In Michigan, a person injured in an automobile accident, caused by the negligence of another, may be entitled to bring a third-party claim to recover certain damages under the provisions of the no-fault code.

The action is defined as "third-party" because there is no formal relationship between the claimant and the insured and the damages arise in the context of a breach of duty rather than a breach of contract. Contrast this with a "first-party" claim where the claimant and insured do have a formal relationship by virtue of the policy of insurance and damages arise by virtue of the alleged breach of the insurance contract.

Usually, the damages for each claim are separate and distinct, but do overlap somewhat in the more catastrophic accidents. This will be discussed further below. However, it is important to distinguish economic damages (usually the subject of first-party claims) from non-economic damages (usually the subject of third-party claims).

Prior to 1973, Michigan was a traditional tort state i.e., a person injured in an automobile accident, caused by the negligence of another, was allowed to sue the responsible party for all damages allegedly sustained. This would include damages for pain and suffering, mental anguish, disfigurement and other non-economic loss as well as damages for medical expenses, loss of wages, property damage, damage to the vehicle, out of pocket expenses and other economic loss.

The Michigan Legislature adopted our current system of no-fault in order to address many of the problems that injured people were experiencing in collecting benefits under the tort system. Because a claimant did not have coverage through his own insurer for accident-related damages and expenses, he was forced to sue the responsible driver.

The no-fault system was offered as a social and legal response to long payment delays, inequitable payment structure and high legal costs inherent in the tort liability system. The goal of the no-fault insurance system was to provide injured persons with assured, adequate and prompt recovery for certain economic losses, without regard to fault (hence the term "no-fault") and to reduce litigation. Under this system, claimants would receive these benefits from their own insurers as a substitute for their common law remedies in tort.

In return, tort liability was abolished, in part, as will be more fully discussed below. The no-fault code underwent several significant changes as a result of "tort reform" in 1996 which materially affect how third party claims are handled. The purpose of this summary is to acquaint the claims handler with the current state of the law and to offer some practical advice in the evaluation and negotiation of third party no-fault claims.

A person remains subject to tort liability for non-economic loss caused by his or her ownership, maintenance or use of a motor vehicle only if the injured person has suffered death, serious impairment of body function, or permanent serious disfigurement.

This section affords conditional tort immunity to a negligent driver. If the injury does not reach the threshold defined above, then an injured person is not entitled to recover non-economic damages.

Note that only non-economic damages are recoverable under this section. However, §3135(3)(c) also allows recovery for economic damages for allowable expenses (i.e. PIP benefits), wage loss and survivor’s loss benefits in excess of those payable under the no-fault code. Also note that an injured person does not have to establish a threshold injury in order to claim these damages.

Furthermore, once the threshold has been reached, an injured party may recover all of his damages related to the accident even though his condition has improved and would no longer qualify as a threshold injury.

In essence, an injured person may recover non-economic damages only if he or she sustains a substantial injury as the result of the negligent operation, maintenance or use of an automobile.

The definition of "serious impairment of body function" was adopted as part of tort reform to codify the Michigan Supreme Court ruling in Cassidy v McGovern, 415 Mich 483 (1982). The statute now requires that the injured person prove that he has:

"*****suffered an objectively manifested impairment of an important body function that affects his or her general ability to lead a normal life*****"

The issue of whether a person has suffered a serious impairment of body function is a matter of law for the court to decide if there is no factual dispute concerning the nature and extent of the injury sustained or there is a factual dispute but the dispute is not material to the issue of a threshold injury. Otherwise, the question is submitted to the jury for resolution.

Also, if the person claims a closed-head injury which is supported by the testimony of a doctor who regularly diagnoses or treats these injuries, then the question of serious impairment must be submitted to the jury.

"Objectively manifested" means that the injury must be capable of medical measurement. There must be a medically identifiable injury which establishes a physical basis for subjective complaints of pain.

"Important body function" has not been defined but the term suggests that innocuous injuries such as "whiplash" or soft-tissue injuries do not qualify.

