COA Special Panel: Insurer’s Right Of Reimbursement In No-Fault Act Applies Only To Claimant, Not To Tort Recovery As Subrogee

A special panel of the Michigan Court of Appeals has ruled that § 3116 of the No-Fault Act (MCL 500.3116) applies only to a no-fault insurer’s right of reimbursement from a claimant and “does not apply to an insurer’s tort recovery, as a subrogee, against a nonmotorist tortfeasor.”

As a result, the special panel overturned Citizens Ins Co v Pezzani & Reid Equip Co, Inc (On Remand), 202 Mich App 278 (1993). The appeals court in Pezzani had ruled that an insurer could not pursue a claim against a nonmotorist tortfeasor to recoup benefits paid if the circumstances did not fall among those listed in MCL 500.3116(2).

The plaintiffs in the present case, Call v L & KJ Enterprises, LLC (Docket No. 366229) (Call I), were injured when a tire flew off another vehicle and struck their vehicle. The plaintiffs filed a negligence claim against the defendant, Family Tire of Manistee, which had performed a tire rotation on the other vehicle shortly before the incident. Meanwhile, the plaintiffs’ no-fault insurer, Frankenmuth Insurance, paid the plaintiffs personal injury protection (PIP) benefits. Frankenmuth then filed a motion to intervene in the plaintiffs’ negligence case against the defendant, seeking to recoup the benefits it had paid under the No-Fault Act (MCL 500.3101, et seq.).

The Manistee County Circuit Court, relying on the 1993 decision in Pezzani, granted the defendant’s motion for summary disposition. The trial court reasoned that Frankenmuth’s complaint did not allege one of the circumstances listed in MCL 500.3116(2) that allows an insurer to recoup benefits it had paid. After the trial court denied Frankenmuth’s motion for reconsideration, Frankenmuth appealed.

On appeal, the Court of Appeals in Call I disagreed with Pezzani and said that MCL 500.3116(2) applies “only when an insurer seeks to recover PIP benefits from its insured after the insured recovers on a tort claim.” However, because the Call I panel was bound to follow Pezzani, it affirmed summary disposition for the defendant and requested that a special panel be convened under MCR 7.215(J)(3) to determine whether Pezzani should remain binding authority.

The seven-member special panel ultimately convened, finding that Pezzani did not adhere to the “plain and unambiguous language” of MCL 500.3116(2). “We conclude that the Call I panel properly interpreted MCL 500.3116(2),” the special panel said. “We therefore overrule Pezzani, reverse the trial court’s order granting [the defendant’s] motion for summary disposition, and remand for further proceedings.”

Judge Kristina Robinson Garrett wrote the opinion, joined by Judge Christopher M. Murray, Judge Stephen L. Borrello, Judge Michelle M. Rick, Judge Sima G. Patel, Judge Kathleen A. Feeney and Judge Daniel S. Korobkin.

Pezzani Overruled

In its analysis, the special panel scrutinized the language of the No-Fault Act to determine whether Pezzani should remain binding authority.

At the outset, the special panel pointed out that in Citizens Ins Co of America v Tuttle, 411 Mich 536 (1981), the Michigan Supreme Court recognized “an insurer’s right of subtraction or reimbursement under MCL 500.3116 pertains to its insured’s tort recovery.” In addition, the Tuttle Court said that various sections of the No-Fault Act, including MCL 500.3116, “are intended to reduce the cost of insurance by eliminating duplicative recoveries for losses incurred in motor vehicle accidents.” Therefore, the Tuttle Court “recognized that an insurer’s right of subtraction or reimbursement under MCL 500.3116 pertains to its insured’s tort recovery.”

Turning to the present case, the special panel noted the defendant argued that the plain language of MCL 500.3116(2) “provides only three circumstances in which an insurer can subtract from PIP benefits owed to an insured or obtain reimbursement of PIP benefits paid to an insured. Those circumstances require that the accident: (1) occurred outside the state of Michigan, (2) involved an uninsured vehicle, or (3) involved an intentional tort.” The defendant maintained that because none of these circumstances existed in this case, the trial court properly granted it summary disposition.

“We disagree with [the defendant’s] interpretation of the statute,” the special panel wrote. “Interpreting the statute as a whole and reading the words and phrases in context, MCL 500.3116(2) refers to an insurer’s ability to recoup benefits from a claimant, typically its insured.”

