GRAND RAPIDS – In a move to protect Michigan consumers from some of the most outrageous practices in the home, auto and health care insurance industries, State Representatives Mike "Huck" Huckleberry (D-Greenville) and Robert Dean (D-Grand Rapids) today unveiled a package of bills that will toughen penalties and rein in corporate leaders who promote a culture that denies consumers' legitimate claims. The legislation is modeled after laws in 46 other states that have taken aim at wrongful denial or "bad faith" insurance practices.
"We buy insurance to get us through our worst times and help us get back on our feet," said Huckleberry, who introduced House Bill 5145 as part of the plan. "These are supposed to be companies that we can trust. Unfortunately, Michigan is one of just four states that allow insurance companies to break their word to consumers. In my book, that's just not right. My plan will go after insurance companies and CEOs that hurt consumers by knowingly delaying or denying legitimate claims."
Bad faith insurance practices consist of a set of tactics to delay or deny legitimate property, automotive or health care claims in order to maximize a company's bottom line. Such practices can have devastating consequences for consumers while reaping profits for companies.
Jo Anne Katzman of Bloomfield Hills, a former claims adjuster with Allstate Insurance Company who became a whistle-blower, saw firsthand why consumers need stronger protections against the wrongful practices of the insurance industry. Katzman said managers regularly threatened that adjusters would lose their jobs if they didn't deny enough claims. She also was ordered not to pay a claim she knew was valid. According to multiple reports by Bloomberg News, both Farmers Insurance and Allstate have employee incentive programs for adjusters who deny the most claims.*
"I could no longer look people in the eye knowing our insurance company would turn its back on them in their hour of need," said Katzman, who worked for Allstate from 2002 to 2003. "The employees who regularly delayed or denied claims were awarded with promotions and rewards. Having worked on the inside, I can tell you that no one is in good hands with Allstate or with any other insurance company until Michigan toughens its consumer protection laws. "
The plan announced today will:
- Strengthen consumer protections by punishing insurance companies that illegitimately deny consumer claims with penalties including a $1 million fine.
- Punish corporate leaders who knowingly foster or encourage wrongful denial of claims by making the misconduct a felony that could result in four years in prison plus a $50,000 fine.
- Create a whistle-blower protection plan to shield employees who report that an insurance company is engaging in wrongful denial of claims.
- Require insurance companies to repair a consumer's credit rating when harmed by wrongful denial of coverage.
- Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.
Michigan's current law offers little or no protection against bad faith insurance practices, and the state's lack of penalties acts as an incentive to encourage companies to break their promises and exploit residents. According to the 2007 Bloomberg News report, insurance companies even make money by low-balling claims and collecting interest when they delay a consumer's claim.
"If consumers are paying their insurance bills, then insurance companies need to be keeping up their end of the deal," Dean said. "That's the fundamental rule behind a contract. This plan will create the protections our consumers need and the tough penalties that will deter these deceitful practices."