Michigan No-Fault: Property Protection, Residual Liability and the Tort Threshold
Personal protection insurance (PIP) answers for injuries. The rest of a Michigan auto policy answers for property and for the lawsuits that survive the no-fault system. This page covers property protection insurance, residual liability, what can still be litigated after an accident, how PIP claims are paid, and the two statewide institutions that back the system: the assigned claims plan and the catastrophic claims association.
Property Protection Insurance
Property protection insurance (PPI) pays for accidental damage to tangible property arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor vehicle. Like PIP, it’s due without regard to fault (MCL 500.3121(1), (2)). Damage means physical injury to or destruction of the property, plus loss of use (MCL 500.3121(3)).
The benefit is the lesser of reasonable repair costs or replacement costs less depreciation, plus the value of loss of use if applicable. Benefits paid under 1 policy for all tangible property damaged in 1 accident can’t exceed $1,000,000 (MCL 500.3121(5)). The limit is set by statute, so a client doesn’t choose it. Above that limit, tort liability survives only in a narrow case involving liability insurance required by federal law (MCL 500.3136(1)).
Suppose Theo loses control on an icy street and drives through a storefront, then into a car parked legally at the curb. The building owner and the parked car’s owner claim PPI from Theo’s insurer, and no one has to prove fault. The building owner’s lost use of the space can be part of the claim.
PPI doesn’t pay for everything (MCL 500.3123):
- Vehicles and their contents. Damage to vehicles operated or designed for operation on a public highway, including trailers, and to their contents is excluded, unless the vehicle is parked so as not to cause unreasonable risk of the damage.
- Your own property. Property of the person named in the policy, the spouse or a resident relative is excluded if that person was the owner, registrant or operator of a vehicle in the accident.
- Out-of-state accidents. PPI isn’t payable for accidents outside Michigan.
- Certain utility lines. Damage to transmission lines, wires or cables is excluded when it arises from a municipality’s or company’s failure to meet the placement and clearance rules in MCL 247.186.
Damage arising in a vehicle repair or servicing business, other than to the insured vehicle, isn’t covered either (MCL 500.3121(1)).
The claimant goes first to insurers of owners or registrants of vehicles involved, then to insurers of operators (MCL 500.3125). A lawsuit for PPI benefits must start within 1 year after the accident (MCL 500.3145(5)). That’s a hard deadline, so tell a client whose fence or garage was hit not to wait.
Residual Liability Insurance
Residual liability pays what the insured owes when liability survives no-fault. It covers bodily injury and property damage in the United States, its territories and possessions, and Canada, at the coverage required by the financial responsibility law where the injury occurs. In Michigan it covers the liability retained by MCL 500.3135 (MCL 500.3131(1)).
| Limit | Standard | Lowest available by choice |
|---|---|---|
| Bodily injury or death, 1 person, 1 accident | $250,000 | $50,000 |
| Bodily injury or death, 2 or more persons, 1 accident | $500,000 | $100,000 |
| Property of others, 1 accident | $10,000 | No lower option |
The standard limits come from MCL 500.3009(1), and the lower options from MCL 500.3009(5). To choose lower limits, a person completes a form issued by the Director. On each application and renewal, the insurer must provide the options, give a price for each and offer the form (MCL 500.3009(6)). The form must state the risks conspicuously, and the person acknowledges receiving the options and prices and understanding the risks (MCL 500.3009(7)). Without an effective choice, the standard limits apply (MCL 500.3009(8)). The form is delivered and completed the same way as the PIP selection form (MCL 500.3107e).
If the insured authorizes it, liability coverage may be excluded when a named person drives. The exclusion isn’t valid unless a statutory warning appears on the policy, declaration page or certificate of the policy and on the certificate of insurance. The warning says that when a named excluded person operates a vehicle all liability coverage is void, no one is insured, and owners and others legally responsible remain fully personally liable (MCL 500.3009(2)). A household that excludes a driver and then lets that driver use the car has no liability coverage for that trip, and the excluded driver has no PIP from operating that vehicle (MCL 500.3113(d)).
