DeMeglio v. Auto Club Ins. Ass'n

534 N.W.2d 665, 449 Mich. 33

• Court: Michigan Supreme Court
• Decided: June 20, 1995
• Docket: 98197, (Calendar No. 1)
• Status: Published

Opinions

Brickley, C.J.

In this case we must decide whether medical benefits provided under an out-of-state no-fault automobile insurance plan in compliance with the laws of that state may be set off as "benefits” under § 3109(1) of the Michigan no-fault act. We would hold that out-of-state insurance benefits that are required to be provided by state or federal law are "benefits” under that section and may be set off accordingly.

i

In the summer of 1990, Marisa DeMeglio was injured when her. bicycle was hit by a car in Oakland Township. The car was driven by Brian Sweeney and owned by his father, Michael Sweeney. Michael Sweeney had purchased no-fault insurance for the vehicle in Michigan from the defendant, Auto Club Insurance Association.

At the time of the accident, Marisa was twelve years old and resided with her parents in Pennsylvania. She was in Michigan to visit her grandparents. Marisa’s parents had a Pennsylvania no-fault insurance policy from State Farm, but did not maintain any personal protection insurance under § 3101(1) of the Michigan no-fault act, and were not required to do so.

Marisa’s injuries were serious, and she was hospitalized for seven days. State Farm paid for the first $10,000 of Marisa’s medical bills, as required by Pennsylvania law. 75 Pa Cons Stat Ann 1711. In addition to their policy with State Farm, Marisa’s parents sought coverage under Mr. Sweeney’s no-fault policy with the defendant. The defendant agreed to pay all medical costs beyond $10,000. It refused, however, to duplicate the money paid by State Farm, arguing that § 3109(1) of the Michigan no-fault act compelled it to subtract benefits required to be provided by the laws of any' state from the insurance benefits otherwise payable for the injury under Michigan law.

The plaintiff filed suit against Auto Club, arguing that the money provided by State Farm was not a "benefit” under § 3109(1) and that the section was inapplicable. The trial court agreed and granted the plaintiff’s motion for summary disposition. The defendant appealed in the Court of Appeals and that Court affirmed. 202 Mich App 361; 509 NW2d 526 (1993). The defendant then appealed in this Court. We reverse.

ii

A

The Michigan no-fault act requires that any owner or registrant of a motor vehicle in this state carry automobile insurance that includes personal protection insurance. MCL 500.3101(1); MSA 24.13101(1). A person suffering bodily injury in an accident involving a motor vehicle while not an occupant of a motor vehicle, who does not own and is not required to own no-fault insurance as provided by § 3101(1) of the act, shall claim personal protection insurance benefits from the insurers of the owners or registrants of the motor vehicles involved in the accident. MCL 550.3115(l)(a); MSA 24.13115(l)(a). Because Marisa DeMeglio was not covered under a Michigan no-fault insurance policy, and was not required to obtain such coverage, Auto Club, the insurer of the owner of the only motor vehicle involved in this accident, is responsible for her medical bills.

Auto Club points out, however, that Marisa DeMeglio has already received $10,000 from her parents’ insurance policy with State Farm. The defendant argues that it should be allowed to set off this money under § 3109(1) of the no-fault act. That section provides:

Benefits provided or required to be provided under the laws of any state or the federal government shall be subtracted from the personal protection insurance benefits otherwise payable for the injury. [MCL 500.3109(1); MSA 24.13109(1}.]

The plaintiff, in opposition, argues that the money she received from State Farm was not a "benefit” as that word is used in this section. In order to resolve this issue, it is necessary for us to examine how this Court has previously interpreted § 3109(1).

B

The plaintiff bases her interpretation of the word "benefit” in § 3109(1) primarily on two cases decided by this Court, LeBlanc v State Farm Mut Automobile Ins Co, 410 Mich 173; 301 NW2d 775 (1981), and Profit v Citizens Ins Co, 444 Mich 281; 506 NW2d 514 (1993).

