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 Dian Slavens (D-Canton), Deb Kennedy (D-Brownstown) and Gino Polidori (D-Dearborn) 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.
"For every wrongfully delayed or denied claim, there is a family left in ruins because their insurance company broke its contract," Slavens said. "In those times of tragedy – a brain injury, catastrophic accident or a devastating fire – Michigan residents should be able to turn to their insurance company for the help they were promised. This plan will ensure that insurance companies put consumers ahead of their own bottom line."
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.
"Wrongful denial could happen to any of us, and the sad truth is, it does," Kennedy said. "Michigan's current law not only falls short when it comes to consumer protections against these shameful practices, it actually encourages them. We must hold big insurance companies to task when they turn their back on people in their hour of need. This plan will do just that."
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.
"For too long, insurance companies have raked in huge profits at the expense of our families and residents," Polidori said. "It's time for Michigan to step up to the plate and crack down on corporate leaders who use their power to incite a culture that defrauds consumers when they are at their most vulnerable and desperate."
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.