May 13, 2022 by Steven M. Gursten

Michigan Bad Faith Insurance Lawsuit What You Need To Know

A Michigan bad faith insurance lawsuit allows an auto accident victim to recover money from an auto insurance company that acts in “bad faith.” This can include the handling of claims of both the car accident victim and for the at-fault driver who caused a crash.

Michigan’s bad faith insurance law is very different from most other states. When an at-fault driver’s liability insurer unreasonably refuses to settle a case and has exposed their own insured to an excess verdict, the at-fault driver can file a Michigan bad faith insurance lawsuit against his or her own insurance company. This occurs only when a verdict or judgment is entered against the at-fault driver that exposes him or her to pay compensation and damages to the car accident crash victim in an amount that exceeds the at-fault driver’s liability insurance coverage. The bad faith claim actually belongs to the defendant, not to the plaintiff (the plaintiff is the person who is injured and who has brought the lawsuit, the defendant is the person who is at-fault and who caused the crash and injuries).

Typically, the at-fault driver will then assign the cause of action against his or her liability insurer to the car accident victim in return for the victim’s agreement to forego proceeding against the at-fault driver’s personal assets.

While technically not “bad faith,” there are two other situations that may give rise to what in effect amounts to a Michigan bad faith insurance lawsuit against an insurance company. These two additional situations include:

  1. When a No-Fault insurer denies or stops paying on a crash victim’s claim for No-Fault benefits, the victim can file a Michigan bad faith insurance lawsuit to recover penalty interest on his or her unpaid, overdue benefits and to force the insurance company to pay his or her attorney fees.
  2. When an auto insurance company fails to pay “underinsured motorist” coverage benefits “on a timely basis,” the victim can file a Michigan bad faith insurance lawsuit to recover 12% penalty interest on the unpaid, overdue UIM benefits. (MCL 500.2006(1) and (4)) Unfortunately, attorney fees are not recoverable in Michigan bad faith insurance lawsuit for unpaid UIM benefits.

What remedies can I sue for in a Michigan bad faith insurance lawsuit for unpaid No-Fault benefits?

In the two examples above that can be considered most similar to a bad faith insurance lawsuit for your No-Fault insurer’s “bad faith refusal” to pay your No-Fault benefits under your “no-fault contract,” the remedies include: (1) “recovery of actual attorney fees”; and (2) recovery of “12% penalty interest.” (Van Marter v American Fidelity Fire Ins Co., 114 Mich. App. 171, 183-185; 318 N.W.2d 679 (1982)

Who pays my attorney fees in a Michigan bad faith insurance lawsuit for unpaid No-Fault benefits?

In what we are referring to now as what technically can also be considered a Michigan bad faith insurance lawsuit for unpaid, overdue No-Fault benefits, your auto insurance company may be ordered to pay your attorney’s fee if the court finds that your insurer “unreasonably refused to pay [your] claim or unreasonably delayed in making proper payment.” (MCL 500.3148(1))

Do I get interest on my unpaid No-Fault benefits?

If your auto insurance company fails to pay your No-Fault benefits within 30 days of receiving “reasonable proof” that No-Fault benefits are owed, then you are entitled to 12% penalty interest on the overdue payments in a Michigan bad faith insurance lawsuit. (MCL 500.3142(2) and (5))

Benefits are “overdue” for purposes of the 12% penalty interest if they are not paid within the 30-day time frame, except under limited circumstances. (MCL 500.3142(2))

Significantly, a car crash victim is not required to show that an insurer’s non-payment of No-Fault benefits was done in “bad faith” in order to prove that No-Fault PIP benefits are “overdue.” The “good” or “bad” faith of the insurance company is irrelevant in determining whether No-Fault benefits are “overdue” for penalty interest purposes. This is supposed to be a mechanism to compel insurers to make prompt payments, although in reality this has not quite worked as the “big stick” that the Legislature intended when this law was enacted in 1973.

Can I sue for mental or emotional distress damages as a result of unpaid No-Fault PIP benefits?

Although your No-Fault auto insurer’s refusal to pay you the No-Fault PIP benefits you are owed after being injured in a car crash may cause you emotional or mental distress, you cannot bring a Michigan bad faith insurance lawsuit to recover for those damages under Michigan law.

