“Bad faith” characterizes intentionally dishonest acts or fraudulent behavior. In the context of an insurance company, it means engaging in delay, deny, and defend tactics to improperly underpay legitimate claims, wear down customers waiting for proper payment, and putting the insurance company’s interests ahead of the policyholder.
Unfortunately, these tactics are all too common in Michigan, where insurance companies make more money by regularly denying or lowballing legitimate claims than they do by simply paying what they owe.
Michigan is one of only eight states in the nation with no laws to protect its citizens from these practices. Because Michigan policyholders have no recourse when confronted by an insurance company refusing to act in good faith, many insurance companies in Michigan have adopted bad faith business practices as their standard operating procedure.
The tactic works because there is no down-side: they count on businesses and consumers not having the will or the resources to carry out an expensive years-long legal battle, essentially betting that most claimants will just give up.
More often than not, that’s exactly what happens.
Even worse: Michigan’s broken system now perpetuates a toxic and nonsensical double standard. Businesses and individuals who commit insurance fraud can be charged with a felony, resulting in jail time or expensive fines. But insurance companies face no such consequences. Even for clear instances of outright fraud, the worst-case scenario for an insurance company is simply to pay what they owe – with no meaningful legal or financial consequences.
This behavior persists, despite the fact that insurance is a multi-billion-dollar industry that can easily pay all legitimate claims and still make a healthy profit. Tragically, claims departments are increasingly viewed as profit centers and are incentivized to pay out less – putting their financial interests ahead of their policyholders.
Fortunately, some organizations like ours and advocacy groups are working hard to change things. We are leading the push to pass the Insurance Policyholder Bill of Rights (SB 329 and HB 4681) in Michigan that would protect policyholders: implementing financial penalties for insurance companies that refuse to engage in good faith practices, deny and delay payment of claims without a reasonable basis, and place their interests ahead of the policyholders.
This legislation would serve as a critical first step to deter fraudulent behavior and incentivize insurance companies to do what they should have been doing all along: treating customers fairly and living up to their obligations.
Michigan insurance companies routinely attempt to avoid the accountability of bad faith laws by repeating debunked myths about irresponsible litigation or rising premium costs. But holding insurance companies to the same standard as businesses and individuals simply balances the scales of justice. The idea that billion-dollar insurance companies need special legal protections from small business owners or car accident victims is absurd. We expect histrionic and false claims that if the insurance industry is held to reasonable standards, insurance companies must raise premiums. But these claims defy logic and reveal that insurance companies must presently believe that the only way to support their record profits is to engage in bad faith.
Bad faith laws are a critical way to introduce meaningful consequences into a system that has been consequence-free for bad actors for far too long. The only parties who should fear bad faith legislation are those bad actors who routinely engage in reprehensible behavior. Ethical insurance companies should welcome bad faith laws because they encourage fair competition in the marketplace. Companies operating in good faith should never have to raise their premiums because other companies engage in misconduct.
Bad faith laws are ultimately not about punishment, but deterrence: protecting Michigan’s citizens and businesses and encouraging fair insurance practices. Because there are common sense reasons that nearly all states have already adopted sensible bad faith laws: it’s good for business.
Senate Bill 329 and House Bill 4681 are incredibly important pieces of legislation for all Michiganders. The bills are currently awaiting committee hearings. With your help, we can get the Policyholder Bill of Rights passed.
Contact your legislators HERE to urge them to pass this important legislation.
Use sample language HERE from Michigan Association for Justice to reach out to friends, family, and clients about insurance good faith.
Michigan insurance companies routinely attempt to avoid accountability by repeating debunked myths about bad faith insurance. Let’s look at some of the most common myths and see how they stack up to reality.
Bad faith laws lead to irresponsible litigation.
Billion-dollar insurance companies don’t need special legal protections from small business owners or consumers. Holding insurance companies to the same standard as businesses and individuals simply balances the scales of justice and introduces meaningful consequences into a system that has rewarded bad actors for far too long.
Bad faith protections are “anti-insurance” and bad for business.
The reality is that bad faith insurance laws are no more “anti-insurance” than drunk driving laws are “anti-alcohol.” Bad faith laws encourage fair competition in the marketplace. Which is why nearly all states have already adopted sensible bad faith laws: it’s not just the right thing to do — it’s also good for business.
Bad faith laws punish insurance companies trying to do the right thing.
