Like other types of insurance benefits, no-fault benefits are subject to set-offs and reductions, which reduce an insurer’s obligation to pay certain benefits. A set-off or reduction is only allowed in cases in which no-fault benefits would duplicate government benefits or benefits from other insurance policies. § 3109 and §3109a of the No-Fault Act are the sections that apply to setoffs and reductions from first-party PIP benefits.
The No-Fault Act allows a seriously injured person to recover work loss damages. MCL 500.3107(1)(b). Work loss‖ is defined as income [which the injured party] would have received but for the accident.‖ Often times, claimants who are disabled for a prolonged period of time are entitled to Social Security Disability benefits.
When this occurs, the no-fault insurer is entitled to a set-off from its obligation to pay wage loss benefits for amounts the claimant receives or is entitled to receive in Social Security Disability (SSD) benefits.
In this regard, once a claimant has been off work for a significant period of time, the no-fault insurer will often request that the claimant apply for SSD benefits.
The incentive for the no-fault insurer is obvious – if benefits are awarded by the SSA, the insurer will be entitled to deduct the SSD benefits from its obligation to pay wage loss benefits.
The insurer can require that the claimant apply for SSD benefits because the law states that claimants have a duty to make reasonable efforts to mitigate their losses. The duty to mitigate includes applying for SSD benefits.
If the claimant is initially denied benefits by the Social Security Administration (SSA) the insurer will often request that the claimant appeal. A few key points, about this process. First, the Courts have held that even though a claimant incurs attorney fees and expenses in obtaining SSD benefits on appeal, the PIP insurer is still entitled to deduct the full amount awarded by the SSA. This is obviously unfair.
To prevent this from happening, our firm sends a letter to the PIP insurer demanding that it provide counsel, at its cost, if the insurer insists on the claimant pursuing the SSD claim. We have never had an insurer refuse this demand. However, it is important to secure this arrangement. Before an appeal and/or the award is issued where the claimant holds more leverage over the insurer.
In addition, the Michigan Attorney General has opined that the no-fault insurer is not authorized to require, as a condition precedent to the continued payment of work loss benefits under the No- Fault Act, that an injured person apply for Social Security disability benefits.
However, a claimant must make a reasonable effort to obtain such benefits. Grau v. DAIIE, 148 Mich App 82 (1985).
In summary, the no-fault insurer is authorized to deduct Social Security Disability benefits from no-fault work loss benefits payable to an injured person. If requested by the no-fault insurer, a claimant must make a reasonable effort‖ to apply for SSD benefits. As long as the effort is being made by the claimant, the no-fault insurer cannot withhold wage los benefits. If the initial SSD application is denied, we believe it is reasonable that the insurer agree in advance to cover the legal cost of a SSD appeal.