In LeBlanc, the plaintiff received Medicare benefits to pay for the extensive hospitalization and outpatient treatment he required as a result of a serious pedestrian-automobile accident. In addition to Medicare coverage, the plaintiff also possessed a no-fault policy with State Farm. State Farm willingly paid benefits with respect to items not covered by Medicare, but it refused to compensate the plaintiff for those expenses that Medicare paid. The plaintiff brought suit to force State Farm to pay the full cost of his medical expenses. Id. at 188-189.

State Farm argued that Medicare benefits were "[benefits provided. or required to be provided under the laws of any state or the federal government” and were required to be subtracted from benefits otherwise owed to the plaintiff under § 3109(1). This Court, however, found that the benefits were "other health and accident coverage” under a related section of the no-fault act, § 3109a, which provides:

An insurer providing personal protection insurance benefits shall offer, at appropriately reduced premium rates, deductibles and exclusions reasonably related to other health and accident coverage on the insured. The deductibles and exclusions required to be offered by this section shall be subject to prior approval by the commissioner and shall apply only to benefits payable to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household. [MCL 500.3109a; MSA 24.13109(1).]

This Court held that because the plaintiff had not elected to coordinate his Medicare benefits with his no-fault benefits, payments made on behalf of the Medicare program could not be subtracted from the no-fault benefits due under his policy. LeBlanc, supra at 206-207.

Similarly, in Proñt, the insured’s guardian sued the defendant insurance company, claiming that, because the insured did not elect to coordinate his policy’s work-loss benefits with his other accident coverage under § 3109a, the defendant was not entitled to subtract the insured’s social security disability benefits from those same work-loss benefits under § 3109(1). The defendant argued that the benefits were appropriately subtracted under § 3109(1).

This Court held that social security disability benefits are benefits provided under federal law within the meaning of § 3109(1), and not, "other health and accident covérage,” within the meaning of § 3109a. On the basis of our reasoning in LeBlanc, supra, the term "coverage” was deemed to include only those benefits that are "similar” to those provided by policies of insurance issued by private insurers. This type of policy provides accident coverage that is generally available to and purchased by employers for their employees or by the employees themselves. Social security disability benefits, which are provided as part of a mandatory, comprehensive social welfare entitlement program, providing benefits to all wage earners and paid for by all taxpayers, were held to be dissimilar to this type of insurance policy. They were, however, held to be "benefits provided or required to be provided” under the laws of the federal government. Therefore § 3109(1) applied, and it was appropriate for the defendant to subtract this money from the benefits otherwise owed under its policy with the plaintiff. Proñt, supra at 287-288.

c

The plaintiff argues that in LeBlanc and Proñt this Court defined the word "benefit” in § 3109(1) to mean benefits provided as a part of a mandatory, comprehensive social welfare entitlement program generally providing benefits to all persons who have been wage earners, and dependents of such persons, largely paid for by taxes from all wage earners. See Proñt, supra at 287. We do not agree. Instead, we believe a more accurate reading of LeBlanc and Profit reveals that those cases define the parameters of the phrase "other health and accident coverage” in § 3109a, rather than those of the word "benefit” in § 3109(1).

After describing the characteristics of Medicare benefits, the Court in LeBlanc analyzed whether this type of benefit should be set off under § 3109(1) or were required to be coordinated with other health and accident coverage by § 3109a. The two sections were characterized as covering two different types of benefits that overlapped in part. LeBlanc, supra at 201. In one sense, § 3109a was more broadly interpreted than § 3109(1), because the latter section is limited in its scope to benefits from a public source:

It is indisputable that § 3109(1) contemplates benefits derived from a collateral governmental source; it is not equally indisputable that § 3109a applies only to "other health and accident coverage” obtained from a collateral private source. On its face, § 3109a is not so limited. [Id. at 202.]