"General ability to lead a normal life", likewise, had not yet been defined by the courts. However, it would appear that there must be a significant disruption in the claimant’s lifestyle and ability to engage in the activities of daily living before recovery may be made.

What body function is involved?

How serious is the impairment?

How does the impairment affect the person’s general ability to lead a normal life?

What is the extent of the impairment?

How long did the impairment last?

What treatment was required to correct the impairment?

How long did the treatment last?

Is the impairment permanent?

What is the life expectancy of the claimant?

Is there a medically identifiable injury?

Is there a physical basis for subjective complaints of pain?

Is there a pre-existing medical condition which would account for the current complaints?

Are the injuries consistent with the accident description?

What is the prognosis for recovery?

The above list is not exhaustive and any other pertinent factor should be considered when assessing the existence of a serious impairment of body function.

Generally speaking, injuries requiring surgery are more serious than non-surgical injuries. Impairment of higher-level body functions (such as the brain) is more significant than lesser functions (such as restricted motion of the neck or back). Permanent injuries are more substantial than those that heal. Injuries that require ongoing medical treatment are more serious than those treated at home with over-the-counter medication. A broken bone is generally more significant than a soft tissue injury. A fracture of a weight bearing bone is more serious than a non-weight bearing bone.

May v Sommerfield (after remand) – Court of Appeals: No objective manifestation of injury aside from subjective complaints of pain. Even if objectively manifested injury, there was no genuine issue of material fact that impairment affected Plaintiff’s general ability to lead normal life. Trial Court properly compared Plaintiff’s pre-accident and post-accident lifestyle. Injury not described.

Kronnich v Hale – Unpublished Court of Appeals: Plaintiff suffered impaired ability to move back, had chronic pain, diagnosed with closed head injury. Trial Court properly determined that Plaintiff had serious impairment of body function. It appears that trial court was trier of fact, and not decided on summary disposition, as case summary discussed evidence at trial.

Kern v Blethenn-Coluni – Court of Appeals: Nine-year-old boy with broken leg had serious impairment of body function. Plaintiff had comminuted oblique fracture of the right femur. Hospitalized for 6 days (4 in traction), surgery to install external fixator and 4 pins. Fixator worn for 11 weeks, during which time plaintiff was unable to walk. Missed 3 weeks of school. Second surgery to remove fixator and pins. Eventually returned to walking and other activities of a nine-year-old.

Churchman v Rickerson – Court of Appeals: Although physician attested in affidavit that minor plaintiff had closed head injury and traumatic brain injury, this did not establish serious impairment of body function. Affidavit did not specify degree of injury and section 3135 requires "serious neurological injury". Mere diagnosis of CHI is not enough.

Matthews v Tahash – Unpublished Court of Appeals: Plaintiff’s self-imposed restrictions on activities not sufficient to avoid summary disposition in favor of Defendant on issue of serious impairment of body function. Plaintiff’s treatment concluded within 2 months of accident. Headaches did not warrant specialized testing or treatment. Plaintiff continued to experience some head and neck pain but did not require treatment or medication.

Starks v Stockdale – Unpublished Court of Appeals: Where Plaintiff can only show "mild" injuries and did not show that they were permanent, Defendant properly granted summary disposition on issue of serious impairment of body function. Doctor who examined Plaintiff one day after accident found "mild posterior cervical cord tenderness", "mild tenderness just to the right of the thoracic spine between scapula and thoracic spine", and "slightly tingly feeling to the right thumb and forefinger". Diagnosis was acute cervical strain and parasthesia of right thumb and forefinger. Nothing in medical records supports conclusion of impairment, let alone serious impairment affecting general ability to lead normal life.

Powell v Joseph – Unpublished Court of Appeals: Jury verdict finding proximate cause but no serious impairment of body function supported by evidence. Plaintiff had neck injury which jury found was not a serious impairment of body function. The medical evidence presented by both parties was conflicting.

