Unfair Claims Practices, Complaints and Enforcement
A claim is when a client finds out what the policy was worth. Chapter 20 of the Michigan Insurance Code sets standards for handling claims, requires a record of complaints, and gives the Director of the Department of Insurance and Financial Services (DIFS) the tools to enforce all of it. This lesson also maps the rest of the chapter, through MCL 500.2093.
Unfair Claim Practices
A course of conduct
MCL 500.2026(1) lists fourteen claim practices that are unfair, “other than isolated incidents.” Michigan describes them as “a course of conduct indicating a persistent tendency to engage in that type of conduct.”
| Stage | Practices listed in MCL 500.2026(1) |
|---|---|
| Communicating | Misrepresenting pertinent facts or policy provisions on coverages at issue (a). Failing to acknowledge or act reasonably and promptly on claim communications (b). |
| Investigating | Failing to adopt and implement reasonable standards for prompt investigation (c). Refusing to pay without a reasonable investigation based on the available information (d). Delaying by requiring a preliminary claim report and then formal proof of loss forms, solely to duplicate a verification (l). |
| Deciding | Failing to affirm or deny coverage within a reasonable time after proof of loss statements are completed (e). Failing to promptly explain, by reference to the policy and the facts or law, a denial or compromise offer (n). |
| Settling | Failing to attempt in good faith prompt, fair and equitable settlements once liability is reasonably clear (f). Compelling litigation by offering substantially less than the amount due (g). Trying to settle for less than a reasonable person would believe was due by reference to advertising material accompanying or made part of the application (h). Trying to settle on an application altered without the insured’s notice, knowledge or consent (i). Making known a policy of appealing arbitration awards to compel smaller settlements (k). Holding up a claim under one portion of coverage to influence settlement under another (m). |
| Paying | Paying a policyholder or beneficiary without stating the coverage under which each payment is made (j). |
Timely payment
MCL 500.2006 needs no pattern. Failing to pay a claim on a timely basis, or to pay the interest due, is an unfair trade practice unless the claim is “reasonably in dispute” (MCL 500.2006(1)).
- Within 30 days after receiving a claim, the insurer must specify in writing what a satisfactory proof of loss consists of, unless it settles the claim first (MCL 500.2006(3)).
- A claim is timely if paid within 60 days after the insurer receives proof of loss. If proof covers only part of the claim, that part is timely if paid within 60 days, and the rest follows the same rule as proof arrives. For life insurance, if proof clearly shows more medical information is needed, the 60 days run from receipt of that information (MCL 500.2006(3)).
- A late payment bears simple interest at 12% per year from a date 60 days after the insurer received satisfactory proof of loss, paid in addition to the loss and at the same time (MCL 500.2006(4)).
If Priya’s fire claim sits unpaid for 90 days after satisfactory proof of loss, with no real dispute, the insurer owes the claim plus 12% simple interest from day 60.
Payment is not untimely while no one can give a valid release, or the insurer cannot determine who is entitled, if it promptly notifies the claimant and offers in good faith to pay once that is settled (MCL 500.2006(3)). A person found liable by a court judgment that pays the interest has not committed an unfair trade practice under the section (MCL 500.2006(2)). If a loss exceeds the limits, interest is based on the limits. If a claimant rejects an offer and does not later recover more, no interest is due. A third party tort claimant collects this interest only if liability is not reasonably in dispute and a court has determined the insurer refused payment in bad faith (MCL 500.2006(4)). Where the section specifically conflicts with chapter 31, the no-fault chapter, or the worker’s disability compensation act, it does not apply (MCL 500.2006(6)).
Health plans paying providers
A separate track governs a health plan paying a health professional, facility, home health provider or durable medical equipment provider, other than pharmacies and no-fault or workers’ compensation claims (MCL 500.2006(7)). A clean claim must be paid within 45 days of receipt, or it bears 12% simple interest. The plan has 30 days to give notice of what keeps a claim from being clean, and the provider has 45 days to correct it. To be clean, a claim must be billed within 1 year after the date of service or discharge (MCL 500.2006(8)(a) to (f)). The Director may impose a civil fine of not more than $1,000 for each violation, up to $10,000 in the aggregate (MCL 500.2006(13)).
Complaint Records
A person must keep a complete record of all complaints from its insureds received since its last examination. Failing to do so is itself an unfair practice. The record shows the total number of complaints, their classification by line of insurance, the nature of each, its disposition, and the time it took to process (MCL 500.2026(2)).
A “complaint” is a written communication primarily expressing an allegation of acts that would violate chapter 20.
If a complaint about an insurer reaches you as its agent, promptly forward it to the insurer, unless you resolve it to the insured’s satisfaction within a reasonable time. An insurer does not commit a violation because an agent who is not also its employee failed to forward one (MCL 500.2026(2)).
How the Director Enforces the Act
Older sections of chapter 20 say “commissioner.” The Director now holds that authority.
Investigation and notice
Upon probable cause, the Director may examine and investigate the affairs of a person in the insurance business (MCL 500.2028). With probable cause to believe a violation has occurred, and if a hearing would serve the public interest, the Director gives written notice of the general nature of the complaint. Before a notice of hearing is issued, department staff must offer a chance to confer, and the matter may be resolved summarily by agreement (MCL 500.2029).
The hearing
The person may be heard, be represented by counsel, and show cause why no order should issue. The burden of proof is on the agency, or on an intervenor opposing the person. The Director or a designate presides, but the person may request an independent hearing officer and may use 1 peremptory dismissal of the officer selected within 20 days after notification (MCL 500.2030(1) to (3)). Any party may compel witnesses and documents (MCL 500.2032(1)).
