LANSING – Oakland County lawmakers today hailed passage of legislation in the Michigan House to protect consumers from the most unfair and abusive insurance company practices, known as "bad faith" or "wrongful denial." The plan creates penalties for insurance companies that deny policyholders' rightful claims, while holding CEOs and other corporate leaders accountable for boosting profits at the expense of consumers. The legislation, which now heads to the Senate for approval, is modeled after laws in 46 other states.
"As insurance companies delay and deny claims, Michigan families are seeing their lives fall apart," said State Representative Lisa Brown (D-West Bloomfield). "Michigan residents are struggling under the highest unemployment rate in the nation and an economic downturn that's hit our state the hardest, and they shouldn't have to fight their insurance companies just to do what was promised under their policy in the first place."
Bad faith insurance practices consist of a set of tactics to delay or deny legitimate insurance claims in order to maximize a company's bottom line. Such practices can have devastating consequences for consumers while reaping profits for companies.
Passage of the plan today came even as insurance companies and their lobbying and public relations firms launched radio attacks and automated phone calls against legislators who are working to repair Michigan's lagging consumer protection laws.
"We expect our insurance companies to be there for us at the worst times of our lives, but too often, they're looking out only for their own bottom line," said State Representative Vicki Barnett (D-Farmington Hills), a licensed insurance agent and bill sponsor. "We need to ensure that Michigan residents have the same protections as consumers in 46 other states. This plan will hold CEOs and insurance companies accountable when they hurt working families by rejecting rightful claims."
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 many stories, including a 2007 Bloomberg News report, insurance companies even make money by low-balling claims and collecting interest when they delay a consumer's claim.
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 just to make even more money," 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 will:
- Strengthen consumer protections with penalties against insurance companies that illegitimately deny consumer claims. An additional $1 million fine could be issued against companies that repeatedly violate contracts with policyholders.
- Hold CEOs accountable when they 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 it is harmed by wrongful denial of coverage.
"I was elected to look out for the well-being of our families and I will not be intimidated by powerful insurance companies," Brown said. "The insurance special interests can hire all the high-priced lobbyists and run all the attack ads they want, but it will not change the fact that they have consistently turned their backs on our hard-working families in the pursuit of bigger profits."
Note: Wrongful denial testimony is available at: www.stopinsurancedenial.com
[1] Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.