Reynolds v McAdam – Unpublished Court of Appeals: Plaintiff fractured clavicle and 3 ribs. Trial Court nevertheless properly concluded as a matter of law that he did not sustain a serious impairment of body function. Only off work 1 month. Did not require complicated treatment. Doctor considered injury resolved within 4 weeks. Lingering pain and disparity in muscle strength did not create jury question as to whether impairment was serious.

Sadik v Solbury – Unpublished Court of Appeals: Plaintiff’s claim that several of her medical conditions were caused by the motor vehicle accident was properly dismissed because no evidence of causation was produced. Claimed injuries included herniation and carpal tunnel syndrome.

Blatt v Lynn – Unpublished Court of Appeals: Although motor vehicle accident pre-dated 1996 amendment amended no-fault act applied because suit was filed after effective date of the amendment. Plaintiff did not have serious impairment of body function, even assuming that neck, back, shoulder, and emotional injuries impaired important body functions; injuries had "negligible effect" on Plaintiff’s ability to lead normal life. No immediate treatment sought, continued to work and visit gym, did not make claim for replacement services from PIP carrier, completed physical therapy, no treatment for panic attacks until 1 year post-MVA.

Wheeler v Tasker – Unpublished Court of Appeals: No serious impairment of body function despite claimed injuries to neck and upper back. Plaintiff saw doctor 3 times over 6 months. Six weeks post-MVA range of motion in neck returned to normal and improved in back. Return to work without restriction 1-month post-MVA.

Crandall v Richmond – Unpublished Court of Appeals: Neck injury was not serious impairment of body function. Injury did not seriously impinge ability to engage in daily activities, did not prevent from working, did not require complicated treatment, and doctor considered to resolve within 1 month. Lingering pain did not create jury question whether impairment was serious.

Mincoff v Anderson – Unpublished Court of Appeals: Plaintiff did not visit doctor until 54 days after MVA. No diagnosis of any substantial abnormality or injury. Diagnosis of strains and pulls, mild whiplash injury. No serious impairment of body function.

Patterson v Chavez – Unpublished Court of Appeals: 15% permanent spinal limitation no serious impairment of body function.

Jackson v Wojczynski – Unpublished Court of Appeals: Claimed shoulder injury was not serious impairment of body function. No fracture, ER instructions to use ordinary analgesic and ice pack. Full ROM in shoulder, cleared RTW 2 weeks after initial exam. No work or recreational restrictions from doctor. Doctor who examined plaintiff at plaintiff’s counsel’s request described injury as "nagging" and "annoying".

Rakczynski v Kuriger – Unpublished Court of Appeals: Trial Court ruled as matter of law that Plaintiff’s injuries were not serious impairment of body function. Plaintiff had pain in neck, back and shoulders. Chronic muscle strain. Pain limited certain recreational activities but did not inhibit employment as a laborer. No evidence of restricted ROM, x-ray and MRI normal.

A claimant is completely barred from recovery of non-economic damages pursuant to §3135 if either of the following exist at the time of the accident:

The claimant was more than 50% responsible for the accident;

The claimant was operating a motor vehicle which he owned and which was uninsured.

Please note that the above provisions apply to non-economic damages only and an injured party is still allowed to present a claim for economic damages.

Also note that, as part of the overall tort reform scheme, the legislature adopted new provisions regarding intoxicated claimants. MCLA 600.2955a eliminates all damages (both economic and non-economic) for a claimant who had an impaired ability to function due to the influence of intoxicating liquor or a controlled substance and who was 50 % or more at fault for the accident.

A claimant need not be legally drunk for this rule to apply if there is any impairment of his ability to operate a motor vehicle. Also, it is not necessary that a claimant be convicted of an alcohol or controlled substance offense for this provision to apply.

