Michigan Auto: Financial Responsibility, Placement, Crash Parts and Optional Coverages

Michigan’s no-fault law sets the coverages every owner must carry. Around it sit rules a producer meets in daily work: how an owner proves coverage to a police officer, how a person who cannot find coverage gets it, how an auto policy may be ended, what a repair estimate must say about aftermarket parts, and which coverages are offered by choice.

Proving Coverage and Financial Responsibility

An owner or operator must produce evidence of no-fault insurance when a police officer asks, and failing to do so, or having no insurance, is a civil infraction (MCL 257.328(1)). A certificate of insurance on paper or on a device is prima facie evidence that insurance is in force until the expiration date it shows. A certificate must also name any person whose driving would void the liability coverage, which ties to the warning an excluded-driver endorsement must carry (MCL 257.328(2); MCL 500.3009(2)). An officer shown an electronic certificate may view only that certificate, and showing it is not presumed consent to a search of the device (MCL 257.328(1)).

Consider a driver stopped with no proof in the car. If the driver gives the court proof that a policy meeting sections 3101 and 3102 was in force at the time, before the appearance date on the citation, the court may not assess a fine or costs or send an abstract to the Secretary of State, and may charge a fee of no more than $25 (MCL 257.328(3)). If the driver cannot show it, the court may require surrender of the license, and the Secretary of State suspends it for 30 days or until proof is submitted, whichever is later, with a $25 service fee (MCL 257.328(4)). Knowingly producing false evidence is a misdemeanor, punishable by up to 1 year in jail, a fine of up to $1,000, or both, and the offense carries no points (MCL 257.328(6), (7)). The section does not apply to a vehicle registered in another state (MCL 257.328(8)).

The liability limits a policy must carry are $250,000 per person, $500,000 per accident and $10,000 for property damage unless the named insured completes the Director’s form to choose lower bodily injury limits, never below $50,000 and $100,000 (MCL 500.3009(1), (5)). The selection may be made on paper, electronically or by recorded verbal instructions (MCL 500.3107e(2)). Suppose a $180,000 judgment is entered against an insured who chose the $50,000 per person limit. That leaves $180,000 - $50,000 = $130,000 as the insured’s own liability.

Ride-hail drivers

Chapter V of the Vehicle Code treats certain coverage as satisfying financial responsibility for a transportation network company driver. While logged on and available but not on a ride, it is residual liability of at least $50,000 per person, $100,000 per incident and $25,000 for property damage, plus the required personal protection and property protection coverage. During a prearranged ride it is residual liability with a combined single limit of at least $1,000,000, plus the same PIP and PPI (MCL 257.518b(1)). A personal auto insurer may exclude all coverage for a loss while its insured driver is logged on or on a ride, including the PIP, PPI, uninsured and underinsured, comprehensive and collision coverages, and it has no duty to defend an excluded claim (MCL 500.3017(1), (4)). Shared vehicles under a car sharing program are treated alike (MCL 500.3018). An insurer may still cover that exposure by endorsement (MCL 500.3017(3)).

The Placement Facility

Every insurer authorized to write auto insurance in Michigan participates in the Michigan automobile insurance placement facility to guarantee that coverage is available to anyone unable to get it through ordinary methods and to keep price competition alive (MCL 500.3301(1)). A “qualified applicant” is an owner or registrant of an auto registered or to be registered in Michigan, or a licensed driver. Three groups are not qualified (MCL 500.3303(b)):

• A person not required to carry security, unless the person will live in Michigan 30 days or more and says so on an approved form.
• A person whose license is suspended or revoked, unless the suspension was under one of the Vehicle Code sections the statute lists, which include section 328, the failure to produce proof of insurance.
• A person whose auto policy was canceled for nonpayment within the preceding 2 years, unless the applicant pays in full, before issuance, a premium installment under the facility’s payment plan.

What an agent must do

An agent for a participating insurer must offer to place coverage through the facility for any qualified applicant who asks, forward the application and any deposit, and is paid the uniform facility commission (MCL 500.3355(1)). An insurer cannot count facility premiums and losses in an agent’s loss ratio or use them to change its relationship with the agent (MCL 500.3360). The applicant may request an assignment, reject one, or request reassignment, and the opportunity for reassignment must be stated on the policy and offered in writing at each renewal. Each year each designated participating member must tell facility policyholders the statutory eligibility standards for buying from the voluntary market (MCL 500.3365(2), (3)).

