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Insurance Law

These Are Your Rights When Your Insurance Claim is Denied

The State of Michigan is approaching the 40th anniversary of its publication of Kewin v Massachusetts Mut Life Ins Co., which led to four decades of narrowing the rights and remedies available to individuals and businesses aggrieved by insurance company bad faith practices.

 The March issue of the Bar Journal, published by the State Bar of Michigan, will feature an article authored by Firm Member, Adam Kutinsky.

 The article describes how the Kewin opinion affected the rights of policy holders and other insureds to recover extra-contractual damages against insurance companies that act in bad faith.

 It also provides a summary of the remedies that remain available despite Kewin and its progeny, and how a business or individual may seek redress.

The article includes, among other things, the following points:

Michigan law recognizes that a policyholder or claimant will suffer distress when their insurance claim is denied, even if the denial was justified under the insurance policy.

The law imposes a duty on policyholders to read their policy upon receipt, and to ask questions of their agent or insurer for clarification if needed.

In practice, it is not common for a policyholder to read their policy from front to back, identify unclear language, and then contact their agent or insurer with questions.

Michigan law distinguishes between a bona fide error and bad faith insurance practices. Bad faith is defined as “arbitrary, reckless or intentional” conduct by an insurance company, and generally involves the carrier placing its own interests ahead of the insured’s interests.

If you sue an insurance company for wrongfully denying coverage, whether in bad faith or not, the law does not award attorney fees without a basis in contract, statute, court rule, or other exception.

Experience shows that the limit on recovering attorney fees results in a chilling effect on policyholders pursuing their rights in court, in particular with respect to small, but valid insurance claims.

Michigan law distinguishes between damages awarded for breach of contracts that are financial in nature and contracts that are personal to the insured.

A personal contract is defined as related to rights we cherish, dignities we respect, emotions recognized by all as both sacred and personal. Michigan Courts have not identified an insurance policy that falls within the category of a personal contract, and has even determined individual disability and health insurance policies to be financial transactions, unrelated to personal rights.

With no personal contract rule to rely upon, an insured must identify conduct of the insurance company that is unlawful separate and apart from the breach of policy obligations.

Notwithstanding the limitations identified above, Michigan enacted the Uniform Trade Practice Act (UTPA), which defines and penalizes insurance company conduct found to be in bad faith.

Under the UTPA, an insurance company that fails to pay benefits in a timely manner must pay an additional 12 percent interest per annum to the insured or other claimant. However, the UTPA did not create an independent claim for bad faith.

Despite limits imposed on insureds and other claimants aggrieved by insurance company conduct, the insured may benefit from looking outside the scope of insurance-specific laws for relief.

Laws not particular to insurance that are available to an insured aggrieved by bad faith conduct include negligent or intentional infliction of emotional distress, breach of consumer protection laws, and fraud.

Claims such as these may create avenues for an insured to recover damages beyond the policy benefits for conduct amounting to bad faith on the part of the insurance company, including the potential recovery of attorney fees and costs.

 


 

Adam Kutinsky is an attorney with Dawda Mann that practices in the areas of insurance coverage, commercial litigation and real estate disputes.  He can be reached at (248) 642-7835 or akutinsky@dawdamann.com, and is available to answer questions about the article or otherwise provide assistance with insurance related matters.

Dawda Mann is dedicated to helping businesses and the individuals who own them.  Our attorneys have decades of success recovering insurance benefits for high exposure property losses, such as damages to buildings, personal property, business interruption losses, loss of income, construction project delays, hard and soft costs, additional costs and legal expenses.  Dawda Mann reviews and advises its clients on adequate insurance coverage and risk management strategies at the time of purchase or renewal, and will step in at the time of a loss to maximize recovery.  We know how vital it is that your business continues with minimal interruption following a loss, and with complete indemnity from the insurance company.  If the loss was so catastrophic that it halted the business’ operations, our goal is to bring it back to full capacity without the owner coming out of pocket beyond its insurance deductible, and with maximum continuity.

Dawda Mann is one of the few private law firms in Michigan that employs an attorney with the insurance underwriting designation, CPCU®.  When faced with a recalcitrant insurance carrier, our clients are served well by attorneys who represented insurance companies earlier in their careers, thereby affording the benefit of a perspective from the viewpoint of decision makers inside insurance companies.  Among our Firms’ strategic partners is the largest public adjusting firm in the Midwest.  By maintaining a close relationship with the public adjusting firm, our attorneys ensure our clients receive the most appropriate services from the most qualified professionals, for the most cost effective fee.

Our Firm reviews and advises individuals and businesses on risk management, insurance and, as needed, will step in and fiercely pursue insurance coverage following a loss of these types:

Commercial Property

Building and Personal Property
Value Reporting
Causes of Loss, Broad, Special or Other
Ordinance or Law
Terrorism Risk Disclosure

Homeowner
Appraisal Proceedings
Business Income and Extra Expense
Builders Risk
Commercial Inland Marine
Transportation
Contractor’s Equipment
Rental Reimbursement
Condominium Association
Flood
Earthquake and Other Natural Disasters
Commercial Crime
Equipment Breakdown
Businessowners Policy (BOP)
Farming