Michigan Proposes Harsher Penalties for Insurance Companies Acting in Bad Faith
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In Michigan, a new bill on the table proposes that insurance companies that delay its responses to claims or deny legitimate claims may be fined up to $1 million dollars and impose a five year felony sentence for insurance executives. The bill would apply to home, auto, and health insurance companies. The Detroit Free Press (Christoff) reported that:
The Democrats' 12-bill package would allow the state insurance commissioner to levy a fine of up to $1 million. It would create civil penalties up to triple the cost of the original claim and 5-year felonies for insurance company executives who encourage wrongful denial of claims.
The Insurance Industry contends that the bill will promote frivolous lawsuits, drive up the cost of insurance, and exaggerates the number of legitimate claims actually denied by insurance companies each year.
Supports of the bill argue that the existing laws in place designed to handle bad faith issues with insurance companies are not strong enough and to curtail the denying of legitimate claims.
The Grand Rapids Press provides that the 12 package bill is designed to:
•Strengthen consumer protections, punishing companies who unnecessarily delay or deny rightful claims with fines up to $1 million.
• Hold accountable corporate leaders who encourage wrongful denial of claims, making the misconduct a felony punishable by prison and hefty fines.
• Create a whistle-blower protection plan to shield employees who report an insurance company is engaging in wrongful denial.
• Require companies to repair a consumer's credit that has been harmed by wrongful denial.
Rep. Mike Huckleberry, D-Greenville, said the legislation would not only protect consumers but also protect whistle-blowers. Huckleberry said seven of 10 people filing bankruptcy for medical reasons have health insurance that should have covered their medical costs.
Currently, there are very few states with stronger insurance laws. It remains to be seen if more states such as Indiana and Kentucky will follow Michigan’s trend or if such legislation will continue to be in the minority.