Victim’s lawyer got $3K/month for years under Mich. no-fault system

Sept. 07--Michigan motorists are very familiar with the special fee in their no-fault car insurance bills -- currently $192 per year -- that is specifically for the care and medical bills of the most catastrophically injured auto accident victims.

It is less known that the no-fault system allows lawyers to take a one-third cut of these victims' benefit money indefinitely, even for the life of a crash survivor.

That is what happened to Michael Powers, 51, of Lapeer, who has been a paraplegic since a 1993 auto accident caused by a drunk driver. For years and until last December, one-third of his no-fault benefits money for in-home nursing aides went to a personal injury attorney.

That arrangement limited how much he could pay his aides, he said, and ended only after Powers says he learned from another attorney that he could fill out the insurance paperwork on his own and get 100 percent of his benefits checks.

"I was getting screwed," Powers said in a interview. "Find people (aides) that you can trust for that little amount, $10 an hour."

This practice of long-term attorney fees on no-fault benefits is controversial in the legal community and is said to be uncommon, as many lawyers have moral reservations about drawing benefits from injured clients for years into the future.

Yet it is still permissible under Michigan law and attorney ethics rules, and can reduce payments to accident victims and lead to higher premiums and no-fault fees if insurance companies raise their claims payouts to compensate for money going to lawyers.

The practice also provides fodder for critics of Michigan's unique no-fault law who point to the system's incentives for greed, fraud and overabundant litigation as reasons for the unaffordable car insurance rates in areas such as Detroit. Michigan is the only state that requires motorists to buy potentially unlimited lifetime medical benefits as part of their auto insurance.

Last year's failed legislative proposal to overhaul the no-fault system contained a provision that would have prohibited lawyers from charging fees out of clients' future benefits.

"I think that if an attorney fights on your behalf, then they have a right to receive some compensation for that -- but not for the rest of your life," state Rep. Lana Theis, R-Brighton, who sponsored the unsuccessful bill, said last month.

A catastrophic claim

For years, Michael Powers gave up a third of the money for his in-home aides to his now-former lawyer.

Powers' son, Michael Powers Jr., said the lawyer "would always intimidate my dad" by telling him that without his law firm's involvement, the insurance company would discontinue his father's no-fault benefits.

"It was like 'Oh Mike, you better watch out, they're gonna cut you off,' " the son recalled. "The (law firm's) secretary that was there -- she's retired -- but she would do it to my dad, too."

That lawyer, Patrick Bagley of Waterford-based Bagley & Langan, who would not comment for this article, was hired in the late 1990s and succeeded in getting benefits from auto insurer AAA Michigan that included a handicapped-accessible van and 24/7 in-home care, known as attendant care, for Powers.

Those benefits are paid by AAA Michigan, which in turn is reimbursed by the Michigan Catastrophic Claims Association,which covers the most severe injury claims in the state that exceed a monetary threshold, currently $555,000.

The annual $192 per-vehicle no-fault fee that drivers paygoes to the catastrophic claims association's fund.

According to AAA Michigan's records, from 2001 to November 2017, the insurance company sent Powers' benefits checks to Bagley's law firm. For Powers' attendant care, the firm took a third of each insurance check as a fee and passed along the rest of the money to Powers. The insurance checks during all those years totaled $1.67 million.

There was a four-year gap in the insurance payments from October 2005 to October 2009, when Powers served time in prison for assault, records show.

"A friend was at his house. The situation escalated and Michael felt threatened. He took a shot at him with a gun. The bullet grazed his friend's arm. He was zealously prosecuted in Lapeer, took a severe plea, and did the time," Powers' new attorney, Craig Jakeway of Jakeway Injury Law in Grand Blanc, who is currently working pro bono, said in an email.

It was not until late last summer that Powers says he realized that, by filling out insurance company paperwork on his own, he could get the full amount of AAA's $9,360 monthly checks meant for his attendant care without having to share one-third ($3,120) of the money with Bagley.

Because AAA had been paying those no-fault benefits for years, Bagley's office presumably didn't need to fight for the money. Staff there could simply tally the attendant care aides' work, submit that information, then wait for the insurance checks.

Powers said he learned from his new attorney, Jakeway, that he could apply and receive the full insurance checks on his own. He sought the new attorney because of his frustration with the slow pace of getting new accessibility modifications for his house, he said.

"Bagley promised to take care of all this stuff, and then he didn't, and after a while it was all about just taking a third of that attendant care," Powers said.

In an interview, Jakeway said he was appalled that an attorney took a one-third cut of a client's attendant care benefits for so many years while those benefits were not in dispute. It would generally take a nonlawyer on his own staff about 10 minutes to fill out the required monthly paperwork, Jakeway said.

"My opinion is a one-third on these type of benefits is clearly excessive," he said.

Jakeway said he has yet to see an insurance company cut off benefits to someone as severely injured as Powers.

"I've had plenty of people apply for these benefits themselves, and there's not an issue when you have significant injuries," he said. "Where they get suspicious is when somebody goes in, and they've had a minor car accident, and they've had CAT scans, MRIs, physical therapy, hydrotherapy, speech pathology, all that."

