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Will the House Democrats’ new auto insurance plan better protect Michigan consumers?

May 12, 2014 by Steven M. Gursten

Dem. lawmakers’ plan will require auto insurers to ‘deal fairly’ and ‘in good faith’ with consumers


Rep. Theresa Abed (D-Grand Ledge) addresses insurance company bad faith in recent Democratic package of insurance reform bills.
Rep. Theresa Abed (D-Grand Ledge) addresses insurance company bad faith in recent Democratic package of insurance reform bills.

People need  protection against Michigan’s auto insurance companies. The industry routinely ignores and denies valid insurance claims today with total impunity. This causes tremendous hardship for thousands of auto accident victims in desperate need of No Fault PIP benefits like medical care and lost wages.

Yes, people can and do hire lawyers to help them recover these benefits.

But the insurance industry also knows that the litigation process encourages compromise of claims, and delay works to the benefit of these giant insurers.  They also know that it’s very difficult for people to hire an attorney on small claims of several hundred or several thousand dollars. And without any bad faith law to punish insurers when they cause harm, they have very little to fear from the litigation process itself.

That may change.

The Michigan House Democrats have proposed an overdue and well-thought-out plan to address protecting people hurt by insurance company denials,  as well as consumers’ concerns about auto insurance affordability and increasing transparency.

At a press conference on May 1, 2014, top Democrats in the Michigan House of Representatives previewed a 14-bill package for reforming Michigan’s auto insurance system.

Rep. Theresa Abed (D-Grand Ledge) said the reform plan’s “consumer protection” measures would accomplish the following:

  • Require auto insurance companies to “deal fairly and in good faith when a policy holder makes a claim for benefits.”
  • Allow consumers to sue auto insurance companies who engage in “unfair and deceptive practices.”
  • Put the legal “burden of disproving bad faith action” on the auto insurance companies.
  • Allow successful consumer-litigants to collect attorney fees and court costs from auto insurers who acted in “bad faith.”
  • Require that “bad faith” auto insurance companies “ensure that a customer’s credit score does not go down as a result of late payments.”
  • Impose a $1 million administrative fine on auto insurance companies who act in “bad faith” on a “second or subsequent” occasion.

(Source: May 1, 2014 statement on the Michigan House Democrats website)

Rep. Abed also stated:

“‘I’m appalled that current law doesn’t protect consumers who are victims of unethical [auto] insurance companies … It’s only right – when a company acts improperly, it should be held accountable.’”

My own proposed consumer protection and legal reforms to protect accident victims

Anyone who regularly follows my posts know how strongly I feel about the need for increased “consumer protection” for auto accident victims from  Michigan’s auto insurance industry.

Not only do I write frequently about this issue, but last year I told Gov. Rick Snyder what I thought. In a blog post entitled, “An open letter to Gov. Snyder regarding Michigan No Fault reform,” I discussed my 8 proposed “reforms” to “reduce auto No Fault insurance rates and protect Michigan citizens.”

On the topic of “consumer protection,” I asked Gov. Snyder to consider the following:

  • “Restore the usefulness of the Michigan Consumer Protection Act (MCPA). In a nutshell, the Michigan Consumer Protection Act needs teeth when it comes to regulating the business practices of Michigan’s auto insurance companies. Indeed, the MCPA prohibits “[u]nfair, unconscionable, or deceptive” business practices and allows aggrieved parties a private cause of action to sue for damages and remedies such as declaratory judgments and injunctions. But the Michigan Supreme Court has ruled that auto insurance companies are in general exempt from the restrictions and sanctions available under the MCPA.”
  • “Put a high price on insurer ‘bad faith.’ Michigan law on insurer “bad faith” is so weak and ineffectual that it provides no deterrent whatsoever against insurer wrongdoing. Consequently, auto insurers can act with impunity in the way they handle and arbitrarily deny insured customers’ claims. Michigan’s “bad faith” law needs an overhaul akin to the measures passed by the Michigan House of Representatives in 2009: An auto insurer who is “obligated to pay benefits or claims … has a duty to deal fairly and in good faith with an insured claiming those benefits” and a breach of that duty renders the auto insurer “liable for compensatory, consequential, and exemplary damages … costs of litigation, including actual attorney fees.” I will discuss this further in tomorrow’s blog post.
  • Put the ‘punitive’ back in damages. For too long, Michigan has been among the smallest minority of states that deny their citizens the right to sue wrongdoing parties for “punitive damages.” This must end. When deciding how to treat their insured customers, Michigan auto insurers need to know that through arbitrariness, complacency and greed, they risk being held accountable for their misdeeds.” Notably, Michigan is one of only five states in the country that still does not allow punitive damages.

In tomorrow’s post, I will discuss the legislative developments that have taken place over the last few years that have laid the groundwork for the House Democrats plan to improve No Fault insurance.

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