Two common law theories arise with enough frequency that the claims handler should be aware of them. The first is the Wrongful Conduct Doctrine. Essentially, this doctrine bars recovery if the claimant’s cause of action depends, in whole or in part, on an illegal or immoral act or transaction to which he is a party. For example, if a claimant passenger sues his driver for negligence caused by the consumption of a controlled substance and the drugs were provided to the insured by the claimant, then the suit may be barred because of the wrongful conduct of the claimant.

The second theory is known as the Doctrine of Consent. Essentially, the courts will bar recovery if a claimant voluntarily subjects himself to a known or inherent danger (for example – voluntarily engaging in a drag race).

Once again, certain accident facts may call these common law bars to recovery into play. Whenever it appears that a claimant may have been involved in some form of illegal activity, the claims handler should be prepared to address this issue with claimant counsel.

At common law, a claimant was completely barred from all recovery if he contributed to his injury in any way. This was known as the doctrine of contributory negligence. Consequently even 1% negligence by the claimant precluded an award of damages.

In 1973, Michigan adopted a "pure" comparative negligence system. This meant that an injured person could recover damages but that any award was to be reduced by the percentage of negligence attributable to him. For example, a jury might decide that a claimant suffered damages in the amount of $100,000 but that he was 90% responsible for his injuries. The court would then reduce the verdict to $10,000 which reflects damages less comparative negligence.

As noted above, as part of tort reform, Michigan now subscribes to a "modified" comparative negligence system. If the claimant is more than 50% responsible for his non-economic damages, his case is barred (economic also if he is intoxicated).

If a bar to recovery does not exist, then the old system of pure comparative negligence applies. Also keep in mind that the no-fault bar does not apply to economic damages.

Under the old system, a jury could only apportion negligence to parties actually involved in the suit. However, a new procedure allows a defendant to identify non-parties as potentially responsible for the claimant’s damages. Non-parties also include defendants who have settled before or during trial. The claimant then has the opportunity to add the non-party as a defendant. If he does not do so, then the jury will be required to divide negligence among not only claimant and the insured, but also among everyone identified as potentially responsible.

The verdict will then be reduced by the court by the amount of claimant’s comparative negligence and by the percentage of negligence attributable to the non-parties. In other words, an insured is never responsible for any part of the verdict which exceeds his percentage of negligence.

Note that joint and several liability (for the most part) was abolished by adoption of this new method of allocating negligence.

If a verdict is rendered in favor of claimant and the verdict includes damages for economic loss, then the court must engage in a post-trial proceeding to determine whether those damages are payable by a collateral source (such as health insurance, a wage continuation plan, disability insurance, worker’s compensation, social security disability benefits, etc.,).

If a collateral source has paid the economic damages and if there is no enforceable lien, then the court must reduce that portion of the verdict by the amounts paid by the collateral source.

If the verdict awards future damages (economic or non-economic), then the court is required to reduce such damages to "gross present cash value". The law recognizes the investment potential for money paid in the present for damages that will accrue in the future.

A statutory 5% per annum figure is used in this regard. Please note that claimant’s comparative negligence is to be used to reduce the damages before reduction to present value.

Each driver and front seat passenger in an automobile is required to use an available seat belt and/or shoulder harness. Failure to do so is evidence of comparative negligence not to exceed 5%.

Note, however, that the limitation of 5% does not, by the express terms of the statute, apply to back seat passengers. As such, the jury could theoretically, assign an unbelted claimant a much higher percentage of negligence if the injuries would have been eliminated or reduced by the use of a restraint.

Was the insured negligent?

Was the Claimant negligent?

Were non-parties to the claim/lawsuit negligent?

What are the respective percentages of negligence?

Was the claimant injured?

What are the injuries?

Are the injuries related to the accident or a pre-existing cause?

Are the injuries related to the accident or a subsequent cause?

Did the claimant sustain a new injury or merely an aggravation of a prior condition?

Do the injuries reach the no-fault threshold? (apply the factors located on page 3)

Is the claimant entitled to economic as well as non-economic damages?

Does a statutory bar to recovery exist?

Does a common law bar exist?

Can the claim be reduced by one or more theories discussed above?