We then proceeded, however, to define the scope of the word "coverage” in § 3109a to be more narrow than that of "benefits” in § 3109(1):

In a general sense, benefits are those things which promote an individual’s welfare, advantage or profit. In contrast to § 3109(1) is the later-enacted § 3109a, which more specifically speaks to other health and accident coverage. "Coverage,” a word of precise meaning in the insurance industry, refers to protection afforded by an insurance policy, or the sum of the risks assumed by a policy of insurance.

We are also of the view that the Legislature’s enactment of § 3109a, which is narrowly limited to "coverage” and which is not expressly confined to private forms of such "coverage,” evinces an intent to provide unique treatment to health and accident insurance, as opposed to other perhaps equally duplicative ’’beneñts.” [Id. at 203-204. Emphasis added; citations omitted.]

The word "coverage” is therefore a subset of the word "benefits,” although § 3109a covers some benefits that § 3109(1) does not. This is because "coverage” refers to private as well as public benefits, whereas the benefits under § 3109(1) must be "provided or required to be provided under the laws of any state or the federal government.”

The Court in LeBlanc then compared Medicare to other forms of health and accident coverage that are irrefutably within the scope of § 3109a, and concluded that there is no principled way to distinguish Medicare from these other forms of coverage. Consequently, Medicare benefits were held to fall under the impetus of § 3109a.¹

This Court in LeBlanc did not, therefore, define the scope of the term "benefit” narrowly, as the plaintiffs argue. Rather, we left "benefit” as a relatively open term, but held that where a benefit is also "coverage” under § 3109a, that section must be applied.² This analysis has been clarified and reiterated in subsequent cases, including Crowley v DAIIE, 428 Mich 270; 407 NW2d 372 (1987), Tatum v Government Employees Ins Co, 431 Mich 663; 431 NW2d 391 (1988), and Profit, supra.

In Crowley, this Court held that § 3109(1) allowed the defendant insurance company to subtract medical benefits provided by the government pursuant to 10 USC 1071 et seq. to a serviceman in the United States Navy from benefits owed under his insurance policy.³ To evaluate whether these benefits fit within the definition of "benefits” in § 3109(1), we used the test set forth in Jarosz v DAIIE, 418 Mich 565, 577; 345 NW2d 563 (1984). Under the Jarosz test, state or federal benefits "provided or required to be provided” must be deducted from no-fault benefits under § 3109(1) if they: 1) serve the same purpose as the no-fault benefits, and 2) are provided or are required to be provided as a result of the same accident. Crowley, supra at 275-276, citing Jarosz, supra at 577.

Only after the Court in Crowley determined that the medical payments at issue were benefits under § 3109(1) did it turn to the question whether the payments were also "other health and accident coverage” under § 3109a. The Court found that it did not need to make this determination because § 3109a was inapplicable to the facts in question.

We have concluded that there is no need to decide in the instant case whether military medical benefits are "other health and accident coverage” within the meaning of § 3109a because § 3109a applies only to benefits payable to the person named in a no-fault policy, his spouse, and any relative of either domiciled in the same household. [Crowley, supra at 278.][⁴]

The majority in Crowley did not evaluate whether the payments at issue were received as part of a large universal entitlement program. This analysis is relevant only to a determination whether a benefit is similar to private health or accident insurance and might therefore constitute coverage under § 3109a. Because we found § 3109a to be inapplicable in Crowley, this "similarity analysis” was irrelevant to the outcome of the case.

By contrast, in Tatum, the plaintiff was within the class of people eligible for the coordination of benefits under § 3109a. This Court was thereby faced with the questions it was not faced with in Crowley: whether medical care supplied by the military under 10 USC 1071 et seq. qualifies as coverage under § 3109a, and, if so, whether § 3109(1) or § 3109a should be applied.

