JC Reindl | Detroit Free Press

Detroit Mayor Mike Duggan is turning to the courts to lower Michigan's highest-in-the-nation auto insurance rates after failing to get the state Legislature last year to back an overhaul of the no-fault insurance system.

Duggan, joined by eight motorists across the state who are also plaintiffs, filed a lawsuit Thursday in U.S. District Court in Detroit that seeks to have Michigan's no-fault law declared unconstitutional.

The lawsuit, against Michigan's insurance director, asks the court to declare the 1973 no-fault law unconstitutional for failing to produce car insurance rates that are "fair and equitable."

It then wants the court to give the state six months to amend the law so that rates will fall. And if the state can't fix no-fault in that time, Duggan's lawsuit says the court should declare no-fault "null and void" and revert Michigan into a tort-based insurance system, similar to Ohio, Indiana and 36 other states where auto insurance is much cheaper.

Under a tort system, the Democratic mayor said he thinks auto insurance rates in Detroit would be cut in half.

Duggan's lawsuit reads as an indictment against the no-fault system for leading to runaway medical costs, unchecked greed and fraud and a surge in recent years of auto accident-related litigation.

Under Michigan's unique no-fault system, all motorists must buy coverage for potentially unlimited medical benefits. Benefit payouts are capped in the other 11 no-fault states, and motorists in tort states get minimal health care through car insurance.

The costs to Michigan consumers for no-fault's medical benefits go beyond the $192 annual per-vehicle fee charged by the Michigan Catastrophic Claims Association to reimburse insurance companies for accident victims whose medical bills exceeded $550,000.

A spokeswoman for the Michigan Department of Insurance and Financial Services, the defendant in the lawsuit, declined comment because the department has yet to see the lawsuit.

Failed bill

For Duggan, the lawsuit could be considered a Plan B for lowering car insurance rates for Detroiters after the proposed no-fault overhaul bill that he championed was voted down in November by a 63-45 vote in the state House of Representatives.

"I thought it was so obvious that the trial lawyers and the hospitals were ripping us off, that I would have no trouble convincing legislators to have a conscience and fix it," Duggan said Thursday at a news conference. “I no longer have faith in Lansing to do the right thing.”

Ryan Garza, Detroit Free Press

That bill called for numerous controversial changes to no-fault, including restraints on medical provider pay and giving all Michigan motorists a first-ever choice in the amount of health insurance they are required to buy as part of their auto insurance.

These health insurance benefits in no-fault policies, known as "personal injury protection," now represent the biggest portion of auto insurance premiums in Detroit. The no-fault system allows lawyers who represent people in accidents to get 33 percent of their client's total medical bills as a retainer fee.

"My friends over at DMC and Henry Ford (hospital systems) are getting paid triple their normal rates. The lawyers take a third, they still get double," Duggan told reporters Thursday. “So the hospitals make out, the lawyers make out and people in Michigan are paying the highest rates in America.”

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Critics of last fall's Duggan-backed insurance overhaul bill said it could have led to the end of the no-fault system and its valuable safety net for catastrophically injured people, who might otherwise end up in Medicaid-paid nursing homes instead of receiving the quality in-home care now available.

Under the bill, those who exhausted their no-fault coverage options would have had to fall back on regular health insurance.

Landmark case

The lawsuit filed Thursday hinges on a 1978 Michigan Supreme Court decision in a landmark case called Shavers v. Kelley that upheld the concept of no-fault insurance, but found the law "unconstitutionally deficient" for lacking mechanisms to ensure that insurance — a product all Michigan motorists are required to buy — is available at "fair and equitable rates."

The state Supreme Court in that case gave the Legislature and governor 18 months to correct no-fault's problems. The Legislature went on to pass reforms in 1979. Three years later, the Supreme Court kept no-fault in place because there was no further challenge to the law — not specifically because of the 1979 reforms.

