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Should auto insurance companies treat accident victims fairly?

June 19, 2015 by Steven M. Gursten

Sen. Coleman Young II’s Senate Bill 347 proposes to subject ‘bad faith’ auto insurers to tort and punitive damages Coleman Young II

It’s a strange question to someone who isn’t an attorney. Most “normal” people would say “of course” insurance companies should be treating people fairly. But these are people who aren’t tainted by what both I and other lawyers who litigate first-party No Fault cases with insurance companies see every single day.

So, should Michigan auto insurance companies be legally required to “deal fairly” and “in good faith” with accident victims?

Sen. Coleman Young II (D-Detroit) thinks so.

In fact, he feels so strongly about it that he believes auto insurers that act in “bad faith” when dealing with Michigan car accident victims should have to pay both tort damages and punitive damages.

Tort damages are what are commonly referred to as “pain and suffering” damages. And punitive damages are imposed by a jury or a judge to punish a company for its wrongdoing and to discourage it from doing wrong in the future.

Michigan is only one of five states in the nation that does not allow punitive damages

The problem is Michigan law doesn’t have much teeth to punish or deter insurance companies that clearly act in bad faith. As a result, we see far greater abuses here than people see in other states that have these additional legal protections, which are meant to punish bad behavior and compensate victims.

Our attorneys believe Sen. Young’s proposal would be a welcome – and long overdue – change.

In fact, it would change everything overnight. It would provide immediate help for hundreds of people who are being ignored or who suffer further injury because of insurance company bad conduct.

In his Senate Bill 347 , which was introduced on May 21, 2015, Sen. Young proposes the following:

  • “An insurer liable to pay personal protection insurance benefits [i.e., No Fault or “personal injury protection” or “PIP” benefits] under [Michigan’s No Fault insurance law] has a duty to deal fairly and in good faith with its insured, any person entitled to receive personal protection insurance benefits under a policy issued to its insured, or any person entitled to receive personal protection insurance benefits from the insurer …”
  • “The duty imposed by this section is considered to involve matters of mental concern and solicitude.”
  • “A breach of the duty to deal fairly and in good faith subjects the insurer to liability in tort for any damages proximately arising from the breach and for punitive damages.” (Pages 72-73)

Sen. Young’s proposal focuses on first-party litigation and bad faith, when a person is attempting to secure No Fault insurance benefits from his auto insurer after he was injured in a car accident. And as an auto accident attorney of  20 years, I’ve seen first-hand the way accident victims are denied necessary No Fault benefits and pain and suffering compensation as a result of auto insurer bad faith.

On the third-party tort side of automobile negligence litigation (when someone else causes a car accident and you bring a lawsuit to compensate for injuries and pain and suffering), there are also many ways insurance companies mistreat their customers. But the most common form of abuse can best be described by the “3 D’s” strategy, which stands for delay, deny, defend:

To improve their profits, insurance companies often delay payment of claims, deny payment of valid claims, and defend their actions by forcing claimants to sue to get what they’re entitled.

For many years, I’ve called for Michigan law to be changed to protect car crash victims and consumers from such behavior.

Sen. Young’s SB 347 is a great and important step in that direction.

What constitutes auto insurer ‘bad faith’?

Unfortunately, Sen. Young’s SB 347 doesn’t specify what constitutes auto insurer “bad faith” and/or what would constitute a “breach of the duty to deal fairly and in good faith.”

Perhaps when (hopefully) his bill gets a hearing before the Senate Insurance Committee, Sen. Young will borrow from the proposals made by his Democratic colleagues in the Michigan House of Representatives last legislative session.

Specifically, House Bill 5520, which was introduced on May 6, 2014, by then-Rep. Theresa Abed (D-Eaton County) – and joined by 15 of her House colleagues – proposed the following:

  • “An insurer obligated to pay benefits or claims for personal protection insurance benefits [i.e., No Fault or “personal injury protection” or “PIP” benefits] under [Michigan’s No Fault insurance law] has a duty to deal fairly and in good faith with an injured person claiming those benefits and that person’s providers.”
  • “An insurer that breaches this duty to deal fairly and in good faith is liable for compensatory, consequential, noneconomic, economic, and exemplary damages proximately caused by the breach and the costs of litigation, including actual attorney fees.”

As far as what constitutes a “breach of the duty to deal fairly and in good faith,” HB 5520 gave the following non-exhaustive list of 14 examples, which included:

  • “Misrepresenting pertinent facts or insurance policy provisions concerning coverages at issue.
  • “Refusing to pay claims without conducting a reasonable investigation based on the available information.”
  • “Failing to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”
  • “Attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled, by reference to written or printed advertising material accompanying or made part of an application.”

Additionally and quite significantly, HB 5520 also specified the question of “whether an insurer has breached the duty [to deal fairly and in good faith]” would be answered by a jury at trial, not a judge.

Unfortunately, HB 5520 “died” due to inaction at the end of the 2013-2014 legislative session.

Incorporating HB 5520’s jury trial right and its examples of what constitutes a “breach of the duty to deal fairly and in good faith” would go a long way to strengthening SB 347’s excellent proposal and providing auto accident victims and Michigan consumers the protection they need and deserve.

Nearly everyone else in the nation has these legal protections in place to protect against clear and egregious actions or insurance company bad faith.

It’s time Michigan does, too.

Related information:

How to stop fraud and abuse from MI auto insurance companies

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