expenses or losses to the insurer based on the relevant population and geographic region.[21] Insurers have commonly offered Detroit’s high auto theft rate, along with pervasive fraud, as a justification for elevated insurance premiums.  There is, of course, a Catch-22 with this approach: the more the insurers pay in claims, the more they can justify in rate increase.

     Since no existing case law addresses these statutory provisions, it is difficult to predict whether a court would accept this justification, although under deferential rational basis review, it seems likely that a court would do so. On the whole, an equal protection claim is colorable but probably not as strong as the due process argument explained below.

Due process claims

     The standards for evaluating whether a person has been deprived of liberty or property without due process of law generally mirror those for equal protection.[23] Thus, to determine whether a statute meets the rational basis test, a court must evaluate whether any state of facts either known, or reasonably assumed rationally, relates the means adopted by the statute to the legislature’s desired end.[24]

With regard to procedural due process, a court must balance three factors to determine whether the current process is constitutionally sufficient: (1) the private interest at issue; (2) the risk of erroneous deprivation under the current process and the probable value of additional safeguards; and (3) the financial and administrative burden on the government that additional process would impose.[25]

     In Shavers, the plaintiffs challenged the means chosen by the Legislature to carry out its goal of widespread automobile insurance as insufficiently protective of due process interests. In a new challenge, a plaintiff could challenge how the scheme operates in practice as unconstitutional, rather than any particular mechanism chosen by the legislature. The arguments for due process, then, almost mirror those for equal protection, although they may have particular salience given Shavers’ emphasis on due process: for example, the Court specifically found that the “availability of no-fault insurance . . . [is] subject to due process scrutiny,” and that due process requires that rates not be excessive, inadequate, or unfairly discriminatory.[26] The plaintiff would argue that she has been deprived of due process, since automobile insurance is not reasonably available to her as a result of the excessive cost.

     The general policy underlying the requirement that insurance rates not be excessive inadequate, or unfairly discriminatory, in conjunction with the fact that Detroit rates are so elevated over the surrounding areas, support the viability of a due process claim regarding the availability of insurance. Specifically, since the provisions on excessive and unfairly discriminatory rates do not account for the income level of the relevant population, a plaintiff could argue that those provisions deny due process by undermining the constitutionality of the no-fault statute itself; essentially, since motorists are constitutionally entitled to have insurance available on a fair and equitable basis, the statute denies due process by failing to account for whether residents can reasonably afford the insurance. Since residents cannot realistically afford the trade-offs that would be required to purchase insurance, then due process has been denied to them because insurance is neither fairly nor equitably available to them. In addition, a plaintiff could point to the fact that motorists in the City of Detroit have effectively no way to administratively appeal the rates they are being charged as unreasonable as further evidence of the statute’s due process violation.

Conclusion

    While the purposes underlying Michigan’s No-Fault Act—to provide prompt, appropriate, and adequate compensation for automobile accident injuries and to decrease litigation in Michigan’s court system,[27] —are legitimate and admirable, for Detroit residents, the means employed by the statute are no longer sufficiently tailored to achieving this end. The elevated premiums required by insurers in Detroit may force residents to consume 20% or more of their annual income to comply with the statute, and up to half of the city’s residents may be driving without insurance. Insurance is neither available nor fairly affordable for individuals living in the City of Detroit, two criteria that the Michigan Supreme Court has emphasized as key to the No-Fault Act’s constitutionality.[28]

     While the chance of success on a Constitutional challenge is hard to predict, certainly, on the face of it, our minority and poor communities are being denied a right recognized by the Michigan Supreme Court, while wealthy individuals and communities have no such limitation.  A strong Constitutional challenge to the No-Fault statute might just be enough of a “push” to get the Michigan Legislature to work together to solve the escalating No-Fault problem.

 

 

[1] See Shavers, 402 Mich at 594–608.

 

[2] See Shavers, 402 Mich at 600.

 

[3] See Shavers, 402 Mich at 601.

 

[4] The provisions now governing what constitutes an “excessive, inadequate, or unfairly discriminatory” rate are found in MCL 500.2109 and the Michigan Administrative Code, Rules 500.1201 through 500.1210.

 

[5] See Shavers, 402 Mich at 607-08.

 

[6] See Shavers, 402 Mich at 609

 

[7] See Shavers, 402 Mich at 621-22.

 

[8] See Shavers, 402 Mich at 627-28.

 

[9] See Shavers, 402 Mich at 632.

 

[10] See Shavers, 402 Mich at 633-34.

 

[11] See Phillips v Mirac, Inc, 470 Mich 415, 432; 685 NW2d 174 (2004).

 

[12] See Phillips v Mirac, Inc, 470 Mich at 433.

 

[13] Phillips v Mirac, Inc ; see also United States v Carolene Prod Co, 304 US 144, 154; 58 S Ct 78; 82 L Ed 1234 (1938).

 

[14] See US Dep’t of Agriculture v Moreno, 413 US 528; 93 S Ct 2821; 37 L Ed 2d 782 (1973) (striking down a facially neutral statute as designed to target “‘hippies’” and holding that “a bare congressional desire to harm a politically unpopular group cannot constitute a legitimate governmental interest”); Nat'l Pride At Work, Inc v Granholm, 274 Mich App 147, 171; 732 NW2d 139 (2007). Equal protection of the laws prevents the government from treating similarly situated individuals differently when no relevant difference exists between them. See Northville Downs v Granholm, 622 F.3d 579, 586 (CA 6, 2010).

 

[15] See Washington v Davis, 426 US 229, 239–41; 96 S Ct 2040; L Ed 2d 597 (1976)

 

[16] San Antonio Indep Sch Dist v Rodriguez, 411 US 1, 29–37; 93 S Ct 1278; L Ed 2d 16 (1973)

 

[17] See, e.g., Milliken v Green, 390 Mich 389; 212 NW2d 711 (1973) (overruling school desegregation case in light of San Antonio); Sutton v Cadillac Area Pub Sch, 117 Mich App 38; 323 NW2d 582 (1982)  

 

[18] See 16B Am Jur 2d, Constitutional Law, § 855

 

[19] Carolene Products, 304 US at 153

 

[20] See MCL 500.2109; see also Mich Admin Code, R 500.1205; R 550.1207

 

[21] See MCL 500.2109(c); Rule 500.1205; Rule 500.1207

 

[22] See Reindl <https://www.freep.com/story/money/business/michigan/2014/11/23/

detroit-auto-insurance-rates-premiums/19411987/>

 

[23] See Shavers, 402 Mich at 612; see also Moreno, 413 US at 533

 

[24] See Shavers, 402 Mich at 613–14

 

[25] Mathews v Eldridge, 424 US 319, 325; 96 S Ct 893; L Ed 2d 18 (1976). Substantive due process is triggered only when fundamental rights are at issue.[25] This body of jurisprudence on substantive due process does not apply here, since it protects only those rights which are “deeply rooted in this Nation’s history and tradition” and “implicit in the concept of ordered liberty,” such that “neither liberty nor justice would exist if they were sacrificed.” Id.

 

[26] See Shavers, 402 Mich at 600

 

[27] See Shavers, 402 Mich at 621-22

 

[28] See Shavers, 402 Mich at 595

 

 

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