This is unfortunate because unreasonable delays can cause real harm, but long-standing Michigan caselaw establishes that “damages for mental and emotional distress for breach of an automobile no-fault insurance contract are not recoverable.” Van Marter v American Fidelity Fire Ins Co., 114 Mich. App. 171, 183-185; 318 N.W.2d 679 (1982)(See also: Butler v Detroit Auto Inter-Ins Exch, 121 Mich App 727, 733; 329 NW2d 781 (1982); Liddell v DAIIE, 102 Mich App 636, 649; 302 NW2d 260 (1981), lv den 411 Mich 1079 (1981))

This principle of not being able to bring a Michigan bad faith insurance lawsuit against an insurance company for emotional and mental distress for them refusing to pay you the No-Fault PIP benefits after being injured in a crash is reflected in the comment to M Civ JI 35.04 – “No-Fault First-Party Benefits Action: Statutory Interest”:

“Exemplary damages or damages for mental or emotional distress are not recoverable from a no-fault insurer if the claim is based solely on breach of contract for nonpayment of benefits. Liddell v Detroit Automobile Inter-Insurance Exchange, 102 Mich App 636; 302 NW2d 260 (1981); Jerome v Michigan Mutual Auto Insurance Co, 100 Mich App 685; 300 NW2d 371 (1980). See also Kewin v Massachusetts Mutual Life Insurance Co, 409 Mich 401; 295 NW2d 50 (1980).”

Am I entitled to penalty interest for unpaid, overdue “underinsured motorist” benefits?

You can file a Michigan bad faith insurance lawsuit against your “underinsured motorist” insurer for 12% penalty interest on benefits if your insurer failed to pay your UIM benefits “on a timely basis,” i.e., within 60 days of receiving “satisfactory proof” that benefits were owed. (MCL 500.2006(1) and (4))

In its 2017 ruling in Nickola v. MIC General Insurance Company (#152535, May 12, 2017, pages 1 and 18), the Michigan Supreme Court held that an “insurer’s untimely payment of underinsured motorist (UIM) benefits is subject to [12%] penalty interest under” MCL 500.2006(4) of the Uniform Trade Practices Act (UTPA). The Court specified that the 12% penalty interest under the UTPA was payable “irrespective of whether the claim is reasonably in dispute” when “the claimant is the insured and benefits are not paid on a timely basis.”

What is a “bad faith” refusal to settle within the at-fault driver’s liability policy limits?

The at-fault driver’s liability insurance company has acted in “bad faith” in refusing to settle a crash victim’s pain and suffering compensation claim within the at-fault driver’s policy limits when the liability insurer was “arbitrary, reckless, [or] indifferent” or acted with “intentional disregard of the interests of the person owed a duty.” (See Commercial Union Insurance Company v. Liberty Mutual Insurance Company, 426 Mich. 127, 136, 137, 393 N.W.2d 161 (1986))

In Commercial Union Insurance Company v. Liberty Mutual Insurance Company, the Michigan Supreme Court stated that “[i]f the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest, bad faith exists, even though the insurer’s actions were not actually dishonest or fraudulent.”

The Michigan Supreme Court also stated that the following factors should be among those considered in determining whether the at-fault driver’s liability has “acted in bad faith” and if a lawsuit can be filed against the insurance company:

  1. Failure to keep the insured fully informed of all developments in the claim or suit that could reasonably affect the interests of the insured
  2. Failure to inform the insured of all settlement offers that do not fall within the policy limits
  3. Failure to solicit a settlement offer or initiate settlement negotiations when warranted under the circumstances
  4. Failure to accept a reasonable compromise offer of settlement when the facts of the case or claim indicate obvious liability and serious injury
  5. Rejection of a reasonable offer of settlement within the policy limits
  6. Undue delay in accepting a reasonable offer to settle a potentially dangerous case within the policy limits where the verdict potential is high
  7. An attempt by the insurer to coerce or obtain an involuntary contribution from the insured in order to settle within the policy limits
  8. Failure to make a proper investigation of the claim prior to refusing an offer of settlement within the policy limits
  9. Disregarding the advice or recommendations of an adjuster or attorney
  10. Serious and recurrent negligence by the insurer
  11. Refusal to settle a case within the policy limits following an excessive verdict when the chances of reversal on appeal are slight or doubtful
  12. Failure to take an appeal following a verdict in excess of the policy limits where there are reasonable grounds for such an appeal, especially where trial counsel so recommended

What is bad faith insurance law in Michigan?

The bad faith insurance law in Michigan allows the at-fault driver’s liability insurer to be sued for a “bad faith” refusal to settle within policy limits, and this refusal to resolve the case has exposed the insured to an excess verdict or judgment.

