Court Opinion

ID: 9704602
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:41:03.469082+00
Date Added: 2024-06-11T15:07:03.381583
License: Public Domain

T. M. Burns, J.
Plaintiffs are the wife and children of Gary O’Donnell, who was fatally injured in an automobile accident. Mr. O’Donnell was covered by a no-fault automobile insurance policy issued by the defendant, and plaintiffs are dependents of decedent for purposes of survivor’s loss benefits.
Decedent’s insurance policy provided that the maximum survivor’s loss benefits would not exceed $1,000 per 30-day period and that the amount payable by the insurance company would be reduced by amounts paid or payable to the survivors under state or federal law.
Plaintiffs were entitled to the maximum benefits of $1,000 per 30-day period for three years after decedent’s death as permitted by the no-fault act, MCLA 500.3108; MSA 24.13108. From the monthly maximum benefits amount, however, defendant deducted $560, the sum plaintiffs received in social security benefits. This deduction was made pursuant to MCLA 500.3109(1); MSA 24.13109(1), which provides as follows:
*493"Benefits provided or required to be provided under the laws of any state or the federal government shall be subtracted from the personal protection insurance benefits otherwise payable for the injury.”
Plaintiffs thus received $440 per month instead of the $1,000 per month figure set out in the insurance policy.
Plaintiffs filed a complaint in circuit court alleging the defendant breached the insurance contract by not paying the full $1,000 per month in benefits. Plaintiffs also sought a declaration of rights relative to the constitutionality of § 3109 of the no-fault act, which provides for the deduction of governmental benefits from the personal protection insurance benefits.
Defendant filed a motion for summary judgment, alleging that plaintiffs failed to state a claim upon which relief could be granted in that the reduction of benefits under the policy was in compliance with state law. Defendant also asserted that the policy constituted a contract between private parties and that, since no state action was involved, no claim of constitutional violation could be maintained.
The trial court granted defendant’s motion for summary judgment. The order stated that the complaint failed to state a cause of action for the reasons that no breach of any provision of the contract was alleged, and that defendant, in complying with the no-fault act, was not engaged in state action and, therefore, any claim that the contract itself was unconstitutional was not supported as a matter of law.
On appeal, plaintiffs argue that the trial court erred reversibly in granting summary judgment and contend that § 3109 of the no-fault act is unconstitutional.
*494I
It is argued that MCLA 500.3109(1); MSA 24.13109(1) violates the equal protection guarantees of the U.S. and Michigan Constitutions. This Court has recently enunciated the standard for review of legislation claimed to be so defective. See Shavers v Attorney General, 65 Mich App 355; 237 NW2d 325 (1975). Cf. Manistee Bank & Trust Co v McGowan 394 Mich 655; 232 NW2d 636 (1975), and Fox v Employment Security Commission, 379 Mich 579; 153 NW2d 644 (1967).
Generally, legislative classification should be presumed valid, as the Legislature has broad discretion in distinguishing between different classes. "The Legislature must be free to experiment without being required to attain 'mathematical nicety’ in its formulation of remedies to social and economic problems”. Manistee Bank & Trust Co v McGowan, supra, at 680. But legislative classification must not be arbitrary or unreasonable, it must be germane to the object of the legislation, and it must be made uniform in its operation upon all persons of the class to which it naturally applies. Fox v Employment Security Commission, supra.
"Even under the minimum scrutiny test applied when innovative legislation is challenged on equal protection grounds, the legislation must be examined to see if its classifications are reasonable, and bear some reasonable relationship to the object of the legislation. While it is not the judiciary’s task to second-guess legislative wisdom or to speculate on the possibility of more precise line-drawing by the Legislature, the decision on reasonableness cannot be avoided.” Shavers v Attorney General, supra at 369.
In the Shavers v Attorney General challenge of *495the no-fault act, Judge Gilmore of the Wayne County Circuit Court found that § 3109(1) violates the equal protection clauses of the U.S. and Michigan Constitutions. In this Court’s decision in Shavers, we vacated that ruling because the question was not properly justiciable. In the instant case, however, we are squarely faced with a "case of actual controversy” concerning the validity of § 3109(1).
The effect of § 3109(1) is to reduce no-fault benefits by any compensation paid under any state or Federal laws, such as workmen’s compensation and social security benefits. Thus, no-fault recovery is reduced by governmental collateral sources but not by any private insurance sources. The basic purpose of no-fault is to insure the compensation of persons injured in automobile accidents. But the effect of § 3109(1) is to allow both no-fault benefits and private insurance benefits to those who have such private insurance, yet it reduces no-fault benefits by any benefits received under a governmental program. Thus, those who have no private insurance or who cannot afford such insurance receive fewer benefits because of that fact. We find this section to be patently unreasonable and discriminatory.
Presumably, the purpose of § 3109(1) is to reduce the overall cost of the no-fault program by eliminating. duplicative recovery. If the insurer has to pay less, he can charge less. As recognized in Shavers, the reduction of the cost of insurance is a proper basis for legislative classification, and prohibitive cost was a problem that needed solution. But the fact that a problem exists does not permit arbitrary means of solving it and assuming that § 3109(1) does reduce costs, such savings alone do not justify an essentially arbitrary classification. *496Manistee Bank & Trust Co v McGowan, supra, at 677. Cf. Grace v Howlett, 51 Ill 2d 478; 283 NE2d 474 (1972).
Section 3109(1) is very broad — it covers any collateral governmental source. No-fault systems in other states include collateral source set-off provisions, but in Illinois and Florida, for example, the set-off provisions apply only to workmen’s compensation benefits. It might be argued that the latter type of set-off provision is reasonable because the workmen’s compensation benefits are provided without cost to the beneficiary, while private collateral source benefits are not.1 Cf. Grace v Howlett, supra, Chief Justice Underwood, dissenting. The argument is persuasive. Section 3109(1), however, is not limited to governmental benefits provided without cost to the beneficiary. The provision requires the reduction of recovery by benefits which are in a very real sense "paid for” by the "insured”, such as under social security, or benefits which are in the nature of employee benefits to government employees and veterans.2 In this case the beneficiary’s no-fault bene*497fits are reduced by governmental insurance the insured has paid for but not by private insurance for which he has paid. While this raises a fundamental due process issue (see e.g., Flemming v Nestor, 363 US 603; 80 S Ct 1367; 4 L Ed 2d 1435 (1960), the principal evil of § 3101(1) is its arbitrary application. Those who can afford private insurance to supplement no-fault benefits are permitted duplicative recovery while those who cannot afford such are denied duplicative recovery.
An analogous problem has existed under the uninsured motorist systems. Courts have held that policy exclusions reducing an insured’s recovery by amounts paid out of workmen’s compensation funds or under disability benefit laws are invalid and against public policy. See e.g., Allied Mutual Insurance Co v Larriva, 19 Ariz App 385; 507 P2d 997 (1973).3 In Travelers Insurance Co v National Farmers Union Property & Casualty Co, 252 Ark 624, 632; 480 SW2d 585, 591 (1972), the court stated:
"The right claimed by NFU [the insurer] would simply provide it with a windfall in the case of one covered by the workmen’s compensation laws. The purpose of the Uninsured Motorist Act was to protect the insured, not the insurer.”4
In Bowser v Jacobs, 36 Mich App 320; 194 NW2d 110 (1971), this Court was concerned with the constitutionality of a section of the Motor Vehicle Accident Claims Act which prevented *498those covered by workmen’s compensation from recovering under the Act. The plaintiffs were injured while in the course of their employment, by uninsured motorists. They received workmen’s compensation and sought recovery against the uninsured motorist fund. The Secretary of State sought dismissal of the suits, relying upon a section of the Act which barred recovery by an injured person if he was covered by workmen’s compensation. It was demonstrated that those who had private insurance coverage were not similarly barred from recovery against the fund. This Court struck down the legislative classification as unconstitutionally discriminatory. Like the legislative classification in Bowser, § 3109(1) which allows personal protection benefits plus private insurance benefits to one group, but deducts from personal protection benefits anything received from a government program is arbitrary and unreasonable. We find no legitimate purpose for establishing such a distinction which arbitrarily discriminates against those who receive certain governmental benefits.
We find MCLA 500.3109(1); MSA 24.13109(1) to be unconstitutional. As such, the act is void and of no effect as of the date of enactment. Briggs v Campbell, Wyant & Cannon Foundry Co, 379 Mich 160; 150 NW2d 752 (1967).5 As such, the statute confers no rights upon and affords no protection to defendant. Norton v Shelby County, 118 US 425, 442; 6 S Ct 1121; 30 L Ed 178 (1886). Defendant’s argument, that the set-off provision in the insurance contract was the result of a bargain reached by contracting parties and thus is not affected by the validity or invalidity of § 3109(1), is egregious. The terms of the statute are mandatory. Without *499the "sanction” of such a statute, the contract provision is patently offensive to public policy, and as such, the provision is invalid.6
The set-off provision in the contract is void. This cause is remanded to the trial court for entry of judgment in plaintiffs’ favor. No costs.

