ST. CLAIR SHORES – In a move to protect Michigan consumers from some of the most outrageous practices in the home, auto and health care insurance industries, Macomb County lawmakers 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.
"Insurance companies are supposed to help us times of crisis, not turn their back on us," said State Representative Jennifer Haase (D-Richmond), a sponsor of the plan. "Those that delay and deny legitimate claims are ruining the lives of people every day. Our plan will protect Michigan consumers from big corporations that back out on their end of the deal simply to increase their profits."
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 company profits. Such practices can have devastating consequences for consumers while reaping profits for companies.
"Behind every wrongfully denied claim is a family whose lives have been turned upside down because an insurance company didn't do what it promised," said State Representative Sarah Roberts (D-St. Clair Shores), a sponsor of the plan. "It's time we put people ahead of the powerful special interests like insurance companies. This plan is about making insurance companies keep their promises and punishing them when they break their word."
Jo Anne Katzman of Bloomfield Hills, a former claims adjuster with Allstate Insurance Company who became a whistle-blower, saw first hand 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 lawmakers' 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 create, 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 penalty.
- 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.
"The company leaders who encourage the culture of wrongful denial hurt Michigan families and should be held accountable just like anybody else," said State Representative Jon Switalski (D-Warren), a sponsor of one of the bills in the package. "Being a CEO does not put you above the law. People are expected to do what they promise – this legislation says that CEOs and insurance companies are no different."
The lawmakers were joined today at the Southeast Health Center by Katzman, victims of wrongful denial, doctors and advocates in support of the plan.
"No one who suffers a catastrophic event such as a severe car accident or fire in their home should have to worry about whether their insurance company is going to abandon them in their time of need," said State Representative Lesia Liss (D-Warren). "Our legislation will help protect Michigan residents when they are most vulnerable by ensuring that insurance companies that participate in these deceitful practices are held accountable."
Note: Video testimonials by wrongful denial victims and whistle-blower Jo Anne Katzman are available here.
[1] Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.