Terms of facility coverage

The coverage must be equivalent to what the voluntary market normally offers (MCL 500.3320(2)). The facility must offer a deferred payment plan requiring an advance payment of at least 25% of the premium or $100, whichever is greater (MCL 500.3350(a)). On a $2,400 premium the advance is 25% x $2,400 = $600. On a $320 premium 25% is $80, so the $100 floor governs. A policy issued to an applicant whose license was suspended under a listed section may be canceled after a period of at least 30 days if the insured fails to show the license has been reinstated (MCL 500.3320(1)(f)). Facility rates start from the weighted average of base rates of the five largest insurer groups, and run at 100% of that average in the highest-rated territories within a political subdivision and 105% to 125% elsewhere (MCL 500.3340(4)). Any participating member, applicant or insured may ask the board of governors for a hearing on an alleged plan violation or an improper act or ruling of the facility within 30 days after it, and may appeal to the Director within 30 days after the ruling. The hearing right does not reach a claim under the insurance (MCL 500.3380).

Cancellation and Nonrenewal of Auto Policies

Several statutes apply at once, and a producer has to apply them in order.

Situation	Requirement	Source
Nonpayment	Effective as the policy provides, and the policy must allow cancellation on not less than 10 days’ written notice	MCL 500.2123(3), 500.3020(1)(b)
Any other termination	At least 30 days’ written notice stating the date and each specific reason, and the reason must conform to the insurer’s underwriting rules	MCL 500.2123(1), (4)
Notice mailed within 55 days of first issuance	May be made effective not less than 20 days after mailing	MCL 500.2123(2)
Cancellation of private passenger auto liability after 55 days or on a renewal, other than for nonpayment	Only for a final license suspension or revocation of the named insured or a regular driver	MCL 500.3220(b)
Refusal to renew	A termination under chapter 21, so 30 days with each specific reason. Chapter 32 does not treat it as a cancellation if notice is mailed first class at least 20 days before the term ends	MCL 500.2104(5), 500.2123(1), 500.3204(2)

Chapter 21 governs where it is inconsistent with other parts of the Code for auto and home policies (MCL 500.2106(4)), but section 2123 does not authorize a termination that chapter 32 forbids (MCL 500.2123(5)). Chapter 32 does not apply to nonpayment cancellations or to termination at the end of a policy period (MCL 500.3208, 500.3212). A cancellation under chapter 32 is not effective unless written notice goes by certified mail, return receipt requested, at least 20 days before the effective date. The notice must give the reasons and state in bold type that the insured may appeal to the Department within 7 days of mailing (MCL 500.3224(2), (3)). Every cancellation notice must carry a statement that the insured shall not operate or permit operation of the vehicle unless it is insured as required by law (MCL 500.3020(6)). Mailing is prima facie proof of notice (MCL 500.3020(5)).

Suppose a policy takes effect March 1. Day 55 is April 25. On May 10 the insurer mails a certified notice that the named insured’s license suspension has become final. Chapter 32 would allow an effective date of May 30, 20 days later, and chapter 21 requires 30 days, June 9. A notice that states June 9 satisfies both. The insured must file a written request for a hearing within 7 days after the postmark, by May 17. If the Director receives it May 15, the hearing is held within 10 days, by May 25, and notice of it must be mailed to both sides at least 4 days before. The Director then either reinstates the policy or upholds the cancellation, and may stay it meanwhile, with an appeal to circuit court from the final determination (MCL 500.3230, 500.3234, 500.3244). A cancellation inside the first 55 days for an unacceptable risk is not subject to appeal (MCL 500.3224(1)).

An insurer cannot cancel, refuse to renew or raise the premium solely because the insured has turned 65, if the insured still holds a valid Michigan license (MCL 500.3021). The facility’s board may add limits on cancellation and nonrenewal of facility business beyond chapters 21 and 32 (MCL 500.3330(1)(d)).