We concluded that the medical care provided in Tatum was both a "benefit” under § 3109(1) and "coverage” under § 3109a. As a consequence, we held that § 3109a must be applied:

In short, pursuant to § 3109(1), plaintiff’s military medical benefits normally must be subtracted from his no-fault insurance benefits. Further, our resolution of Nyquist [v Aetna Ins Co, 404 Mich 817; 280 NW2d 792 (1979)] and our decision in LeBlanc require the conclusion that plaintiff’s military medical benefits constitute "other health and accident coverage” pursuant to § 3109a, requiring defendant to offer plaintiff a coordinated no-fault policy. The defendant has conceded that this did not occur. Therefore, as in LeBlanc, the setoff mandated by § 3109(1) may not be employed. [Tatum, supra at 670-671.][⁵]

Finally, in Profit, the plaintiff again claimed that the benefits at issue, in this case social security disability benefits, fell under the ambit of § 3109a, whereas the defendant maintained that § 3109(1) should be applied and the benefits set off pursuant to that section. The Court used the "similarity test” from LeBlanc and concluded that social security disability benefits were not similar to those provided by policies of insurance issued by private insurers. Hence, these benefits were not "coverage” under § 3109a. They were, however, benefits provided or required to be provided under the laws of the federal government. Therefore, social security disability payments were required to be subtracted from work-loss benefits otherwise payable under a no-fáult insurance policy pursuant to § 3109(1). Profit, supra at 287-288.

In the cases discussed above, this Court has developed certain rules governing the application of § 3109(1) and § 3109a. First, whether a benefit is a "benefit” under § 3109(1) or "coverage” under § 3109a requires the application of two separate tests, the Jarosz test to determine the former, and the LeBlanc "similarity” test to determine the latter. Jarosz, supra at 577, LeBlanc, supra at 205. Second, a benefit may be a "benefit” under § 3109(1), "coverage” under § 3109a, neither, or both: The applicability of the sections is not an "either-or” proposition. Tatum, supra at 670. Third, if the benefit falls under the ambit of both sections, a court must initially apply § 3109a. The subtraction of § 3109(1) benefits from benefits otherwise payable under the no-fault insurance policy is not permitted in this situation, unless coverage was coordinated under § 3109a. Tatum, supra at 670-671; LeBlanc, supra at 206. Finally, when only one section is applicable, that section is applied without reference to the other. Crowley, supra at 278-280; Proñt, supra at 288.

We now turn to the task of applying these rules to the facts of the present case.

in

The first step in our analysis is to use the tests enumerated above to determine whether § 3109(1) and § 3109a apply to-the present situation. We find that while § 3109(1) is applicable, § 3109a is not.

The Jarosz test requires that state or federal benefits "provided or required to be provided” be subtracted from no-fault benefits otherwise payable to the insured under § 3109(1) if they: 1) serve the same purpose as the no-fault benefits, and 2) are provided or are required to be provided as a result of the same accident. Jarosz, supra at 577.

It is undisputed that the benefits received by Marisa DeMeglio from State Farm were required to be provided by the Pennsylvania state government. The Pennsylvania no-fault act provides:

An insurer issuing or delivering liability insurance policies covering any motor vehicle of the type required to be registered under this title . . . shall include coverage providing a medical benefit in the amount of $10,000 .... [75 Pa Cons Stat Ann 1711.]

The medical benefit is required to cover first parties with respect to injuries arising out of the maintenance or use of a motor vehicle. 75 Pa Cons Stat Ann 1712.

The medical benefit under Pennsylvania’s no-fault law was a benefit "provided or required to be provided under the laws of” Pennsylvania even though it was funded with no-fault insurance premium dollars and was paid to DeMeglio by a private insurer, State Farm, rather than tax dollars collected and disbursed by Pennsylvania. See Mathis v Interstate Motor Freight System, 408 Mich 164, 186; 289 NW2d 708 (1980).

Moreover, it is clear that these benefits serve the same purpose as the medical benefits provided by our no-fault insurance plans: to provide medical coverage in the event of an accident involving a motor vehicle. Both the benefits from State Farm and the benefits from the defendant were required to be provided as the result of the same accident. We conclude that the requirements of the Jarosz test are met under the facts of this case, and that § 3109(1) is applicable.

