2019 PA 21 – Retroactivity
In this 2-1, published decision authored by the Judge Shapiro (Markey, dissenting), the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiffs Ellen Andary and Philip Krueger’s first-party action against Defendants USAA Casualty Insurance Company (“USAA”) and Citizens Insurance Company of America (“Citizens”). The Court of Appeals held that the 2019 amendments to Michigan’s no-fault act—specifically, MCL 500.3157(7), which caps medical provider reimbursement for medical services not covered by Medicare at 55 percent of what the provider charged on January 1, 2019, and MCL 500.3157(10), which limits the amount of “family-provided” attendant care that an injured person can receive to 56 hours per week—cannot be applied retroactively, or to persons injured in motor vehicle accidents prior to the amendments’ date of enactment, June 11, 2019. Alternatively, the Court of Appeals held that, even if the Legislature had demonstrated retroactive intent in the 2019 amendments, the amendments could not be applied to no-fault insureds such as the plaintiffs in this case, because to do so would substantially impair contracts they entered into with their insurance companies, in violation of the Contracts Clause of the Michigan Constitution.
Ellen Andary and Philip Krueger were both catastrophically injured prior to June 11, 2019—the date on which the Legislature enacted 2019 PA 21 and 2019 PA 22, which significantly amended Michigan’s no-fault act. This newly enacted legislation created a fee schedule—codified in MCL 500.3157(7)—governing the amounts medical providers could be reimbursed for the care they provided to auto accident victims, capping providers’ reimbursement for services not payable under the Medicare fee schedule at 55% of what they were charging for the same services on January 1, 2019 (further reduced to 54% starting July 2, 2022, and 52.5% starting July 2, 2023). Additionally, under MCL 500.3157(10), the amendments limited, for the first time, the amount of “family-provided” attendant care that an auto accident victim could receive per week to just 56 hours. Both of these changes had a significant impact on Andary and Krueger, who, after their respective insurers, USAA and Citizens, cut their attendant care benefits by 45% and limited their family-provided attendant care to 56 hours per week, filed suit against USAA and Citizens, arguing that the reimbursement caps and hours limitations did not apply retroactively and, alternatively, that to apply the 2019 amendments retroactively would violate the Contracts Clause of the Michigan Constitution. The trial court disagreed and granted summary disposition in favor of USAA and Citizens.
The Court of Appeals reversed the trial court’s summary disposition order, holding, first, that MCL 500.3157(7) and (10) do not apply retroactively because the legislature did not demonstrate an intent that they do so. The Court noted that legislation is presumed to apply prospectively, only, absent a ‘clear, direct, and unequivocal’ intent for retroactive application as well. In this case, USAA and Citizens “fail[ed] to identify any language within chapter 31 of the [no-fault act] so indicating, either explicitly or by indication.” USAA and Citizens attempted to argue that the inclusion of MCL 500.2111f “demonstrates an intent to retroactively apply the amendments by implication,” but the Court found that that “rate-setting provision does not mandate that the limits on benefits provided in MCL 500.3157 shall be applied to persons injured before its effective date. And the claim that it does so by implication is very weak.” The Court went on to state:
“The statute merely provides that if there are such savings, they must be used to reduce future rates. Whether such savings will occur is not defined by this statute. For these reasons, we conclude that MCL 500.2111f does not ‘clearly, directly and unequivocally’ demonstrate an intent to apply the new limits retroactively. Davis, 272 Mich App at 155.
As stated, defendants do not identify any language within Chapter 31 itself mandating application of benefit reductions to those injured prior to 2019 PA 21’s effective date, either explicitly or implicitly. Had the Legislature wished to overcome the presumption against retroactivity, it surely could have expressed its intent plainly, directly and unequivocally, but it did not do so. We will not find legislative intent to apply the new benefit limitations to those injured prior to 2019 PA 21’s effective date based solely on a rate-setting provision that does not mandate it.”
The Court of Appeals next rejected USAA and Citizens’ argument “that the issue of retroactivity is a red herring because the benefit reductions apply only to claims made after the amendments’ effective date.” Adopting the Supreme Court’s analysis in LaFontaine Saline, Inc, v Chrysler Group, LLC, 496 Mich 26 (2014), the Court found USAA and Citizens’ focus on claims to be misplaced. The proper focus, it reasoned, is on Ms. Andary’s and Mr. Krueger’s “rights and obligations established by prior statute.” Put another way, the relevant inquiry is “how the application of the amended statute—even as to future events—would affect the rights and obligations established by the prior statute.”
