Overruling more than three decades of precedent, the Michigan Court of Appeals significantly broadened recovery opportunities for personal protection insurance carriers pursuing subrogation claims against negligent third parties.
For more than thirty years, Michigan no-fault insurers operated under the assumption that Michigan Compiled Laws (MCL) §500.3116 generally barred them from recovering personal injury protection (PIP) benefits from negligent non-motorist tortfeasors unless one of three narrow statutory exceptions applied. In Call v. L& KJ Enterprises, LLC, however, a special panel of the Michigan Court of Appeals fundamentally altered that landscape. The court expressly overruled Citizens Insurance Co. v. Pezzani & Reid Equip. Co. Inc, 202 Mich. App. 278; 507 NW2d 833 (1993), holding that MCL §500.3116 governs only an insurer's right to reimbursement from a claimant's tort recovery, not an insurer's independent negligence action against a third-party non-motorist tortfeasor.
The decision represents one of the most significant Michigan no-fault subrogation rulings in decades. By removing a longstanding barrier to recovery, Call creates new opportunities for insurers to pursue subrogation claims against businesses and other non-motorist entities whose negligence contributes to motor vehicle accidents.
The Accident
The case arose from a routine tire service with devastating consequences. After a customer brought her RAV4 to Family Tire for a tire rotation and related maintenance, she drove approximately one mile before the vehicle's left rear tire detached. The loose tire struck another vehicle occupied by James and Sharon Call, causing their vehicle to become airborne and resulting in significant injuries.
Their no-fault insurer, Frankenmuth Insurance Company, ultimately paid more than $381,000 in PIP benefits. The Calls filed suit against the tire shop for negligence, and Frankenmuth intervened as subrogee, seeking to recoup the benefits it had paid out.
Family Tire moved for summary disposition, arguing that MCL §500.3116 permitted recovery only in three circumstances:
- Accidents occurring outside Michigan,
- Accidents involving uninsured motor vehicles, and
- Intentional torts.
Family Tire argued none of these circumstances existed, and Frankenmuth's claim was therefore barred under the Court of Appeals' 1993 decision in Pezzani. The trial court agreed and dismissed Frankenmuth's claim.
The Court Rejects Three Decades of Precedent
The Court of Appeals convened a special conflict panel to resolve whether Pezzani correctly interpreted Michigan's No-Fault Act. The panel concluded it did not. The court emphasized that statutory interpretation begins with the text itself and that every provision must be read in the context of the statute as a whole. Applying those principles, the court determined that MCL §500.3116 addresses only one subject, an insurer's ability to obtain reimbursement from a claimant after the claimant recovers damages in tort.
The repeated references throughout the statute to "claimant" proved critical to the court's analysis. Rather than regulating lawsuits brought by insurers against negligent third parties, the statute established when an insurer may offset benefits, obtain reimbursement, or assert a lien against a claimant's tort recovery.
The statutory lien language was particularly telling. The Legislature granted insurers "a lien on the recovery," a remedy that makes sense only if the insurer is seeking repayment from its insured or claimant after a tort recovery. The provision does not address, or purport to restrict, an insurer's independent tort action against a negligent third party.
The court further concluded that §MCL 500.3146 reinforces this interpretation by establishing a one-year limitations period for an insurer's reimbursement action measured from the date "payment has been received by a claimant upon a tort claim." Read together, the statutes consistently regulate reimbursement from claimants, not common-law negligence claims against third parties.
The Ruling Against Pezzani
Although Pezzani correctly recognized that MCL §500.3116 limits an insurer's ability to recover from an insured's tort recovery, the special panel concluded that the earlier court improperly extended that limitation to entirely different claims.
According to the panel, Pezzani cited the proper legal principles but applied them incorrectly by treating the reimbursement limitations contained in MCL §500.3116 as a blanket prohibition on subrogation claims against negligent non-motorist tortfeasors. The opinion offered little statutory analysis and failed to reconcile its conclusion with the statute's repeated reference its reimbursement from "the claimant." Because the decision conflicted with the statute's plain language, the court expressly overruled Pezzani.