The same is not true of § 3109a, however. That section restricts its applicability to benefits payable to certain persons:

The deductibles and exclusions required to be offered by this section shall be subject to prior approval by the commissioner and shall apply only to benefits payable to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household. [MCL 500.3109a; MSA 24.13109(1).]

Ms. DeMeglio is not named in the relevant policy, nor is she related to anyone named therein. Consequently, § 3109a has no application to the present case. See Crowley, supra at 279-280.

Our conclusion that the payments made by the out-of-state insurer were benefits for purposes of § 3109(1) is further cemented by looking to the purpose behind the provision. Such an examination is important because we seek to give effect to the intent of the Legislature as expressed in the statute. Dussia v Monroe Co Employees Retirement System, 386 Mich 244; 191 NW2d 307 (1971). As Justice Boyle stated in, her concurrence in Proñt, supra at 293, § 3109(1) was designed to reduce the cost of no-fault premiums by reducing the potential liability of insurance carriers.

However, because the system was mandatory, it was imperative to contain costs so that vehicle owners or registrants could afford to purchase insurance policies. Therefore, the Legislature mandated subtraction of "[b]enefits provided or required to be provided under the laws of any state or the federal government . . . from the personal protection insurance benefits otherwise payable for the injury.” MCL 500.3109(1); MSA 24.13109(1).

The Legislature, by creating this reduction, lowered insurance premiums by reducing the risk that insurance companies are liable for.

The mandatory subtraction of benefits "provided or required to be provided” pursuant to state or federal law allows insurers to anticipate the risk being secured. If state or federal law provides that the benefit is to be provided by a source other than the no-fault insurer, the no-fault insurer is not securing that risk and can reduce the basic no-fault premium accordingly. [Id. at n 6.]

Thus, our conclusion that out-of-state insurance benefits are included in the definition of benefits under § 3109(1) undoubtedly furthers the purpose behind this provision. Insurance companies can now reduce the risk they are insuring and pass this saving on to the consumer in lower premiums.

IV

Because the benefits at issue are "[bjenefits provided or required to be provided under the laws of any state or the federal government” under § 3109(1), and because § 3109a is inapplicable to these benefits, § 3109(1) should be applied. The medical benefits provided by State Farm should be subtracted from the benefits otherwise payable for the injury under Michael Sweeney’s no-fault policy with the defendant. The defendant, of course, still would be responsible for whatever payments are required under its policy beyond the disputed $10,000.

We would reverse the decision of the Court of Appeals.

Levin and Riley, JJ., concurred with Brickley, C.J.

1 The United States Congress has since eliminated the operative effect of LeBlanc by enacting the Omnibus Budget Reconciliation Act of 1980,- 42 USC 1395b, which mandated that Medicare is secondary to automobile insurance where coverage under such insurance is available. See Profit, supra at 285.

2 We recognize that this important aspect of LeBlanc may have been unintentionally obfuscated because of footnote 53 of that opinion, which stated that, "Our characterization of Medicare receipts as 'benefits’ does not contradict our determination that such receipts do not constitute governmental 'benefits,’ as that term is employed in § 3109(1).” Id. at 206, n 53. This footnote, however, simply points out that the use of the word "benefits” in the main text was not meant to contradict the holding of the case, that Medicare receipts constituted "coverage” under § 3109a, and therefore should be evaluated under that section and not under § 3109(1). Subsequent discussion by this Court has clarified that footnote 53 should not be read as a substantive limitation on the definition of the word "benefits” as it appears in § 3109(1). See below.

3 The relevant provision states: "a member of a uniformed service who is on active duty is entitled to medical and dental care in any facility of any uniformed service.” 10 USC 1074(a).

4 The deductibles and exclusions required to be offered by this section shall be subject to prior approval by the commissioner and shall apply only to benefits payable to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household. [MCL 500.3109a; MSA 24.13109(1).]

5 It is worth noting that had the plaintiff in Tatum been offered and taken the opportunity to coordinate his health and accident coverage under § 3109a, it would have been appropriate to set off his government benefits under § 3109(1). Id. at 670-671.