Michigan Court of Appeals Clarifies No-Fault Priority: Mary Free Bed Rehabilitation Hospital v. Esurance

The Michigan Court of Appeals’ recent decision in Mary Free Bed Rehabilitation Hospital v. Esurance Property & Casualty Insurance Company marks a significant development in Michigan no-fault jurisprudence, particularly in the wake of the 2019 no-fault reforms. The case addresses a critical and previously unresolved question: what happens when a higher-priority insurer’s Personal Injury Protection (PIP) benefits are exhausted, but additional coverage exists under a lower-priority policy?

The Court’s answer—permitting recovery from lower-priority insurers once higher-priority limits are exhausted—has far-reaching implications for practitioners, insurers, and medical providers alike.

Factual Background

The case arose from a catastrophic motorcycle accident in Muskegon in November 2020. The injured motorcyclist sustained severe injuries, including a traumatic brain injury, and ultimately received extensive rehabilitative care from the plaintiff, Mary Free Bed Rehabilitation Hospital. The total cost of care exceeded $1.18 million.

The priority dispute centered on two insurance policies:

• The at-fault driver’s insurer, Esurance, which provided $250,000 in capped PIP benefits; and
• The injured motorcyclist’s household policy through USAA, which provided unlimited PIP benefits.

Esurance paid a portion of the medical bills but ceased payments after asserting that its policy limits had been exhausted. The hospital then sought payment from USAA. USAA denied the claim, arguing that, as a lower-priority insurer under Michigan’s no-fault statute, it bore no liability once the higher-priority insurer had paid.

The trial court agreed with both insurers and granted summary disposition in their favor. The Court of Appeals, however, took a more nuanced view.

The Legal Issue: Priority vs. Exhaustion

The central issue before the Court was one of statutory interpretation under Michigan’s no-fault act, specifically MCL 500.3114(5): does the statutory priority scheme merely determine which insurer is first in line, or does it preclude recovery from lower-priority insurers once a higher-priority policy is exhausted?

This was a question of first impression in Michigan, particularly after the 2019 amendments introduced PIP coverage limits and fundamentally altered the no-fault landscape.

The Court’s Holding

The Court of Appeals issued a split ruling:

1. Affirmed as to Esurance – The Court held that Esurance’s $250,000 PIP limit was valid and enforceable.
2. Reversed as to USAA – The Court held that the plaintiff could pursue additional benefits from USAA after Esurance’s limits were exhausted.

In doing so, the Court explicitly rejected the trial court’s conclusion that the no-fault act bars recovery from lower-priority insurers. Instead, it held that the statutory scheme permits a claimant or provider to proceed down the priority list when higher-priority coverage is insufficient.

Key Legal Reasoning

1. The Purpose of the No-Fault Act

The Court emphasized that Michigan’s no-fault act is remedial in nature, designed to ensure prompt and adequate compensation for accident victims. Interpreting the statute to bar recovery once a capped policy is exhausted would undermine that purpose.

The Court reasoned that denying access to additional coverage would leave catastrophically injured individuals—and their providers—without adequate reimbursement, particularly in cases involving limited PIP elections.

2. Statutory Silence Does Not Equal Prohibition

Notably, the statute does not explicitly address what happens when PIP benefits are exhausted. The Court declined to interpret this silence as a prohibition. Instead, it found that nothing in MCL 500.3114(5) prevents a claimant from proceeding to the next insurer in the priority sequence.

3. Harmonizing the 2019 No-Fault Reforms

The Court also analyzed the 2019 amendments, which introduced tiered PIP coverage options. It concluded that allowing recovery from lower-priority insurers:

• Aligns with the Legislature’s intent to provide consumer choice;
• Avoids rendering portions of the statute surplusage; and
• Preserves the functional integrity of the priority system.

4. Rejection of “One-and-Done” Priority

USAA argued that the priority rules designate a single responsible insurer—a “one-and-done” system. The Court rejected this interpretation.

Instead, it held that priority determines the order of liability, not the exclusivity of liability. This distinction is critical, transforming the priority scheme from a rigid hierarchy into a sequential system that adapts to real-world coverage limitations.

Practical Implications

For Personal Injury Attorneys

This decision is a powerful tool for plaintiff-side practitioners. It opens the door to:

• “Stacking” PIP benefits across multiple insurers in certain circumstances;
• Pursuing recovery beyond capped policies; and
• Expanding litigation strategies in catastrophic injury cases.

Importantly, the ruling may extend beyond motorcyclist claims to other priority scenarios involving capped coverage.

For Medical Providers

Healthcare providers—especially those delivering high-cost, long-term care—stand to benefit significantly.

The decision provides:

• A viable path to recover unpaid balances after primary coverage is exhausted;
• Increased leverage in disputes with insurers; and
• Greater financial predictability in treating severely injured patients.

For Insurance Carriers

Insurers must reassess their exposure under Michigan’s no-fault system. Lower-priority insurers can no longer assume they are insulated from liability simply because a higher-priority insurer exists. Instead, they may be required to step in when primary coverage is insufficient.

This will likely lead to:

• Increased claims against secondary insurers;
• Revisions to underwriting and pricing strategies; and
• Heightened litigation over priority and exhaustion issues.

Limitations of the Decision

While significant, the ruling is not without limits:

• The case arises in the motorcyclist context, where unique priority rules apply;
• The Court upheld the validity of capped PIP elections, reinforcing the enforceability of coverage limits; and
• Future appellate or Supreme Court review could refine—or potentially narrow—the holding.

Nonetheless, the Court’s reasoning suggests broader applicability across the no-fault framework.

Conclusion

The Michigan Court of Appeals’ decision in Mary Free Bed Rehabilitation Hospital v. Esurance represents a pivotal clarification of the state’s no-fault priority scheme in the post-reform era.

By allowing claimants and providers to pursue lower-priority insurers after the exhaustion of higher-priority coverage, the Court has:

• Preserved the remedial purpose of the no-fault act;
• Adapted the statutory framework to modern coverage realities; and
• Expanded avenues for recovery in catastrophic injury cases.

For practitioners, the takeaway is clear: priority does not end the inquiry—coverage does.

This decision will undoubtedly shape Michigan no-fault litigation for years to come and may signal a broader judicial willingness to interpret the act in a manner that ensures meaningful compensation for injured parties.