Court rules USAA on the hook for PIP as Esurance runs dry
A Michigan court ruled on March 2 that lower-priority insurers can be tapped once higher-priority coverage runs out.
The case began with a serious motorcycle accident on November 12, 2020, in Muskegon, Michigan. Aaron Slade was riding his cousin's motorcycle the wrong way down Seaway Drive when he collided head-on with a car driven by Haley Tanner. Slade suffered catastrophic injuries, including a severe traumatic brain injury, and was eventually transferred to Mary Free Bed Rehabilitation Hospital for inpatient rehabilitative care. His total medical bill came to just over $1.18 million.
Tanner's car was insured through Esurance Property and Casualty Insurance Company, with a $250,000 limit on personal protection insurance, or PIP, benefits - the coverage that pays for medical expenses under Michigan's no-fault system. Slade's father, meanwhile, carried an auto policy through United Services Automobile Association that included unlimited PIP coverage, and Slade was a covered person under that policy because he lived with his parents.
Esurance paid $113,307.30 toward Slade's treatment before cutting off payments, saying it had reached its policy maximum. Mary Free Bed then turned to USAA, asking it to cover the remainder under the parents' unlimited policy. USAA refused, arguing it was lower in the priority order under Michigan law and that Esurance, as the higher-priority insurer, had already done its part.
That dispute - who pays when the first insurer runs out - is what landed the case before the Michigan Court of Appeals, and the court's answer was unambiguous: the hospital can go down the list and collect from USAA.
Michigan's no-fault law requires injured motorcyclists to claim PIP benefits from insurers in a set order. The insurer of the car involved in the accident sits at the top; the motorcyclist's own auto insurer falls further down. For years, that priority order was largely academic – insurers at the top of the list were required to provide unlimited lifetime benefits, so there was never any need to look further. But the state's 2019 no-fault reform changed that by letting policyholders choose capped coverage levels, with $250,000 being one of the available options. Suddenly, a higher-priority insurer could run dry before an injured person's bills were paid.
The court found that nothing in Michigan's no-fault statute actually stops a claimant from moving down the priority list once a higher-ranked insurer's policy is used up. The law directs injured people to claim benefits from insurers in order of priority, but it does not say they must stop once the first insurer has paid out. Before the 2019 reform, that was never a problem because the highest-priority insurer always had to keep paying. Now that capped policies are allowed, the court said, the statute should be read to allow claimants to keep going down the list if they need to.
The court also pointed to a provision in the 2019 reform law that, when more than one insurance policy is in play, caps total recovery at the highest coverage limit available under any one of those policies. Because USAA's policy carries unlimited coverage, that effectively meant the hospital's remaining claims were fair game. By contrast, if both policies had carried the same $250,000 limit, the hospital would not have been able to collect more than $250,000 in total – it could not have used a second policy to double up on the same limit.
The court also noted that the 2019 reforms quietly removed an older provision that had prohibited injured people from stacking multiple insurance policies to recover more than a single policy would provide. The Legislature chose not to replace that provision, a fact the court found telling.
Before reaching the USAA question, the court had to resolve a dispute over whether Esurance's $250,000 limit was even valid. Mary Free Bed argued that Tanner had never properly agreed to that limit when she bought her policy online. Tanner herself testified at deposition that she did not remember seeing the coverage selection form, did not recall choosing a $250,000 cap, and did not remember signing anything to that effect. All Esurance could produce was a coverage form marking the $250,000 option, with Tanner's name and a date printed at the bottom - but no proof she had actually signed or adopted it.
The court agreed that this was not enough to show Tanner had made a proper coverage selection - Michigan law requires something more than a name appearing on a document to prove a valid electronic signature. But the court said Esurance was saved by a separate rule in the statute: where a premium has actually been paid, there is a presumption that the premium amount reflects the coverage the policyholder chose. Esurance backed this up with its policy declarations pages showing $21 of Tanner's total $568 premium allocated to PIP coverage, a supplemental page confirming the $250,000 limit, and payment records showing consistent premiums over time. Tanner also testified that she sought coverage meeting the minimum legal requirements and had switched to Esurance for cheaper premiums, acknowledging she paid every month and renewed the policy several times. The court found that sufficient, and the hospital offered no evidence to counter it. Esurance's $250,000 cap stood.
The upshot: Esurance's coverage was valid and exhausted, meaning the hospital's claims against Esurance were properly dismissed. But the court found that USAA had been wrongly let off the hook. The case now goes back to the trial court for further proceedings on the hospital's claims against USAA.
For insurers writing unlimited PIP policies in Michigan, the ruling signals a potential exposure they may not have fully accounted for. A policyholder who pays for unlimited coverage may be drawn into a claim not because they were directly involved, but simply because a higher-priority insurer with a capped policy ran out of money first. How the industry responds - whether through revised underwriting standards, adjusted pricing, or updated policy language - remains to be seen.
