BLOOMFIELD HILLS – 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 Vicki Barnett (D-Farmington Hills), Lisa Brown (D-West Bloomfield) and Ellen Cogen Lipton (D-Huntington Woods) today announced 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 "bad faith" insurance practices.
"Insurers should not be able to get away with bullying people into dropping a claim or delaying payment so they can collect interest," Barnett said. "And while consumers are waiting for an insurance company to do what they promised, they can face mounting bills – maybe even bankruptcy and foreclosure. It's absolutely shocking that Michigan is only one of four states that don't have laws to protect consumers from this reprehensible practice."
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.[1]
"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 House plan 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.
"Not only does this plan create much-needed consumer protections in Michigan, it holds corporate leaders accountable," Lipton said. "For far too long, insurance companies have been able to turn their backs on our residents when they needed help the most. With this plan, we're sending a message loud and clear: People come ahead of the profits of powerful insurance companies."
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.
"Too many residents have watched their lives fall apart as powerful insurance companies profit by dragging their feet and denying legitimate claims," Brown said. "Residents pay hard-earned money to insurance companies to be there when disaster strikes. This plan will force companies to keep their promises and punish those who don't."
[1] Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.