“Just as in LaFontaine, defendants’ argument that the amendments are prospective because they will apply only to benefit claims made after July 1, 2021, misses the mark. It was immaterial in LaFontaine that the dealer was seeking to invoke the 2010 amendment after its effective date. Instead, the Court was concerned with how the application of the amended statute—even as to future events—would affect the rights and obligations established by the prior statute. This is because a retroactivity analysis requires courts to determine whether applying the new statute will ‘impair vested rights acquired under existing laws or create new obligations or duties with respect to transactions or considerations already past.’ LaFontaine, 496 Mich at 39. As noted in LaFontaine, retroactive application of legislation ‘presents problems of unfairness . . . because it can deprive citizens of legitimate expectations and upset settled transactions.’
. . .
[T]he ongoing benefit claims in this case stem from motor vehicle accidents that occurred before the effective date of the revised statute, and the PIP policies covering the injured plaintiffs provided for unlimited benefits. We therefore conclude that the amendments would substantially alter the ‘settled expectation[s]’ and long-term reliance of auto accident victims. . . .”
The Court of Appeals next rejected USAA and Citizens’ argument that Andary and Krueger “could not have reasonably relied on the benefits provided by [USAA’s and Citizens’] policies and the no-fault act as it existed at the time of the accident because they had no vested right in the continuation of the no-fault act as it existed on the date of their accidents.” In support of this argument, USAA and Citizens relied on the workers compensation cases, Lahti v Fosterling, 357 Mich 578 (1959) and Romein v Gen Motors Corp, 436 Mich 515 (1990), but the Court of Appeals distinguished those cases from the instant case by noting the differences between Michigan’s workers compensation system and Michigan’s no-fault system, and by highlighting the unique circumstances presented in Romein.
“First, the workers compensation system is wholly a creature of statute and regulation. The only contracts at issue in Lahti and Romein were the unwritten employment contracts, see Lahti, 357 Mich at 584, which do not outline a right to workers’ compensation if injured or any amounts to be paid. In contrast, under the PIP policies issued by defendants, the injured plaintiffs have contractual rights to reimbursement for attendant-care services and other medical care without limitation.
Second, Romein presented unique circumstances. In 1981 the Legislature enacted a statute, effective in 1982, providing for coordination of workers’ compensation benefits with other sources such as pension plans. Romein, 436 Mich at 521. Although the statute was silent on retroactivity, the defendant corporation applied it to those injured before 1982, and in 1985 the Supreme Court upheld that practice. Id. at 522-523. The Legislature then passed a statute that made clear that the coordination provided by the 1981 act did not apply to those injured before its effective date and required employers to repay injured employees sums that had been deducted from their benefits as a result of coordination. Id. at 523. The employer then brought an action asserting in part that the 1987 act violated due process because it modified the employer’s liability for the period during which coordination had been permitted.14 Id. The Supreme Court explained that the 1987 amendment was specifically intended to correct what the Legislature determined was an improper interpretation of the 1981 act by the Courts: ‘[I]t is clear that the Legislature was modifying the coordination of benefits provision to cure a perceived defect resulting from the interpretation of the prior law [by the Court]. Therefore, the amendment is remedial.’ Id. at 531-532.
Defendants in this case argue that the 2019 amendments to the no-fault act were ‘remedial’ because the original no-fault act needed alteration in order to lower rates and benefits. To call that “remedial” legislation is far too broad a use of the term. The amendments were not aimed at a narrow problem regarding a technical or procedural difficulty or an attempt to correct what the legislature viewed as an erroneous judicial interpretation of an existing statute. See Frank W Lynch Co v Flex Technologies, Inc, 463 Mich 578, 585; 624 NW2d 180 (2001) (‘ ‘[R]emedial’ in this context should only be employed to describe legislation that does not affect substantive rights.’); Allstate Ins Co v Faulhaber, 157 Mich App 164, 167; 403 NW2d 527 (1987) (‘A statute is considered remedial or procedural if it is designed to correct an existing oversight in the law or redress an existing grievance.’). Rather, they enacted far-reaching alterations to a statutory scheme that had stood for 50 years and on which virtually the entire population of the state relied. It is a broad policy-based change, not a remedial statute.