Michigan still needs a bad faith insurance law that protects auto accident victims against overreaching No-Fault auto insurance companies

Michigan law needs to be changed so that consumers who suffer real harm because of insurance company bad faith tactics can have the same legal recourse and file a lawsuit against insurers that consumers have in most other states.

Changing our law so Michigan consumers can also bring a bad faith insurance lawsuit against an insurance company will: (1) help auto accident victims recover the No-Fault insurance benefits they are owed promptly; and (2) deter abusive, and exploitative tactics by No-Fault auto insurance companies, including deliberate delays and denials of clearly valid and owing claims.

Unfortunately, under the current law, filing a Michigan bad faith insurance lawsuit and forcing No-Fault insurers to pay penalty interest and the victim’s attorney fees have not proven to be adequate sanctions to deter insurer “bad faith.” Thousands of innocent and injured auto accident victims still suffer real harm every year by insurance companies that do not look at penalty interest and attorney fees as a real deterrent.

A recent case that our Michigan Auto Law lawyers handled is a perfect illustration of the urgent need for lawmakers to pass a meaningful “bad faith” insurance law in Michigan to stop No-Fault auto insurers from gaming the No-Fault system to boost their profits at the expense of crash victims’ lives and welfare.

Our client’s auto insurer unreasonably refused to pay our client’s No-Fault PIP benefits, which caused our client to be unable to pay to keep her apartment. Consequently, our client lost custody of her two children for whom she was a guardian and our client has been forced to relocate to live with family in another state.

In addition to surviving her injuries from her crash and having to go through recovery and rehabilitation, our client suffered real, tangible harm because of the ugly and abusive claims handling tactics of her insurer. In most other states, a bad faith insurance lawsuit could have been brought against the insurer for these harms, but Michigan law provides her virtually no protection or recourse against her insurer other than a lawsuit for penalty interest and attorney fees that we have discussed at length above.

My thoughts on proposing a new Michigan bad faith insurance law and lawsuits against insurance companies

Using legislation from past years as guidance and my own experience helping catastrophic auto accident and truck accident victims in other states, I would propose a future Michigan bad faith insurance law that would impose on Michigan No-Fault auto insurers a “duty to deal fairly and in good faith” with crash victims seeking No-Fault PIP benefits as well as with the victims’ doctors and care providers.

Breach of this duty would result in a “Michigan bad faith insurance lawsuit” where the offending insurers being held liable for compensatory, consequential, noneconomic, economic, and exemplary damages caused by this failure to operate fairly and in good faith with consumers.

Insurer “bad faith” that violates the “duty” of fair dealing and good faith would include the following tactics that have been and continue to be regularly used against injured auto accident victims by Michigan No-Fault insurers:

  • Making materially false or deceptive statements about a crash victim’s legal rights or about the insurer’s legal duties and obligations.
  • Failing to pay No-Fault benefit claims where it reasonably appears the benefits are owed.
  • Forcing auto accident victims to submit to IMEs by doctors routinely hired by insurers to conduct IMEs and who have demonstrated themselves to be biased in favor of insurers.
  • Failing to reconcile conflicting medical opinions by victims’ doctors and the insurance company’s IME doctors.
  • Failing to make good faith efforts to settle claims where liability has become reasonably clear.
  • Making low-ball settlement offers which are substantially less than the amounts due to a crash victim and which are less than the amount to which a reasonable person would believe the [victim] was entitled, thus forcing the victim to resort to litigation to recover the unpaid, overdue No-Fault benefits he or she is owed.

(Sources: House Bill 5104 (which proposed amending the No-Fault law was introduced in 2017 and died due to inaction at the close of the 2017-2018 legislative session); House Bill 4844 (which proposed amending the No-Fault law was introduced in 2009, approved by the Michigan House of Representatives in 2009, and died in the Michigan Senate at close of the 2009-2010 legislative session))

Should you file a Michigan bad faith insurance lawsuit? Call the auto accident attorneys at Michigan Auto Law

If you were injured in a car crash and you have questions about whether to file a Michigan bad faith insurance lawsuit, your legal rights to pain and suffering compensation, economic damages and auto No-Fault insurance benefits, you can speak to an experienced auto accident lawyer at (800) 777-0028 for a free consultation. You can also get help from an experienced No-Fault insurance attorney by visiting our contact page or you can use the chat feature on our website.

Michigan Bad Faith Insurance Lawsuit: What You Need To Know

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