Thompson v. Detroit Automobile Inter-Insurance Exchange

344 N.W.2d 764, 418 Mich. 610

• Court: Michigan Supreme Court
• Decided: March 12, 1984
• Docket: 67794, (Calendar No. 2)
• Status: Published

Opinions

Levin, J.

(for reversal). The question presented is whether social security disability benefits that would not be paid to the dependents of a person injured in an automobile accident but for income lost as a result of the accident are required by § 3109(1) of the no-fault automobile liability act to be coordinated with work-loss benefits payable under the no-fault act. We would hold that coordination is required, and that social security disability payments to dependents are required to be subtracted from work-loss benefits.

The purpose of social security disability payments is income replacement. Such payments to dependents are calculated on the basis of the injured worker’s prior earnings history, and have the same income-replacement effect as do the work-loss benefits provided by the no-fault act. Consistent with the legislative purpose of reducing the cost of providing no-fault benefits by subtracting other governmentally mandated payments, § 3109(1) requires the subtraction of social security disability payments to dependents from the work-loss benefits otherwise payable for the injury under the no-fault act although they are paid directly to the dependent spouse and children.¹

I

On July 13, 1978, Francis Thompson was injured in an automobile accident. Detroit Automobile Inter-Insurance Exchange is the no-fault insurer obligated to pay him work-loss benefits. Francis Thompson also receives social security disability benefits pursuant to 42 USC 423. Thompson’s wife Sarah and their two dependent children also receive social security benefits as a result of the disability Thompson suffered in the automobile accident.

Upon learning of the Thompsons’ receipt of social security disability payments, DAIIE reduced the monthly amount payable to Thompson by the aggregate amount of social security disability payments made to the Thompson family. Francis Thompson did not challenge DAIIE’s reduction for the social security payments made to him, but the Thompsons filed this action seeking a declaratory judgment that DAIIE may not reduce no-fault work-loss payments by the amount of social security disability payments provided to Sarah Thompson and the two Thompson children.

The circuit court granted the Thompsons’ motion for summary judgment, and the Court of Appeals affirmed. We would reverse.²

II

Section 3109(1) of the no-fault act 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 payments otherwise payable for the injury.”³

The subtraction from no-fault work-loss benefits of social security disability benefits paid directly to Francis Thompson, the disabled worker, is not contested. All appear to agree that social security disability benefits, when paid to the injured worker, like the survivors’ benefits required to be subtracted in O’Donnell v State Farm Mutual Automobile Ins Co, 404 Mich 524; 273 NW2d 829 (1979), app dis 444 US 803; 100 S Ct 22; 62 L Ed 2d 16 (1979), and the workers’ compensation benefits required to be subtracted in Mathis v Interstate Motor Freight System, 408 Mich 164; 289 NW2d (1980), are "benefits” within the meaning of § 3109(1). The issue presented is whether social security disability benefits, when paid to the dependents of the injured worker, are "benefits” within the meaning of § 3109(1).

Social security disability benefits to dependents are paid directly to the injured worker’s spouse and children.⁴ Under the Social Security Act, a child only receives disability payments if he is dependent on the injured worker;⁵ any money the child receives in the form of social security payments is money he need no longer obtain from the disabled worker on whom he is dependent. Similarly, disability benefits are payable to a spouse⁶ only when Congress deems it to be difficult for the spouse to work either because the spouse is 62 years old or has a child in care;⁷ any money received in the form of social security disability payments is money that need no longer be obtained from the disabled worker.⁸

Before an automobile accident, then, the dependent child and the spouse who cannot work receive direct support from the worker.⁹ The Congress has decided that social security disability benefits should be paid to disabled workers, including those disabled in automobile accidents. Rather than make all the disability payments to the worker and have family members continue to receive all their support from the worker, the Congress has chosen instead to pay a portion of the total benefits in respect to the disability to the disabled worker and the remainder directly to the spouse and the child. Although the Congress has chosen to change the name on the check, disability payments to dependents replace the income that would have inured to the spouse and the child had the worker to whom they look for support not been injured.

Social security disability payments to dependents are calculated on the basis of the disabled worker’s past earnings record,¹⁰ and the maximum amount of payments that the family may receive is also based on the earnings history of the disabled worker.¹¹ If these payments were to have some purpose other than replacing the injured worker’s lost income, that purpose would not be served by tying disability payments to dependents to the past earnings record of the disabled worker.

