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A Penalty Provision in the Michigan No Fault Act to Punish Bad Behavior from Insurance Adjusters Who Wrongfully Cut Off Benefits

Auto Insurance companies wrongfully deny payment of due and owing Michigan No Fault benefits all the time. Without punitive damages or bad faith law in Michigan, there are simply no significant penalties for auto insurance companies to engage in such claims practices in Michigan.

How will people who are being wrongfully denied insurance benefits be able to hire a Michigan attorney when insurance companies deny claims, but where the amounts owing are too small to justify hiring a Michigan lawyer?

The entire premise behind the Michigan No Fault law is that insurance companies in Michigan will promptly pay due and owing first party no fault insurance benefits. That is the trade-off for the much stricter requirements for people to sue for bodily injury and pain and suffering after being involved in car accidents.

The Michigan No Fault Act does have one penalty mechanism to punish insurance adjuster bad behavior. This is a provision in our no fault law that allows for penalty attorney fees and penalty interest for Michigan attorneys handling wrongful denial automobile accident first party cases.

The penalty interest provision is found in MCL §3142. This provides for penalty interest at 12% per annum from 30 days after reasonable proof is supplied to an insurance company following a motor vehicle accident in Michigan.

The insurance company must pay the claim within 30 days of receipt of reasonable proof. This does not require exact details of an outstanding bill. Williams v AAA, 250 MA 249 (2002)

Interest is taxable as a matter of right without reference to the good faith or reasonableness of an insurer’s non-payment of benefits. Cook v DAIIE, CA No #52273 (1981) amended 114 MA 53 (1982)

The insured has the burden under Michigan law of providing reasonable proof to justify interest. English v Home Insurance, 112 MA 468 (1982)

Interrogatories served by an insured’s attorney upon the defense lawyer may serve as sufficient notice of loss under Michigan discovery rules. Fortier v Aetna, 131 MA 784 (1984) lv den’d 419 M 959 (1983)

The failure of an insured or his attorney to submit bills for services precludes award of benefits and likewise penalty interest and attorney fees. Attard v Citizens, 237 M 311 (1999)

No-fault interest penalty may be added to statutory pre-judgment interest to create effective interest penalty of 18% or 24%. Regents v State Farm, 250 MA 719 (2002).

Interest penalty is taxable on all overdue benefits even if some part might be subject to a governmental setoff. Joiner v Michigan Mutual, 161 MA 285 (1987).

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