In so finding, the special panel emphasized that certain language used in MCL 500.3116 “demonstrates that the ‘recovery’ referenced in the statute is the claimant’s recovery on a tort claim.” According to the special panel: “Subsection (1) states the general rule that an insurer may not subtract from PIP benefits otherwise owed to the claimant because of the value of the claimant’s tort claim based on the same injury. Subsection (2) provides three exceptions to this general rule. Under that provision, an insurer may subtract benefits owed or obtain reimbursement of benefits paid if the claimant recovered on a tort claim and the accident: (1) occurred outside the state, (2) involved an uninsured vehicle, or (3) involved intentionally caused harm. Subsection (2) further states that in those limited circumstances an insurer may offset or recoup benefits to the extent that the claimant’s recovery is duplicative of PIP benefits. In addition, the provision requires the claimant to repay benefits already received, and states that ‘[t]he insurer has a lien on the recovery to this extent.’ The statute’s repeated reference to the ‘claimant’ demonstrates that the subtraction and reimbursement discussed in the statute refers to the claimant’s recovery. The provision granting the insurer a lien on the recovery further evidences this point.”

Moreover, MCL 500.3116(3) “provides additional support that the statute applies to an insurer’s right of reimbursement from a claimant,” the special panel said. “That provision discusses an insurer’s inability to collect reimbursement from a claimant and entitles the insurer to indemnity from a person who makes payment to the claimant alone, rather than to the claimant and the insurer as joint payees, despite knowledge of the insurer’s interest in the funds and without obtaining the insurer’s consent.”

The special panel also pointed out that MCL 500.3146 includes a limitations period for an insurer’s action seeking recovery under MCL 500.3116. MCL 500.3146 says: “’An action by an insurer to enforce its rights of recovery or indemnity under section 3116 may not be commenced later than 1 year after payment has been received by a claimant upon a tort claim with respect to which the insurer has a right of reimbursement or recovery under section 3116.’ (Emphasis added.) The plain language of MCL 500.3146 demonstrates that MCL 500.3116 is limited to an insurer’s ability to recoup benefits from the claimant.”

Therefore, “reading MCL 500.3116 as a whole and interpreting its language in harmony with MCL 500.3146, we conclude that MCL 500.3116 applies to an insurer’s right of reimbursement from a claimant and does not apply to an insurer’s tort recovery, as a subrogee, against a nonmotorist tortfeasor,” the special panel stated.

“Despite caselaw recognizing that MCL 500.3116 pertains to an insurer’s ability to recoup benefits from a claimant, this Court in Pezzani applied the provision to bar the insurer plaintiff from recovering against the nonmotorist defendants,” the special panel observed. “The [Pezzani] Court erred … in its application of the law. The Court held that the plaintiff could not seek reimbursement from the defendants because ‘[n]one of the circumstances that allow reimbursement under § 3116’ were involved: ‘The accident at issue did not occur out of state or involve either an uninsured motorist or an intentional tort.’ Although the Court stated, ‘The statutory language is clear and unambiguous,’ it did not analyze the statutory language or explain why the result it reached was consistent with the language.”

Accordingly, “the  result in Pezzani is not consistent with MCL 500.3116,” the special panel said. “We therefore overrule Pezzani.”

Call I Is Correct

The special panel continued by examining the Court of Appeals analysis in Call I.

“Applying the plain, unambiguous statutory language, this Court in Call I determined that MCL 500.3116(2) ‘applies only to situations where an insurer seeks reimbursement from its insured.’ … Although the Call I panel used the term ‘insured’ rather than ‘claimant,’ MCL 500.3116(2) and the other subsections of MCL 500.3116 use the term ‘claimant.’ Regardless, the Call I panel properly concluded that MCL 500.3116 is inapplicable in this case because Frankenmuth does not seek reimbursement of benefits from the [the plaintiffs].”

Rather, as the plaintiffs’ subrogee, Frankenmuth “seeks to recover from [the defendant] damages under a negligence theory, and the amount of Frankenmuth’s damages is the amount of PIP benefits it paid to the [plaintiffs] because of [the defendant’s] alleged negligence,” the special panel explained. “Because MCL 500.3116 does not preclude Frankenmuth’s claim, the trial court erred by granting [the defendant’s] motion for summary disposition.”

In conclusion, the special panel agreed with Call I that Pezzani did not adhere to the plain and unambiguous language of MCL 500.3116. “We therefore overrule Pezzani. Having done so, we cannot affirm the trial court’s determination. Because Frankenmuth does not seek reimbursement of PIP benefits from the [plaintiffs], MCL 500.3116(2) is inapplicable. Accordingly, we reverse the trial court’s order granting summary disposition in favor of [the defendant].”