What Can Still Be Litigated
For a vehicle with the required security in effect, tort liability arising from its ownership, maintenance or use in Michigan is abolished, with five exceptions (MCL 500.3135(3)).
| Exception | What remains |
|---|---|
| Intentional harm | Harm to persons or property caused intentionally (MCL 500.3135(3)(a)) |
| Noneconomic loss | Damages if the injury meets the threshold below (MCL 500.3135(1), (3)(b)) |
| Excess economic loss | Allowable expenses, work loss and survivors’ loss above PIP limits (MCL 500.3135(3)(c)) |
| Nonresident’s economic loss | If the nonresident meets the same injury threshold (MCL 500.3135(3)(d)) |
| Vehicle damage | Up to $3,000 not covered by insurance (MCL 500.3135(3)(e)) |
The Threshold for Noneconomic Loss
A person remains liable for noneconomic loss only if the injured person suffered death, serious impairment of body function, or permanent serious disfigurement (MCL 500.3135(1)). Serious impairment of body function has three parts, all required (MCL 500.3135(5)):
- It is objectively manifested, meaning someone other than the injured person can observe or perceive it from actual symptoms or conditions.
- It is an impairment of an important body function, one of great value, significance or consequence to the injured person.
- It affects the person’s general ability to lead a normal life, meaning it has influenced some of the person’s capacity to live in their normal manner.
How long an impairment lasts may be relevant, but no minimum length is required. The question is decided case by case by comparing the person’s life before and after the accident.
Even with a qualifying injury, damages are assessed by comparative fault, and a party more than 50% at fault can’t recover them (MCL 500.3135(2)(b)). A person driving their own vehicle without the required security can’t recover either (MCL 500.3135(2)(c)).
Why PIP Choices Affect Liability Limits
Excess economic loss connects the coverage choices on the previous page to the liability limit on this one. A negligent driver is exposed to an injured person’s allowable expenses above that person’s PIP limit, and “without limit” if the injured person opted out or is subject to the $250,000 exclusion (MCL 500.3135(3)(c)). Michigan’s lower PIP levels therefore mean more claims can reach residual liability. When a client asks for the $50,000 and $100,000 liability limits, explain that the form’s warning about risk is real. Compare prices, explain the exposure and record what the client decided.
Damage to Vehicles
Drivers are often surprised here. PPI excludes moving vehicles, and tort liability for vehicle damage is abolished, apart from a limited claim. For an accident after July 1, 2020, a person may recover up to $3,000 for damage to a motor vehicle, to the extent it isn’t covered by insurance (MCL 500.3135(3)(e)). Comparative fault applies, and a party more than 50% at fault recovers nothing. The action belongs in small claims whenever legally possible. No damages are assessed if the damaged vehicle was operated without required security (MCL 500.3135(4)).
This liability “is not a component of residual liability” (MCL 500.3135(4)(b)). So don’t tell a client that the residual liability coverage the law requires will pay this kind of claim. For the client’s own car, the real answer is collision coverage.
At a new applicant’s initial written application, the insurer must offer limited collision, which pays with no deductible if the operator isn’t substantially at fault, and broad form collision, which pays regardless of fault with a deductible that’s waived if the operator isn’t substantially at fault (MCL 500.3037(1)). Standard collision may also be offered (MCL 500.3037(2)). Substantially at fault means more than 50% of the cause (MCL 500.3037(8)(b)). An agent or insurer must give the applicant a written explanation of the options, if the application doesn’t contain it (MCL 500.3037(6)).
How PIP Claims Are Paid
PIP is payable as loss accrues, which means as the expense or loss is incurred (MCL 500.3110(4), 500.3142(1)). Benefits are overdue if not paid within 30 days after the insurer receives reasonable proof of the fact and amount of loss, and overdue payments bear simple interest at 12% a year (MCL 500.3142(2), (4)). If a provider’s bill reaches the insurer more than 90 days after the service, the insurer has 60 days on top of the 30, or 90 days in all, to pay before the benefits are overdue (MCL 500.3142(3)).
| Deadline | Rule |
|---|---|
| Starting point | Sue within 1 year after the accident, unless written notice of injury was given within that year or the insurer has already paid PIP for the injury (MCL 500.3145(1)) |
| After notice or payment | Sue within 1 year after the most recent expense or loss, and recover only loss incurred within 1 year before suit (MCL 500.3145(2)) |
| Tolling | The period stops from a specific claim until the insurer formally denies it, unless the claimant fails to pursue the claim with reasonable diligence (MCL 500.3145(3)) |
Notice of injury may go to the insurer “or any of its authorized agents” (MCL 500.3145(4)). If a client calls you about an accident, the notice may start with you, so get it to the insurer right away.
Several other rules shape a claim:
- An insurer may require written notice as soon as practicable after an accident (MCL 500.3141), and a claimant whose condition is material must submit to a physician’s examination at the insurer’s request (MCL 500.3151(1)).
- An agreement to assign a right to future benefits is void (MCL 500.3143).
