Penalties for Non-Payment of No-Fault Benefits

Can my no-fault provider be held accountable if they don’t pay my benefits?

The No-Fault Act contains specific penalties that can be assessed against no-fault insurance companies who do not honor their legal obligations to pay claims as required by the law. There are two basic types of penalties contained in the statute: (1) penalty interest and (2) penalty attorney fees. These penalties are summarized below.

Penalty Interest

Section 3142 of the No-Fault Act states that when an insurance company does not pay PIP benefits within 30 days after receiving reasonable proof of the fact and the amount of the loss sustained, the insurer must pay simple interest at the rate of 12% per annum on the overdue expense. Moreover, the statute provides that “if reasonable proof is not supplied as to the entire claim, the amount supported by reasonable proof is overdue if not paid within thirty days after the proof is received by the insurer.”  Therefore, an insurance company cannot legally withhold payment on the entire claim if only a portion is in dispute.  If this happens, the portion that is not in dispute is overdue and the 12% interest penalty is collectible.

Moreover, the courts have held that if an injured person is required to file a lawsuit against the insurance company to collect benefits and if the lawsuit results in an actual judgment in favor of the injured person, then the injured person is also entitled to recover “civil judgment interest” under the provisions of the Revised Judicature Act and the Michigan Court Rules.

Section 3148 of the No-Fault Act states that an injured person is entitled to collect reasonable attorney fees against an insurance company if the PIP benefits are “overdue” and “if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment.” This requires a showing of two elements.

First, it must be shown that the claim is “overdue” because an insurance company did not make payment within 30 days after receiving reasonable proof. Second, the court must find that the delay or denial was “unreasonable.” This latter point is significant because it requires a judicial finding of unreasonableness. As a practical matter, such a judicial finding cannot occur until there has been a trial or other motion that sets forth evidence of the insurance company’s conduct. Nevertheless, if an injured person can meet the required showing, Michigan courts have held that an award of attorney fees under §3148 may be based upon an hourly rate or, where otherwise appropriate, on the basis of a contingency fee. A claimant’s ability to claim attorney fees turns about the unique facts and circumstances of each case. 

The new 2019 legislation adds some important rules to the attorney fee provisions of the Act. These are summarized below:

Attorney Fee Liens on PIP Benefits

The legislation states that an attorney advising or representing an injured person concerning a claim for payment of personal protection insurance benefits (PIP) from an insurer “shall not claim, file, or serve a lien for payment of fee or fees until both of the following apply: (a) a payment for the claim is authorized under this chapter; and (b) a payment for the claim is overdue under this chapter.” [§3148(1)(a)-(b)].

Attorney Fee Sanctions for Solicited Clients

 The legislation provides that a court may award an insurer “a reasonable amount against a claimant’s attorney as an attorney fee for defending against a claim for which the client was solicited by the attorney in violation of the laws of this state or the Michigan rules of professional conduct.” [§3148(2)].  

Limitations on Court-Ordered Attorney Fee

A court cannot order payment of attorney fees “in relation to future payment” of attendant care or nursing services “ordered more than 3 years after the trial court judgment or order is entered.” [§3148(4)].  A court cannot order payment of attorney fees when the attorney or a related person of the attorney has or had, “a direct or indirect financial interest in the person that provided the treatment, product, service, rehabilitative occupation training, or accommodation.” The legislation defines a direct or indirect financial interest as including, but not limited to, “the person that provided the treatment, product, service, rehabilitative occupational training, or accommodation making a direct or indirect payment or granting a financial incentive to the attorney or a related person of the attorney relating to the treatment, product, service, rehabilitative occupational training, or accommodation within 24 months before or after the treatment, product, service, rehabilitative occupational training, or accommodation is provided.” [§3145(5)].