How will the claimant present himself before a jury?

How will your insured present himself before a jury?

What venue is involved?

What judge has been assigned to the case?

What historical values have been assigned to similar claims?

What are the jury verdicts in the venue for similar claims?

What is the reputation and legal ability of claimant counsel?

What is the reputation and legal ability of defense counsel?

Are there any value-driving factors (i.e. aggravated liability)

What is the claimant profile (age, occupation, economic and educational status, etc)?

What are the anticipated legal expenses?

What are the chances of prevailing at trial?

What are your strong points?

What are your weak points?

What is the demand for settlement?

What is your evaluation range?

Once again, these items are not exhaustive, but should present the claims handler with a solid basis for evaluating a third party no-fault claim.

Negotiation is the final phase of claim handling. This is a process whereby both sides attempt to agree on the value of a particular claim. By necessity, negotiation involves both persuasion and compromise.

This process should be strictly intellectual and objective. An emotional response to settlement negotiations will, in all likelihood, be counter-productive and force a claim into litigation unnecessarily. Even after a lawsuit has been started, the negotiation process may continue.

It is the responsibility of the claims handler to persuade the claimant or his attorney that the evaluation is based of hard facts, is supported by the law and is reasonable considering all pertinent facts of the claim. However, the claims handler must also be willing to compromise his position when faced with an opposing logical argument as to why the original evaluation is too low. An evaluation should not be changed unless a very good reason to do so is presented by the claimant or his attorney. In other words, compromise is one thing and concession is another.

There is no substitution for preparation. The claims handler must know the facts and the law as well as or better than the opposing side.

The claims handler must act professionally at all times. If a claimant or attorney understand that you are being businesslike and simply doing your job, then the views you advance will be better received.

An emotional response to negotiations reduces the ability to be objective.

Flexibility during negotiations is desirable. Remember that negotiating is a give and take process. A take it or leave it approach generally will not resolve the case.

On the other hand, if no good reason has been given to increase the settlement offer, the claims handler should stick to the original evaluation.

Be prepared to discuss all aspects of the case (liability and damages) and articulate the basis of your evaluation clearly.

Be prepared to explain precisely why you believe that your offer is fair.

Be courteous and considerate during negotiations.

Be patient. This may be a very lengthy process with many offers and counter-offers.

Be prepared to pay full value if the circumstances warrant it.

Attempt to establish a rapport with the claimant or his attorney.

Ask questions in an effort to understand the opposing evaluation. 

Do not be hesitant to insist that the other side justifies the demand.

Keep an open mind and be willing to listen to an opposing view.

Avoid technical terms when dealing directly with a claimant.

Never attempt to ridicule a claimant or attorney when confronted with an excessive demand. To the contrary, reiterate the logical basis for your evaluation and request that they do so as well.

Be prepared to re-evaluate your position in the event that new facts surface.

As a general rule, ask the claimant for a demand before making an offer. This will allow you to understand what the claimant’s expectations are and provide a starting point for negotiations.

Explain the benefits of settlement – i.e. avoidance of litigation costs and expenses and undue delay.

Secure an itemized list of damages from the claimant or his attorney.

Emphasize the strong points of your evaluation and the weak points of the claimant’s.

Do not negotiate in ranges. If you reveal your "range" at $10,000-$15,000, the high end becomes the beginning point for further discussions.

Do not be reluctant to take a "time out" if negotiations reach an impasse. Sometimes a break in the discussions allows the parties to look at things more objectively.

Don’t take a lawsuit personally. Remember that there is still the opportunity to settle the case after litigation has started.

Don’t be reluctant to discuss your claim with others in the office or your attorney. Other individuals may be able to give you additional perspective that may help resolve the claim.

Above all, negotiate from a state of confidence. Before starting this process you have already become familiar with the facts and law. Your evaluation derives from thorough and careful preparation. The ability to articulate your position, knowing that you have done your "homework", will go a long way toward resolving a claim.