At the time this Court decided Mathis v Interstate Motor Freight System, supra, the workers’ compensation act provided that payments made to the injured worker were to vary with the number of dependents.¹² Augmented workers’ compensation payments provided to the worker because of his dependents were required to be subtracted under the rule stated in Mathis. Similarly, social security disability payments provided directly to the dependents themselves should be subtracted. The name on the check should not be determinative. "To refuse the setoff directed by the [no-fault act] would result in the injured claimant receiving more as lost earnings than the actual wages lost, a gift not intended by the Legislature when it enacted no-fault legislation”. Karmilowicz v Allstate Ins Co, 77 AD2d 131, 135; 432 NYS2d 698 (1980), app dis 54 NY2d 753 (1981).¹³

Ill

The dissenting opinion acknowledges that social security disability payments, like no-fault work-loss benefits, provide "income insurance protection”.¹⁴ The opinion argues, however, that the social security disability program is also, "to a certain extent, a social welfare program designed to provide at least subsistence payments to disabled workers as well as to their dependents”.¹⁵

A

The United States Supreme Court has said that in providing for the payment of social security benefits to dependents the Congress "intended to provide persons dependent on the wage earner with protection against the economic hardship occasioned by loss of the wage earner’s support”. Califano v Jobst, 434 US 47, 50; 98 S Ct 95; 54 L Ed 2d 228 (1977).¹⁶ The dissenting opinion does not explain what purpose social security disability payments to dependents serve other than replacing the lost wages of the disabled person,¹⁷ or why subsistence payments to the worker’s dependents should not be subtracted when subsistence payments to the disabled worker himself are required by § 3109(1) to be subtracted from work-loss benefits. It does not appear that social security disability payments to dependents serve any purpose other than replacing the lost wages of the disabled worker.

This Court has held, despite the "social welfare” component that inheres in social security survivors’ payments,¹⁸ that survivors’ payments are required by § 3109(1) to be subtracted from no-fault work-loss benefits. O’Donnell v State Farm Mutual Automobile Ins Co, supra. The failure to require a setoff of social security disability payments to dependents would yield the anomalous result that the payments to dependents are not subtracted as long as the injured worker is alive and disabled, but are subtracted under the rule of O’Donnell, supra, when the injured worker dies from his injuries.

The dissenting opinion asserts that this result is not anomalous because "[a]t the time of the injured worker’s death, a different type of benefit is payable, and it is not inconsistent to subject the benefit to a different treatment.”¹⁹ Yet it is but a truism that a different type of payment is made when the worker is disabled than when the worker dies; in the former case the social security program pays disability benefits, while in the latter the social security program pays survivors’ benefits. This does not explain why the different labels attached to the social security payments — substantially identical in amount whether the payment is for disability or death — ²⁰should make a difference. No evidence has been offered and there is no reason to believe that the Congress provided more than income replacement to the dependents of a disabled worker while providing only income replacement to the dependents of a deceased worker.

B

The social welfare program argument ignores that the no-fault act also embodies a social welfare program. Although the no-fault system is administered through insurance companies, premiums paid by the owners of motor vehicles to no-fault automobile insurers are governmentally mandated exactions that socialize the cost of providing work-loss benefits and medical payments to all persons injured in automobile accidents.

No-fault benefits for work loss and medical expense in respect to automobile accidents are payable although the injured person does not own (and no family member in the same household owns) an automobile, and thus although the injured person has not contributed (and no family member has contributed) to the no-fault system.²¹ Even if the injured person owns a motor vehicle and has not contributed to the no-fault system by insuring the vehicle, no-fault benefits are payable to him if he is injured in an accident not involving the vehicle.²² Benefits are payable although the injured person is entirely at fault, and the person who paid premiums to the insurer (responsible under the act’s priority provisions for the payment of no-fault benefits) is blameless.²³

The workers’ compensation act has frequently been referred to as the first, or one of the first, social welfare programs. That social welfare program is also largely administered through insurance companies and funded with insurance premiums. There, too, there is a trade-off of a cause of action in tort for benefits payable without regard to fault. Benefits under both programs are specified by statute, and premiums are expected to be determined on the basis of the insurer’s loss experience.

The no-fault automobile liability act actually goes further than the workers’ compensation act in socializing losses. There is no cap on recoverable medical expense, and the maximum work-loss benefit is considerably higher than the maximum workers’ compensation benefit.²⁴ No-fault benefits are payable when there is no insurance; this is accomplished through the assigned claims facility, which provides benefits when an owner or driver is not insured or cannot be identified. That facility provides a means of requiring persons who in fact contribute to the no-fault system to pay for those who do not, and functions like the Second Injury Fund by assessing all automobile insurers for the cost.²⁵ Employees of an uninsured employer do not have similar protection under the workers’ compensation act.²⁶

An employer can seek to reduce his workers’ compensation premium cost by exercising care and reducing accidents. The most careful automobile owner must, however, pay premiums for losses caused by careless drivers who may collide with him or his automobile or a family member in the same household, and for losses caused by uninsured and unidentified drivers. Owners who have one household member and those who have many household members who do not generally drive the owner’s automobile pay essentially the same no-fault insurance premiums.