Finally, the Romein Court made clear that its holding that the statute increasing workers’ compensation benefits was permissibly retroactive did not mean that a statute reducing benefits would be viewed in the same light given the different reliance interests at stake. The Court was careful to note that it was not addressing ‘the constitutionality of a retroactive statutory reduction in workers’ compensation benefit levels.’ Romein, 436 Mich at 531 n 14 (emphasis in original). The Court also noted that the multiple amendments and the Court’s interpretation of them over a period of years lessened the employers’ reliance interest because the law was ‘in a state of flux.’ Id. at 531. Romein also reasoned that the employers could not have reasonably relied on the pre-amendment level of benefits because workers’ compensation is a ‘highly regulated industry” and ‘[t]he defendants knew that their rights were subject to alteration.’ Romein, 436 Mich at 534-535. Although the no-fault scheme is also a highly regulated area, it nonetheless remains true that, for decades, all ‘reasonably necessary’ services have been reimbursed by PIP insurers at the reasonable and customary rates charged by providers that rendered care for persons injured in motor vehicle accidents. See MCL 500.3107(1)(a); former MCL 500.3157. And Michigan appellate courts routinely rejected challenges to limit charges based on amounts paid under workers’ compensation, Medicare, Medicaid, or by private insurers. Accordingly, this specific area of the law was not in a ‘state of flux,’ Romein, 436 Mich at 531, and the injured plaintiffs had no reason to anticipate the significant reductions in benefits mandated by 2019 PA 21. It was therefore entirely reasonable for plaintiffs to rely on the existing statutory scheme regarding reimbursement for medical expenses.”
Notwithstanding its holding, above, the Court next held that even if the Legislature had intended for the 2019 amendments to the no-fault act to apply retroactively, such an application would violate the Contracts Clause of the Michigan Constitution. The Court noted that it uses a three-part test to determine whether a violation of the Contracts Clause has occurred:
“(1) whether a change in state law has resulted in a substantial impairment of a contractual relationship; (2) whether the legislative disruption of contract expectancies is necessary to the public good; and (3) whether the means chosen by the legislature to address the public need are reasonable.”
With respect to the first part, the Court found that there would be a substantial impairment of Andary’s and Krueger’s rights under their respective policies because “retroactive application of the amendments will permanently slash the paid-for insurance benefits that are at the heart of the parties’ contract.”
“In sum, the impairments are more than substantial; they wholly remove numerous duties to be performed by one party to the contract after the other party has fully performed their duties under the contract. Accordingly, we conclude that the impairment of contract is severe.”
With respect to the second and third parts, the Court found that USAA and Citizens failed to explain how retroactive application of the amendments was either necessary to the public good or “ ‘reasonably related’ to the public purpose of lowering no-fault insurance rates.”
“Defendants do not explain what significant and legitimate public purpose justifies applying the amendments to those injured before the effective date. Nor do they explain how applying the amendments retroactively is ‘reasonably related’ to the public purpose of lowering no-fault insurance rates. As discussed, the fee schedules and attendant-care cap drastically reduce the previously unlimited PIP benefits, and there has been no demonstration that the rest of 2019 PA 21 would be affected if the amendments are applied prospectively only. The goal of lowering insurance rates is contingent on the lowering of benefits, but because the lowering of premiums is only prospective, it would severely limit the benefits promised in the policies when higher premium rates, reflective of the greater benefits, were charged and paid for. And since the insurers have already been paid for the benefits promised under those policies, retroactive application would permit insurers to retain all the premiums paid prior to the 2019 amendments while allowing them to provide only a fraction of the benefits set out in those policies. Giving a windfall to insurance companies who received premiums for unlimited benefits is not a legitimate public purpose, nor a reasonable means to reform the system.”
Because of the above holdings, the Court affirmed the trial court’s dismissal of Andary’s and Krueger’s claim that prospective application of the 2019 amendments would violate their constitutional rights. That is to say, “because [the Court’s] decision regarding retroactivity provides full relief to the injured plaintiffs, they no longer have any personal interest in whether prospective application of the amendments can survive constitutional scrutiny.”
“Because their ability to obtain full PIP benefits renders them without a distinct and palpable interest in the amendments’ future application, we affirm dismissal of Andary’s and Krueger’s claims that prospective application would violate their constitutional rights. A decision regarding the constitutionality of the amendments with respect to those injured after 2019 PA 21’s effective date is not necessary “to guide [Andary and Krueger’s] future conduct in order to preserve [their] legal rights.” Shavers v Kelly, 402 Mich 554, 588; 267 NW2d 72 (1978).”
Judge Markey dissented, arguing that, “when MCL 500.2111f(8) is read in conjunction with MCL 500.3157, it becomes amply clear that the Legislature intended that MCL 500.3157 be applied to accidents and injuries arising before June 11, 2019.” She further argued that there would be no Contracts Clause violation in applying the 2019 amendments retroactively, because such application “was reasonably related to a significant and legitimate public purpose linked to promoting the public good.”