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 Representatives Bert Johnson (D-Detroit), David Nathan (D-Detroit) and Rashida Tlaib (D-Detroit) 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.
"Michigan is currently one of only four states that have virtually no protections against insurance companies that break their word," said Johnson, Chair of the Detroit Caucus and a sponsor of the plan. "Insurance companies cannot be permitted to continually profit by delaying and denying legitimate claims of people who are only seeking what they deserve. This plan ensures that insurance companies live up to their responsibilities and honor the policies consumers paid for."
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.
"Too many of our residents in Detroit and throughout the state are being abandoned by their insurance provider at the time when they need help the most," said Nathan, who sponsored the plan. "When people are hurt in a car accident or their home is destroyed in a fire, they shouldn't have to live in fear of retaliation or stalling tactics by their insurer in an attempt to make them drop the claim. This plan will put an end to these insidious practices and force insurance companies to treat their customers with the respect they deserve."
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.
Lawmakers were joined today at the State Capitol by nurses, hospital representatives and consumers.
"This is one of the most despicable practices in the insurance industry," said Tlaib, a sponsor of the plan. "It's unacceptable that insurance companies can deny legitimate claims – and profit from doing so – while our residents' bank accounts and credit scores are left in shambles. Our residents need laws that protect them – not the powerful insurance companies. This plan does just that."
Note: Video testimonials by wrongful denial victims and whistle-blower Jo Anne Katzman are available
at housedems.com/wrongful-denial.
[1] Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.