Consistency with Existing Michigan Supreme Court Authority
The court also observed that its interpretation aligns with longstanding Michigan Supreme Court precedent. In Citizens Insurance Co. of America v. Tuttle, the Supreme Court explained that the no-fault act abolished only tort liability arising from the ownership, maintenance, or use of motor vehicles. It did not eliminate liability arising from independent negligent conduct by non-motorists. Tuttle likewise recognized that MCL 550.3116 concerns an insurer's right to subtract or obtain reimbursement for duplicative recoveries received by its insured. Id.
Similarly, Dunn v. Detroit Auto Interinsurance Exch., 254 Mich. App. 256, 267; 657 NW2d 153 (2002), held "a no-fault insurer cannot seek reimbursement for medical benefits paid from an insured's third-party tort recovery except under the limited circumstances set forth in the no-fault act, MCL §500.3116." In addition, in Esurance Prop. & Cas. Ins. Co. v. Mich. Assigned Claims Plan, 507 Mich. 498, 506n 9; 968 NW2d 482 (2021), the Supreme Court found MCL §500.3116 "provides rights of reimbursement and indemnity to no-fault insurers for cases in which a claimant recovers on a tort claim." Thus, the Court has consistently described MCL §500.3116 as governing reimbursement for claimants following tort recoveries rather than restricting independent negligence actions brought by insurers.
Viewed against that backdrop, the special panel concluded that Pezzani represented an outlier that could no longer be reconciled with the statutory language or existing precedent.
Practical Implications
The practical significance of Call extends well beyond the facts of the case.
- By overruling Pezzani, the court substantially expanded the potential avenues through which no-fault insurers may seek recovery after paying significant PIP benefits.
- The impact is that commercial insurers are not only going to be defending cases for excess economic and non-economic damages, but also claims for reimbursement of the statutory economic damages paid.
- The practical impact is businesses and their carriers are going to have defend more claims, from injured parties and carriers alike.
- While motorists continue to receive the statutory scheme of the no-fault system, independent negligence claims can now be brought by those no-fault carriers, in addition to injured parties.
- Importantly, the court did not eliminate the limitations contained in in MCL §500.3116(2). Those statutory exceptions continue to govern when an insurer seeks reimbursement from a claimant's tort recovery. What the decision makes clear, however, is that those reimbursement provisions do not restrict an insurer's ability to pursue a separate negligence action against a non-motorist tortfeasor under ordinary principles of subrogation. Allowing that subrogation will reduce the limits available to businesses defending excess economic and non-economic claims from injured parties.
The practical impact is that the same commercial limits will now be exposed to subrogation and the non-economic or excess economic claims of the injured party. That will weaken the money available and create additional exposure for the businesses.
In a trucking accident, for example, typically the wage loss and medical are paid by the PIP carrier. If there is a “serious and permanent impairment of an important bodily function”, a claimant can bring a third-party claim for negligence against the driver and vicarious liability for the trucking company, (as well as any direct negligence claims such as hiring/retention/training) to recover non-economic damages, or any economic damages over the statutory caps. What this decision potentially unlocks is that now the PIP carrier can bring those direct negligence claims against the trucking company. Where they only have a $1M limit, it will become a battle on two fronts, creating more risk to the businesses.
Looking Ahead
The Call decision marks a significant shift in Michigan no-fault jurisprudence. By returning to the plain language of the statute and expressly overruling decades of contrary precedent, the Court of Appeals has restored an important avenue of recovery for insurers paying substantial PIP benefits.
Claims professionals should expect increased scrutiny of potential third-party negligence in serious-loss cases, while businesses whose conduct contributes to motor vehicle accidents should anticipate greater subrogation exposure. Going forward, the focus in many Michigan no-fault cases will extend beyond the motorists involved in the collision to the broader universe of non-motorist actors who are alleged to have been negligent in relation to the accident.