No-fault premiums, then, like social security taxes, do not reflect only the cost expected to be imposed on the system by the person making the payment, but include amounts for costs expected to be imposed on the system by persons who do not contribute thereto or do so in amounts inadequate to provide the benefits they receive. Under the Social Security Act, survivors’, retirement, and disability benefits are not payable unless the person claiming the benefit or person upon whom he is dependent contributed to the social security program,²⁷ but there is no such limitation in the no-fault act.²⁸

The no-fault automobile liability act may thus provide the most comprehensive and generous "social welfare program” yet enacted.

IV

In sum, the coordination provision of the no-fault act requires that there be subtracted from no-fault work-loss benefits the amount of social security disability benefits payable to dependents of the injured person.

The decision of the Court of Appeals is reversed.

Kavanagh, J., concurred with Levin, J.

Ryan, J.

(for reversal). In Jarosz v DAIIE, 418 Mich 565, 577; 345 NW2d 563 (1984), we held that the criteria for determining whether governmental benefits "provided or required to be provided” must be deducted from no-fault work-loss benefits are:

1) Whether they serve the same purpose as the no-fault benefit, and

2) Whether they are provided or are required to be provided as a result of the same accident.

In this case, the no-fault work-loss benefits and the social security disability payments are both intended to relieve Mr. Thompson and his family of the economic hardship which would result from his inability because of his injuries to earn wages to support himself and his family.¹ In addition, the event which triggered entitlement to both categories of benefits is the automobile accident which resulted in Mr. Thompson’s incapacity. Both sets of benefits serve the same purpose and are paid as the result of the same income-impairing event, the auto accident. It is of no significance, for purposes of determining the purpose of the social security disability benefits, that a portion of them are paid directly to Mr. Thompson’s dependents. The reason they are paid is to replace, at least in part, the wages which have been lost as a result of the breadwinner’s injuries and thus to assure the family’s economic survival.

Since both sets of benefits serve the same purpose and are paid as a result of the same income-reducing event, the auto accident, they meet the test for the § 3109(1) setoff we laid down in Jarosz, supra.

I join, therefore, in the judgment to reverse the decision of the Court of Appeals.

Boyle, J., concurred with Ryan, J.

1 The constitutionality of setting off social security payments, for which the beneficiary has already "paid” through contributions to the social security system, was sustained by this Court in O’Donnell v State Farm Mutual Automobile Ins Co, 404 Mich 524; 273 NW2d 829 (1979), app dis 444 US 803; 100 S Ct 22; 62 L Ed 2d 16 (1979).

2 The Thompsons moved for summary judgment on April 9, 1980. The circuit court entered an order on May 9, 1980, granting the Thompsons’ motion for summary judgment and prohibiting DAIIE from subtracting social security disability payments to dependents from no-fault work-loss benefits.

The Court of Appeals affirmed. 107 Mich App 256; 309 NW2d 228 (1981).

3 MCL 500.3109(1); MSA 24.13109(1).

4 See dissenting opinion, p 631.

5 42 USC 402(d); 20 CFR 404.350(b).

6 The instant case does not involve disability payments to a husband. The eligibility requirements for social security disability payments are now identical for wives and husbands, 20 CFR 404.330, and for divorced wives and divorced husbands, 20 CFR 404.331.

7 42 USC 402(b)(1)(B); 20 CFR 404.330.

8 A divorced spouse only receives disability payments if the spouse was married to the injured worker for at least 10 years immediately before the divorce, is not married, and is deemed to have difficulty working because of being 62 years old. 42 USC 402(b)(1)(C); 20 CFR 404.331. Any money received in the form of social security payments is money that need no longer be obtained from the disabled worker.

To the extent that a divorced spouse or a child does not receive alimony or child support payments, or to the extent that disability payments to dependents exceed alimony or child support payments, the disability payments might not replace loss of income from work the injured person would have performed but for the injury. Such payments might not, to that extent, be required by § 3109(1) to be subtracted from no-fault work-loss benefits. See Jarosz v DAIIE, 418 Mich 565, 592-595; 345 NW2d 563 (1984) (Levin, J., dissenting); but see Jarosz, p 592, fn 13 (Levin, J., dissenting).

