Enabling massive fraud and “driving dirty” in Detroit and other cities where 50% of drivers are uninsured, Legislature should end 7 day insurance policies
What is a 7 day insurance policy?
It’s a low-cost car insurance policy that lasts only one week. After seven days, coverage under the policy ends and, unless a driver takes specific action to renew, the policy will automatically expire. The 7 day insurance policy is frequently used by drivers to get their vehicle registration, plates and tabs without having to pay the high prices associated with a longer term insurance policy. Subsequently, many drivers will then allow coverage to lapse and they drive without insurance for the remainder of the year.
What’s wrong with 7 day insurance policies and why should they be stopped?
It’s where the greed of Michigan No Fault car insurance companies merges into the reckless indifference of Michigan lawmakers. It enables massive insurance fraud in many Michigan cities like Detroit. It jeopardizes the public’s welfare. It allows up to a 1.5 million people to drive without insurance in this state.
The seven-day car insurance policies pedaled to Michigan drivers, especially in Detroit, by outfits like L.A. Insurance, are ultra-short term No Fault insurance policies that are created to help people violate Michigan’s mandatory requirement that owners of motor vehicles have auto No Fault insurance.
As a car accident lawyer who tries to help people in cities like Detroit who are catastrophically injured by at-fault drivers with no insurance, I’ve been trying to sound the alarm about these 7 day insurance policies on the pages of this blog for years.
I noted last spring when the issue of 7-day car insurance policies began heating up, again, in the news that, contrary to what the insurance industry would have people believe, “7-day car insurance policies are not stepping stones leading people to becoming fully and legally insured drivers”:
“[T]hese ultra-short-term policies are just a cheap way of cheating the system and, thus, adding to Michigan’s growing problem of ‘uninsured’ drivers. Indeed, our own auto accident attorneys have found that the vast majority of the uninsured drivers who crash into our clients first purchased these short-term and one-week insurance policies, and then let them lapse so they could keep driving uninsured. The proliferation of these one-week auto insurance policies has led some cities in Michigan, such as Detroit, to have now more than 50 percent of drivers on the road uninsured.”
This has been an open fraud that we’ve allowed to go on for too long.
Why has a Republican-controlled legislature that is heavily influenced by Michigan’s powerful auto insurance companies allowed this absurdity to persist?
It’s a good question for which an answer has yet to be found.
Metro Detroit news media shines spotlight on 7 Day Insurance Fraud
Last year, thanks to action taken by the Director of the Michigan Department of Insurance and Financial Services (DIFS) – and, no doubt, as a result of much-needed news coverage of the issue by Chad Livengood of Crain’s Detroit Business – important public attention was brought to this issue.
The DIFS Director took bold action by withdrawing his previously tendered approval of the so-called 7-day “Jump Start” policies (which are underwritten by Integon National Insurance Company and sold by L.A. Insurance).
Additionally, the DIFS Director stated that such policies “shall not” be issued, used, delivered or advertised.
While that was promising, these 7 day insurance policies have only continued to flourish ever since.
Recently, however, the issue came to the surface, again, in a Crain’s Detroit Business podcast.
In a conversation with Crain’s Livengood, Detroit Mayor Mike Duggan made an observation that highlighted the extent to which the DIFS Director’s March 2017 directive has been ineffective at stopping 7 day insurance policies:
“I tell ya, the other day, I was driving on Gratiot at 11 Mile in Roseville and there was a sign on the window in LA Insurance — ‘Seven-Day policy sold here’ … It is the first time I have ever seen LA Insurance selling their seven-day policy outside (of) the city of Detroit.”
What can and what needs to be done to bring an end to the 7 day insurance policies that are creating more uninsured drivers and jeopardizing Michigan’s No Fault system?
All of the above begs the question:
What can be done to stop businesses like LA Insurance from selling these 7-day car insurance policies that enable drivers to get their plates and tabs and, then, deliberately let their insurance lapse, putting themselves and everyone else on the road in great danger by driving without insurance?
The numbers that substantiate this claim are compelling.
In his April 9, 2017, Crain’s Detroit Business story, “Solution to 7-day auto insurance could be difficult,” Chad Livengood reported:
Eighty-four percent of the Michigan drivers who registered their vehicles using a 7-day car insurance policy “did not have insurance coverage” “90 days later.”
Based on my own experience as a Michigan car accident attorney helping people injured by uninsured drivers, I have a few additional suggestions for what can be done to help fix the massive problem we have in Michigan of uninsured drivers and deliberate insurance fraud through these ultra-short No Fault policies:
- The Michigan Legislature needs to amend the Insurance Code and the No Fault law to explicitly prohibit the issuance of 7 day insurance policies.
- The DIFS Director’s determination – as well as the rationale behind it – in his March 15, 2017, “Notice of Withdrawal of Approval” should be treated by insurers as binding (or, at least, persuasive) precedent for the proposition that 7 day insurance policies such as Integon’s “Jump Start” policy do not comply with Michigan law (unless and until the Notice is overturned as part of Integon National’s pending appeal in the Michigan Administrative Hearing System).
- The Michigan Legislature should pass and enact House Bill 4097, which proposes that, for No Fault car insurance policies that have “a term of less than 6 months,” drivers must make a non-refundable, up-front payment of the full annual MCCA assessment and of all No Fault PIP premiums.
- Lawmakers should support Secretary of State Ruth Johnson’s proposal to create “a separate license plate for drivers who use a seven-day auto insurance plan” in order to “make it easier for a police officer to spot and stop motorists who are driving without insurance – a pervasive problem in Detroit because of high auto insurance rates.” (“State developing 7-day license plate for insurance crackdown,” Crain’s Detroit Business, Chad Livengood, September 23, 2017)
What is the DIFS Director’s position on 7 day insurance policies?
In 2011, Integon National Insurance Company filed its seven-day, “Jump Start Program” policy with DIFS.
Significantly, the policy had “a policy term of seven days” and contained “automatic expiration/nonrenewal provisions,” whose effect was to “automatically terminate/non-renew the policy absent further action by the insurer or insured.”
In March 2015, the DIFS Director issued a “Notice of Withdrawal of Approval” of the policies, ordering that Integon “shall not issue, use, advertise or deliver” any 7-day “Jump Start” policy covered by the Notice.
Specifically, the DIFS Director’s reasoning for withdrawal of approval included the following:
The “seven-day policy term” and the “automatic expiration/nonrenewal provisions” – both of which are “fundamental to the entire Jump Start Policy” – are “not designed to ensure that Michigan drivers will maintain continuous no-fault coverage, as required by MCL 500.3101(1) … Rather, the Jump Start Policy as a whole is designed to ensure that coverage will automatically expire … in just seven days … and not be renewed, exposing drivers to periods of interrupted coverage without mandatory no-fault insurance.”
(Source: Department of Insurance and Financial Services, “Notice of Withdrawal of Approval” of Integon National Insurance Company’s “Jump Start Program w/ 7-Day Policy Term,” March 15, 2017)