Duggan's lawsuit says the car insurance rates problem has only grown worse since then, and is therefore unconstitutional.

A report by The Zebra, an insurance comparison website, found that Michigan had the nation’s most expensive auto insurance rates at $2,610 per year. The analysis was done late last year and based on a 30-year-old single male with a good driving history driving a 2013 Honda Accord EX.

The city of Detroit had the highest rates of any city in the insurance comparison: $5,414 per year.

Last year, the Detroit Police Department issued 23,087 citations to motorists for driving without insurance. The department has estimated that 60 percent of Detroit drivers go without insurance, largely because of the high cost.

CPAN disagrees

The Coalition Protecting Auto No-Fault, a group of medical providers, patient advocates and trial lawyers known as CPAN, issued a statement that called Duggan's lawsuit a political stunt that wrongly blames no-fault instead of insurers for the high premiums.

"CPAN is deeply concerned about the lawsuit that aims to make sweeping and potentially devastating changes to Michigan’s auto no-fault law, a move that will allow insurance companies to sell worse plans with no guaranteed reduction in rates," coalition President John Cornack said.

Attorney George Sinas, a no-fault expert who teaches auto insurance at Michigan State University College of Law and is general counsel for CPAN, said a major flaw in Duggan's lawsuit is its disregard of the role insurance companies have in setting rates, using factors such as credit scores, professions and whether or not someone has a college degree.

“The mayor’s lawsuit doesn’t in any way attack the real problem here, which is a rate-making structure that allows rules to be utilized by the insurance industry that are inherently unfair and discriminatory," Sinas said. "The mayor doesn’t say anything about that, and by not saying anything, he implicitly blesses the practices of the insurers.”

Sinas also said that he suggested to a top Detroit official several years ago that the city file a lawsuit about unaffordable insurance rates that was based on the Supreme Court's 1978 Shavers decision, but focused instead on the questionable ways that insurance companies calculate motorists' premiums.

“This lawsuit could have asked for the insurance bureau to conduct a hearing and determine whether all of the rate-making practices being used by insurance companies today are fair and equitable," Sinas said. “I suggested that, but was essentially laughed at."

Duggan's lawsuit contends that no-fault became unconstitutionally unaffordable in Michigan for several reasons, including the unlimited medical benefits, overpriced medical services and "no effective protections against those auto accident attorneys who encourage over-treatment and who pursue large (no-fault) recoveries for minor injuries."

Speaking with reporters, Duggan said that his policy preference is for no-fault insurance to completely go away.

"Ohio and Indiana haven't dropped off into the ocean because they have a tort system," Duggan said. "In all the other states, once your car insurance runs out, you’re covered by your normal health insurance — that might be Blue Cross, it might be Health Alliance Plan, it might be Obamacare, it might be Medicare, it might be Medicaid.

"The only place in America that says no matter what other health care you already have, you have to pay double when you buy your car insurance, is Michigan, and that’s what has to stop," the mayor said.

The other eight plaintiffs in the lawsuit are:

Carrol Lockett, 69, of Oak Park, who pays $329 per month for auto insurance, despite a clean driving record and no accidents in more than 20 years.

Joseph Vaughn, 53, of Detroit, who is currently uninsured and recently received a price quote of $4,000 for six months of coverage, which was unaffordable for him.

Gladys "Peggy" Noble, 76, of Detroit, a retired social worker with a good driving record who pays $219 per month for basic coverage on her 2002 Chevy Impala.

Stephanie Huby, 49, of Eastpointe, who pays $250 per month.

Ian Davis, 27, of Oak Park, who pays about $200 per month for his 2012 Honda Civic.

Haley Roell, 20, of Ann Arbor, a University of Michigan student.

Jacintha Pittman, 39, of New Haven, who pays $325 per months for her 2008 Saturn VUE.

Clayton Wortmann, 25, of Detroit, who pays $280 per month for his 2015 Chevy Cruze.