LANSING – In a move to protect Michigan consumers from some of the most outrageous practices in the home, auto and health care insurance industries, State Representative Kate Ebli (D-Monroe) and House Majority Floor Leader Kathy Angerer (D-Dundee) 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 wrongful denial or "bad faith" insurance practices.
"We should not be letting insurance companies off the hook while they leave our residents' finances in shambles," said Ebli, a sponsor of the plan. "But in order to stop them, we need to know when these misdeeds occur. My plan will protect those who have the courage to stand up and report corrupt insurance companies that wrongfully abandon consumers in their hour of need. Extending this safeguard to our consumers will help us find corrupt companies and attack this problem at its core."
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.
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.
"When a consumer defrauds an insurance company, they face tough penalties and jail time," Angerer said. "Unfortunately here in Michigan, the same can't be said when insurance companies cheat our consumers. This plan will help ensure that Michigan residents will no longer have to worry whether insurance companies are looking out for their customers, or the company's bottom line."
*Dietz, David and