Timing of Insurer’s Payment of No-Fault Benefits Critical to Statute of Limitations Exception

Michigan law requires a person injured in an automobile accident to file an action for no-fault benefits within one year of the incident, but makes an exception if the insurer has paid benefits for the injury at any time before the action is commenced.

According to a recent Michigan Supreme Court opinion, the statute of limitations is only tolled if the insurer made payments within one year of the date of the accident.

In Jesperson v. Auto Club Insurance Ass’n, the plaintiff was injured on May 12, 2009 when his motorcycle was struck from behind by a vehicle owned by Mary Basha and operated by Matthew Badelalla in the course of his employment with Jet’s Pizza. On June 2, 2010, Auto Club Insurance Association (ACIA) was notified that it was it was the highest-priority no-fault insurer and began making payments to Mr. Jesperson on July 23, 2010.

Mr. Jesperson filed suit in Macomb Circuit Court on December 1, 2010, seeking damages for his injuries from Ms. Basha and Mr. Badelalla.  He later moved to amend his complaint and add a claim against ACIA, after the insurer ceased paying no-fault benefits. ACIA moved for summary disposition, citing MCL 500.3145(1) in support of its defense:

“An action for recovery of personal protection insurance benefits payable under this chapter for accidental bodily injury may not be commenced later than 1 year after the date of the accident causing the injury unless written notice of injury as provided herein has been given to the insurer within 1 year after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury.”

ACIA argued that, consistent with the notice provision, the payment exception was limited to one year. Macomb County Judge Mark S. Switalski agreed, finding that the exception to the one-year limitations period could only apply if ACIA had made a payment within one year after the May 12, 2009 accident. Because ACIA made payment in July 2010 – fourteen months later – Judge Switalski granted the motion and dismissed the action against ACIA. The plaintiff appealed, and the Michigan Court of Appeals affirmed Judge Switalski’s dismissal of the action.

However, in its unanimous opinion, the Michigan Supreme Court reversed the Court of Appeals and vacated the trial court’s order.

Relying on the language of the statute, the Court interpreted the timing of “notice” exception differently from the “payment” exception. It held that, although the first exception is triggered if written notice of injury has been given to the insurer within one year after the accident, the second exception is not similarly restricted. Instead, the Court concluded:

“[T]the payment exception to the one-year statute of limitations in § 3145(1) applies when the insurer makes a payment prior to the commencement of an action for no-fault benefits. Because such a payment was made in this case, the exception applies….”

It therefore appears that the Michigan Supreme Court construed ACIA’s payment more than one year after the loss as “re-starting” the limitations period on the plaintiff’s claim. While a plaintiff must provide written notice of injury within one year to preserve the ability to file suit, a plaintiff is not similarly restricted from filing suit if an insurer has made payment beyond the one-year anniversary of the loss.

For processing purposes, a claim handler must verify that any new claims received are not beyond the one-year anniversary of the loss before making initial payment. If a payment is made on a late notice claim, the insurer is essentially restarting the clock on the one-year statute of limitation – thus creating liability where it was previously extinguished.