LANSING – In a move to protect Michigan consumers from some of the most outrageous practices in the home, auto and health care insurance industries, House Democrats 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.
"No one should have their life ruined because an insurance company won't do what it promised," said State Representative Barb Byrum (D-Onondaga), Chair of the House Committee on Insurance. "These bills will protect consumers while holding corporations accountable when they deny legitimate claims in order to boost their own 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 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 Democrats' 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.
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.
"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 promise and punishing them when they break their word."
State Representative Mike Simpson (D-Jackson) knows what it's like to have an insurance company turn its back at a time when people need it most. In 1993, Simpson's daughter was diagnosed with bone cancer; she later died from the disease. Simpson and his family struggled to get their insurance company to pay their medical bills under the policy they had paid for. Because of the financial strains, Simpson lost everything and was forced into bankruptcy.
"My daughter died from cancer and the insurance company refused to follow through on its promise to her and to my family," Simpson said. "As a result, we had to declare bankruptcy to pay the bills. Sadly, my story is not unique, and I am going to fight to hold insurance companies accountable and make sure this never happens to anyone else ever again."
House Democrats were joined today at the State Capitol by nurses, hospital representatives and consumers.
"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."
1 Dietz, David and Preston, Darrell. "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits," Bloomberg News, Aug. 3, 2007.
Note: Video testimonials by wrongful denial victims and whistle-blower Jo Anne Katzman are available at housedems.com/wrongful-denial.