Aftermarket Crash Parts

Under the Aftermarket Crash Parts Act (MCL 257.1361), a “non-OEM aftermarket crash part” is a replacement for a nonmechanical sheet metal or plastic exterior part, such as an inner or outer panel, not made by or for the vehicle’s manufacturer (MCL 257.1362(a), (e)). If an insurer, which includes its agent, asks for non-OEM parts in a repair, the shop may use them only if the insured receives a written estimate that clearly identifies each such part. The estimate must also carry, in at least 10-point bold type, a notice that it was prepared on aftermarket parts supplied by a source other than the manufacturer, and that warranties come from the manufacturer, distributor or insurer of the parts (MCL 257.1363). Mechanical parts are not crash parts under the Act. If the insurer’s estimate calls for an aftermarket hood and fender, the shop’s estimate to the insured must list both, with the notice. If it lists only “hood” and the notice is missing, the shop has not met the Act.

Coverage Offered by Choice

Collision

At a new applicant’s first written application for private passenger auto insurance, the insurer must offer two collision coverages (MCL 500.3037(1)). Limited collision pays collision damage with no deductible if the operator is not substantially at fault. Broad form collision pays regardless of fault, with a Director-approved deductible that is waived when the operator is not substantially at fault. “Substantially at fault” means more than 50% of the cause (MCL 500.3037(8)(b)). An insurer may also offer standard and limited collision with deductibles (MCL 500.3037(2)). Where the insurer requires a signed application, rejection of both, or of limited collision without a deductible, must be in writing, and the insured must get a written explanation of the options and an annual notice at renewal (MCL 500.3037(4), (6), (7)).

Suppose collision damage is $6,200 and the broad form deductible is $500. If the insured was 30% at fault, the deductible is waived, and broad form pays $6,200. If the insured was 60% at fault, it pays $6,200 - $500 = $5,700. Limited collision pays $6,200 in the first case with no deductible. In the second, the statute does not require it to pay at all. PIP is different. It is due without regard to fault, so the 60% at-fault driver still has medical benefits (MCL 500.3105(2)).

Uninsured and underinsured motorist coverage

Treat it as optional contract coverage. The former section 3010 on uninsured motorist coverage was repealed effective October 1, 1973 (MCL 500.3010, compiler’s notes), and today’s section 3010 is about vehicle fire claims. Chapters 30 and 31 mention the coverage only where they let an insurer exclude it, in sections 3017 and 3018. Its limits, definitions and conditions come from the policy a person buys.

Named non-owner coverage

A named non-owner endorsement covers a person who owns no vehicle but has someone else’s available. An extended non-owned endorsement covers a driver of non-owned vehicles used for business. Bulletin 96-02 of June 25, 1996 explains that, attached to a no-fault policy, either one gives residual liability only, to the named person and spouse, and no PIP, PPI or physical damage coverage, and excludes resident relatives other than the spouse. The bulletin’s statute citations predate later amendments. A person who has the use of a vehicle for more than 30 days is an owner who needs full no-fault coverage (MCL 500.3101(3)(l)). The bulletin advises insurers to tell the customer plainly that such a policy does not meet the no-fault requirements, which may help the insurer avoid liability for PIP and PPI it never charged for.

Lesson summary

• An owner or operator must show evidence of insurance on request, a certificate is prima facie proof, and proof shown to the court before the appearance date avoids a fine and costs, with a fee of no more than $25.
• A producer must offer facility placement to a qualified applicant who asks, and facility coverage needs a deposit of at least 25% of premium or $100.
• Nonpayment cancellation takes at least 10 days. Other terminations take 30 days with specific reasons, or 20 days within the first 55 days, and chapter 32 limits grounds after 55 days.
• A chapter 32 cancellation goes by certified mail, states the reasons and the 7-day right to appeal to the Director, and can be heard and reversed.
• A repair estimate using non-OEM crash parts must identify each part and carry the statutory notice in 10-point bold type.
• An insurer must offer limited and broad form collision at first application, and rejection must be written. PIP is due without regard to fault.
• Uninsured and underinsured motorist coverage is optional contract coverage. The former statute on uninsured motorist coverage was repealed effective 1973.