 This type of no-fault set-off provision (reducing no-fault benefits by workmen’s compensation benefits received) has been upheld by the Florida Supreme Court. Lasky v State Farm Insurance Co, 296 So 2d 9, 21 (Fla, 1974).

 In Richardson v Belcher, 404 US 78; 92 S Ct 254; 30 L Ed 2d 231 (1971), the U.S. Supreme Court held that § 224 of the Social Security Act, which provides for the reduction of social security disability benefits to any person also receiving workmen’s compensation, is not unconstitutional as making an arbitrary discrimination between workmen’s compensation benefits and disability compensation from private insurance or from tort claim awards. Significant in Richardson is the Court’s implicit holding that as long as there is a legitimate purpose served by a set-off provision, the provision will not be considered an invidious classification because inapplicable to recipients of private benefits.
But in the case at bar, grave doubts exist as to presence of a legitimate purpose being served by the set-off provision. It is said that the purpose of § 3109(1) is to prevent duplicative recovery of benefits. What is legitimate about that? It is asserted that the provision *497reduces the cost of no-fault coverage, but there has not been a hint of proof presented to this Court to so prove. Aided only by personal experience, one is inclined to conclude that the "lowered” costs are illusory.

 24 ALR3d 1353 covers the point.

 The "windfall” claim may not be entirely correct as, presumably, the insurer has considered the set-off provision in setting its rates.

 See 16 CJS, Constitutional Law, § 101.

 See, e.g., State ex rel Terbovich v Board of Com ’rs of Wyandotte County, 16Í Kan 700; 171 P2d 777 (1946), State ex rel Taylor v Carolina Racing Association, Inc, 241 NC 80; 84 SE2d 390 (1954).