The Free Press could not confirm the precise length of time that Bagley's firm took a one-third fee from Powers' attendant care benefits or the amount of money the firm netted from the $1.67-million insurance proceeds.

Bagley would not provide an interview or answer any questions for this article, citing attorney-client privilege. Bagley was unwilling to accept Powers' waiver for him to speak freely with the Free Press, insisting that the waiver must specifically let him discuss all of Powers' legal matters with anyone. He provided no further explanation when asked why.

To be sure, attorneys who represent auto accident victims commonly don't charge up-front fees and take a chance on winning a share of insurance settlements. If not for lawyers' representation, some accident victims may end up with no benefits.

Powers said he now keeps a journal of his aides' work hours and sends the information to AAA, which sends him the full checks. Filling out that paperwork "is no way worth $3,000," or the amount that was previously deducted from the benefit checks.

'A little unsavory'

Kevin Clinton, executive director of Michigan Catastrophic Claims Association, said there is no count of the number of lawyers who continue to take a one-third cut of their catastrophically injured clients' benefits years after the legal work ended.

Clinton questioned whether that practice -- although permissible by law -- is necessary in situations when an insurance company has been voluntarily paying the benefits that are due.

"We want to keep our rates low for our citizens, and that's not a way to keep our rates low," said Clinton, a former state treasurer and insurance commissioner.

"We want our dollars going to the injured party," he said. "If they need an attorney to get those dollars and they have a legitimate dispute with those things, we don't have a problem with an attorney getting involved. But if things are not in dispute, I don't see the need for that."

Attorney Wayne Miller, who teaches no-fault law at Wayne State University Law School, said there are no laws or ethics rules forbidding lawyers from taking a one-third fee for years into the future from benefits that they helped to obtain.

"It is legal, even if it is perhaps a little unsavory," said Miller, also president of the Farmington Hills-based law firm Miller & Tischler.

One major caveat is that the lawyer must inform his or her clients that they can potentially obtain those no-fault benefits on their own without any legal help.

The Free Press could not ascertain whether Bagley informed Powers that he could obtain future attendant care on his own.

Nevertheless, it is still common for insurance companies to drag their feet or worse when a consumer is making a claim on their own, Miller said.

"The law was designed so you were not supposed to have to hire an attorney, but for many cases, the reality is you do," he said.

Many personal injury firms are not charging fees on future benefits.

No-fault attorney Steve Sinas said that his firm, the Sinas Dramis Law Firm, generally doesn't take a fee on future benefits once its representation is over.

For example, the firm has acted as an intermediary for about nine years for a former client, yet hasn't charged a dime "because I'm not doing anything other than getting a check and passing it on," Sinas said.

The firm may still charge a minor fee if a client insists that the firm continue to manage his or her long-term benefits. In those instances, their fee will typically be less than one-third, Sinas said.

Another client

Powers wasn't Bagley's only client that gave up a portion of their future benefits or settlement money for his attorney fees.

His firm represented a 15-year-old metro Detroit girl who was severely injured in a 2003 auto accident that, because of traumatic brain damage, left her unable to work as an adult.

Bagley's firm won a 2011 settlement in Wayne County Circuit Court that provided the accident victim, then 23 and under the guardianship of her mother, with $750,000 "seed money" for a trust fund, plus $7,500 in monthly annuity payments into the future, according to court documents.

The settlement also provided an additional $750,000 lump sum for Bagley & Langan as its attorney fees.

Even with that lump sum, Bagley proceeded to take a $2,500 cut of the client's monthly $7,500 payments that, he later contended in court, was permitted under his firm's retainer agreement signed by the woman's guardian.

Bagley went on to collect $195,000 in fees from those annuity payments until August 2016, when Wayne County Probate Judge June Blackwell-Hatcher ordered the attorney fees stopped, court documents say.

The probate court also found that the $750,000 in trust fund seed money had mysteriously been depleted to $177,682. It emerged during the proceedings that Bagley had managed the trust fund since its inception, said attorney Charlene Glover-Hogan, who represents the woman's current guardian, Michigan Guardian Services.

It remains unclear what happened to the missing trust fund money.

According to the probate judge's written opinion, Bagley claimed that the only disbursements he made from the fund for the injured woman were $50,000 for a car and $60,000 for a Detroit house.

The woman's mother also admitted to withdrawing some money from the trust for household repairs, the opinion said. Exactly how much isn't known, but included $21,000 in just one month.

In September 2016, the probate judge ordered Bagley to provide a detailed accounting of all the money that went in or out of the fund. That order was put on hold while Bagley contested the probate judge's decision.

This April, the Michigan Court of Appeals sided with the woman's guardian and against Bagley, who sought to continue to get a one-third cut of the monthly payments.

Glover-Hogan told the Free Press this week that she intends to ask the probate court to enforce its order for Bagley's accounting of the trust fund money. She said she also plans to investigate Bagley's claim -- unsupported by public court documents -- that the full settlement amount in the case was secret and actually $3.1 million.

Bagley did not respond to request for comment about the young woman's case.

"I don't know how much money she has in her account, but she definitely should have more," Glover-Hogan said. "She needs her money for her care."

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

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