- A court may charge the insurer attorney fees if it unreasonably refused or delayed payment, and may award the insurer fees against a claim that was in some respect fraudulent or so excessive as to have no reasonable foundation (MCL 500.3148(1), (2)).
- A provider may sue an insurer directly for overdue benefits (MCL 500.3112).
- An insurer can take PIP back out of a tort recovery only in three cases: an out-of-state accident, an uninsured defendant or intentional harm (MCL 500.3116(2)).
- Insurers review treatment for appropriateness, and knowingly submitting false or misleading records in that review is a fraudulent insurance act (MCL 500.3157a(2), (6)).
The Assigned Claims Plan
The Michigan automobile insurance placement facility maintains the assigned claims plan, and every insurer and self-insurer writing no-fault coverage participates (MCL 500.3171(2)). A person hurt in a Michigan accident may claim PIP through the plan if no PIP applies, no PIP can be identified, insurers dispute which of them owes, or the only identifiable PIP is inadequate because an insurer can’t pay (MCL 500.3172(1)). A person disqualified from PIP under a policy is also disqualified from the plan (MCL 500.3173).
The claimant files a completed application with the facility and provides reasonable proof of loss (MCL 500.3172(3)), and must notify the facility within 1 year after the accident (MCL 500.3174). The facility decides initial eligibility and assigns the claim to an insurer, and the claimant must cooperate, including submitting to an examination under oath (MCL 500.3173a(1), (2), 500.3174). When insurers dispute a claim and can’t agree on voluntary payment, the assigned insurer pays immediately and the circuit court decides who is responsible (MCL 500.3172(6)).
Plan benefits for allowable expenses are capped at $250,000, or at $2,000,000 for a person opted out of PIP medical coverage, or subject to the $250,000 exclusion, who is injured during the 30-day period after qualified health coverage ends (MCL 500.3172(7)(b), 500.3107d(6)(c), 500.3109a(2)(d)(ii)). Benefits are generally reduced by other available sources covering the same loss, but Medicaid and Medicare don’t count as sources (MCL 500.3172(5)). A knowingly false statement in support of a claim is a fraudulent insurance act and makes the claim ineligible (MCL 500.3173a(4)).
The Catastrophic Claims Association
Every insurer writing no-fault security in Michigan must belong to the catastrophic claims association as a condition of its authority (MCL 500.3104(1)). The association reimburses members for 100% of ultimate PIP loss above a set amount in each loss occurrence, and that amount rises every other year (MCL 500.3104(2)). The association covers policies issued or renewed before July 2, 2020, and later policies with no limit. It has no liability under policies with the $50,000, $250,000 or $500,000 limit (MCL 500.3104(2), (27)).
The association charges members a premium per car, set to cover expected losses and expenses (MCL 500.3104(7)(d)). Insurers may pass it on, and the amount passed on must equal the amount attributable to that car (MCL 500.3104(20)). A car on a limited policy, or one with an opt-out or the $250,000 exclusion, is charged only for any portion that adjusts for a past deficiency. A historic vehicle is charged 20% of the car premium (MCL 500.3104(7)(d)).
The board has 5 members appointed by the Director, and the Director sits as a nonvoting member (MCL 500.3104(13), (14)). Independent actuaries examine the association every third year (MCL 500.3104(21)). If assets exceed 120% of liabilities and a refund wouldn’t threaten its ability to pay, the Director must order the amount above that level refunded for distribution to insureds (MCL 500.3104(22), (24)). By September 1 of each year, the association posts a consumer statement on its website (MCL 500.3104(25)). Point clients there if they ask where the charge goes.
Lesson summary
- PPI pays up to $1,000,000 under 1 policy for 1 accident, without regard to fault, for damage to tangible property in Michigan, and it excludes vehicles not properly parked.
- Standard residual liability limits are $250,000 and $500,000 for bodily injury and $10,000 for property; a person may choose as low as $50,000 and $100,000 on the Director’s form.
- Tort liability is abolished for an insured vehicle except for intentional harm, noneconomic loss over the threshold, excess economic loss, a nonresident’s economic loss and limited vehicle damage.
- Serious impairment of body function must be objectively manifested, involve an important body function and affect the person’s general ability to lead a normal life.
- The vehicle-damage claim is up to $3,000, isn’t part of residual liability, and is barred for a party more than 50% at fault.
- PIP is overdue after 30 days from reasonable proof, and overdue amounts bear 12% simple interest.
- A PIP suit must start within 1 year of the accident unless notice was given or PIP was paid, and it recovers only loss from the year before suit.
- The assigned claims plan serves people with no available PIP, and the catastrophic claims association reimburses insurers for high losses on no-limit policies.