9 The United States Supreme Court has observed that "the categories of secondary beneficiaries were defined to include persons who were presumed to be dependent on the wage earner at the time of his death, disability, or retirement.” Califano v Jobst, 434 US 47, 50; 98 S Ct 95; 54 L Ed 2d 228 (1977) (emphasis added).

The dissenting opinion, in referring to these payments as "social security dependents’ benefits”, post, p 627 (emphasis added), implicitly recognizes that the social security disability payments at issue in the instant case are paid to persons who are dependent on the wage earner, and that therefore any social security payments made to these beneficiaries replace income previously payable by the now disabled wage earner. See also Social Security Explained (CCH, 1983), § 511, p 184.

10 42 USC 402, 415; 20 CFR 404.333, 404.353.

11 42 USC 403. 415: 20 CFR 404.403.

12 See 1980 PA 357, MCL 418.361; MSA 17.237(361).

13 We have not found a case addressing this question other than Karmilowicz. As noted in the text, the New York court in Karmilowicz held that social security disability payments to dependents must be subtracted from no-fault work-loss benefits otherwise payable to the injured worker.

Plaintiffs contend that Karmilowicz held nothing more than that an arbitrator had erred in refusing to subtract the disability payments since such a deduction was required under an applicable administrative regulation, and that Karmilowicz is therefore inapplicable here because Michigan has no such administrative regulation. This argument is not persuasive. If the court had concluded that the no-fault act did not require this setoff, it probably should have declared the regulation void as inconsistent with the governing statute. Subsequently, the validity of this regulation under the no-fault statute was upheld in Ardolino v City of New York, 94 AD2d 780; 463 NYS2d 26 (1983).

14 Post, p 631.

¹⁵

16 See also Mathews v De Castro, 429 US 181, 185-186; 97 S Ct 431; 50 L Ed 2d 389 (1976), where the United States Supreme Court stated that the "primary objective” of social security disability payments "was to provide workers and their families with basic protection against hardships created by the loss of earnings due to illness”. The Court also noted that the social security "insurance programs are contributory in nature and are designed to prevent public dependency by protecting workers and their families against common economic hazards”. Id., p 186, fn 6. (Emphasis added.)

17 In Jarosz v DAIIE, 418 Mich 565, 580; 345 NW2d 563 (1984), this Court states:

"In every case, in order to determine whether the governmental and no-fault benefits serve the same purpose (criterion 1), a particularized assessment of the questioned governmental benefit is necessary to identify the ultimate beneficiary, the nature of the benefits, the reason for paying them, and the events triggering entitlement to them.”

All four of the criterion 1 factors stated in Jarosz suggest that social security disability payments to dependents serve the same purpose as work-loss benefits paid under the no-fault act.

First, the ultimate beneficiaries of both payments are the dependents of an injured worker. Second, the nature of both payments is a substitution for income lost as a result of a worker’s accident. Third, both payments are made because a loss of income from work has resulted from a worker’s accident. Finally, disability caused by the same automobile accident triggers entitlement to both the no-fault work-loss benefits and the social security disability payments to dependents.

The dissenting opinion recognizes that the second criterion of the Jarosz test is also satisfied because the social security disability payments to dependents are provided as a result of the same accident. Post, p 628.

18 See Weinberger v Wiesenfeld, 420 US 636, 647; 95 S Ct 1225; 43 L Ed 2d 514 (1975).

19 Post, p 633.

20 See Social Security Explained, fn 9 supra, § 509.4, p 166.

21 MCL 500.3114; MSA 24.13114 and MCL 500.3115; MSA 24.13115.

22 Heard v State Farm Mutual Automobile Ins Co, 414 Mich 139; 324 NW2d 1 (1982).

23 MCL 500.3105; MSA 24.13105.

24 MCL 500.3107; MSA 24.13107. As of October 1, 1983, the ceiling on no-fault work-loss benefits is $2,252 per month for three years.

25 MCL 500.3171 et seq.; MSA 24.13171 et seq.

26 See Perez v State Farm Mutual Automobile Ins Co, 418 Mich 634; 344 NW2d 773 (1984).

27 See Social Security Explained, fn 9 supra, § 102, pp 27, 28.

28 See fn 21.

1 As Justice Cavanagh notes in his opinion, the purpose of work-loss benefit payments is to replace the lost wages of the injured insured. Post, p 631. The United States Supreme Court in Mathews v De Castro, 429 US 181, 186, fn 6; 97 S Ct 431; 50 L Ed 2d 389 (1976), stated the purpose of social security disability payments as follows:

"The insurance programs are contributory in nature and are designed to prevent public dependency by protecting workers and their families against common economic hazards.”

Therefore, the purposes of the two payments are the same.