Orders and penalties
If the Director finds a violation, the findings go in writing and the Director issues a cease and desist order. The Director may add (MCL 500.2038(1)):
| Remedy | Limit |
|---|---|
| Monetary penalty | Up to $1,000 per violation, $10,000 in the aggregate |
| Monetary penalty if the person knew or reasonably should have known of the violation | Up to $5,000 per violation, $50,000 in the aggregate for all violations in a 6-month period |
| Suspension or revocation of a license or certificate of authority | Only if the person “knowingly and persistently” violated the chapter |
| Refund | Any overcharges |
A person who violates a cease and desist order while it is in effect may, after notice and an opportunity for a hearing, face a monetary penalty of not more than $20,000 for each violation, suspension or revocation, or both (MCL 500.2040(1)).
The section 2064 and 2066 track has its own procedure. The holder gets written notice and a hearing date not less than 15 days after service. A revocation takes effect no sooner than 10 days after the order and written notice. If review is sought within 10 days after notice of the order, the license stays in force until the appeal is decided (MCL 500.2068(1), (2)).
Review
An order is reviewable under MCL 500.244, which uses the administrative procedures act (MCL 500.2041(1); MCL 500.244(1)). Filing for review does not itself stop enforcement, though the Director or a court may grant a stay (MCL 500.2038(2)). Findings of fact supported by the preponderance of the evidence are conclusive (MCL 500.2041(1)).
Practices no section names
For a practice not defined in sections 2005 through 2025, the Director first gives preliminary notice, which is privileged and not public, and the person has 10 days after receipt to apply for a trade conference, unless a published rule already defines the practice. A hearing on a statement of charges is set not less than 15 days after service. If the practice continues, then at any time after 15 days after service of the finding, the Director may act through the attorney general to seek an injunction in the Ingham county circuit court (MCL 500.2043(1), (2), (5)). Trade practice conferences may produce recommendations the Director can adopt as enforceable rules (MCL 500.2047(2), (3)).
Other consequences
An order does not relieve anyone of liability under other Michigan law (MCL 500.2049), and the act is cumulative of the code, other statutes and common law (MCL 500.2050). Having admitted or been found to have committed an insurance unfair trade practice is also a chapter 12 ground for discipline (MCL 500.1239(1)(f)).
The Rest of Chapter 20
These later sections stand outside the act.
| Citation | What it covers |
|---|---|
| MCL 500.2059(1), (2) | With exceptions, a person may not keep an office for transacting insurance, or use an insurer’s name, in conducting or advertising a business unrelated to insurance. A producer may still market HMO coverage, dental care coverage and third party administrator services. |
| MCL 500.2080(1), (3), (6), (9) to (12) | Funeral ties, in life and accident insurance. An insurer may not own or operate a funeral establishment. A funeral establishment, cemetery or seller may hold only a limited life license. Other life producers may not sell funeral or cemetery goods or be associated with a seller. An assignment of proceeds for funeral goods must be in writing on a Director-approved form. A producer selling a policy meant to be assigned to an associated seller must make written disclosures, may not tie the sales together, and must see that the purchaser gets a full refund on cancellation within 10 days after receipt. The Director or any other person may sue to force compliance with subsections (6) and (7). A violation is a misdemeanor, up to $1,000, 6 months, or both, and the Director may add a civil fine of up to $10,000 per violation. |
| MCL 500.2086 | A physician serving as medical examiner for a life or casualty insurer, or for a person seeking that insurance, who knowingly gives the insurer a false report on an applicant commits a misdemeanor, up to $1,000 or 3 months in county jail, and is liable to the insurer for the full amount of insurance obtained. |
| MCL 500.2088 | Any agent, collector, physician, insured or other person who presents a false certificate of death, sickness or disability, or a false claim, commits a misdemeanor with the same limits. |
| MCL 500.2091 to 500.2093 | The Director notifies an unauthorized foreign or alien insurer advertising unlawfully to Michigan residents, and the insurance regulator of its domiciliary state, by certified mail. If it has not stopped after 30 days, the Director must proceed under the act on reason to believe a proceeding serves the public and the insurer is doing business with Michigan residents. |
Lesson summary
- MCL 500.2026(1) lists fourteen unfair claim practices, which apply to a course of conduct indicating a persistent tendency, not to isolated incidents.
- Under MCL 500.2006, a late claim is an unfair trade practice with no pattern required, unless it is reasonably in dispute. The insurer has 30 days to specify proof of loss, and 60 days after proof to pay. Late payments bear 12% simple interest.
- Health plans paying providers follow a separate track: 45 days to pay a clean claim, and 30 days to give notice of defects.
- A person keeps a complete complaint record since its last examination. An agent forwards a written complaint promptly unless it is resolved to the insured’s satisfaction within a reasonable time.
- Enforcement moves from probable cause to written notice, a chance to confer, and a hearing where the agency bears the burden of proof.
- After a finding, the Director issues a cease and desist order and may add penalties of $1,000 per violation ($10,000 aggregate), or $5,000 per violation ($50,000 in 6 months) if the person knew or should have known.
- Violating a cease and desist order can bring $20,000 per violation. Revocation under section 2038 requires a knowing and persistent violation, while sections 2064 and 2066 require revocation on satisfactory evidence.
- Chapter 20 continues past the act with rules on insurer names, funeral arrangements, false medical and claim reports, and unauthorized insurers.