Insurance is supposed to give you peace of mind. When you file a personal injury claim, for instance, you expect your insurer to investigate your case, process your claim fairly, and pay what you’re rightfully owed. But unfortunately, that’s not always what happens. Sometimes, insurance companies intentionally delay, deny, or underpay claims, even when it’s clear you’re entitled to compensation. These tactics often leave you financially vulnerable at the very moment you need help the most.

Let our skilled Newaygo personal injury attorney explain what insurance bad faith means under Michigan law, how it happens, and what you can do if you find yourself facing these unfair practices.

What Is Insurance Bad Faith?

Bad faith happens when an insurance company fails to deal honestly and fairly with its policyholders. Under Michigan common law, insurance bad faith is defined as “arbitrary, reckless, indifferent, or intentional actions or disregard of the interests of the person owed a duty.” In simpler terms, it means your insurance company puts its own financial interests above its obligation to you.

• First-Party Bad Faith Claims

These involve situations where your own insurance company fails to uphold the policy issued to you. If your insurer, for example, delays payment of the benefits you’re entitled to after an accident without justification or denies them without a proper investigation, that can be considered first-party bad faith.

• Third-Party Bad Faith Claims

These occur when an insurer refuses to properly defend or settle a claim brought against you by someone else. For instance, you’re being sued after a car accident and your insurer refuses to settle the case within policy limits, even though the settlement is reasonable, exposing you to a much larger personal judgment. 

In insurance bad faith cases, it’s best to consult a local Newaygo personal injury attorney who understands how to hold insurers accountable. They can help you gather evidence, document the conduct of the insurer, and take legal action to recover the compensation you deserve, not just for the original claim, but potentially for additional damages.

Michigan Law on Bad Faith Insurance Practices

Under the Michigan Insurance Code, insurance companies are required to pay benefits to policyholders, beneficiaries, or third-party claimants in a timely manner. If not, and the delay isn’t because the claim is reasonably in dispute, the insurance company might have to pay not only the benefits owed but the interest on the unpaid amount as well.

Once you submit satisfactory proof of loss to your insurer, the company has 60 days to pay your claim. If your insurer fails to do so, the unpaid benefits start to accumulate interest at a rate of 12% per year. The interest is designed to penalize insurers who delay payment without good reason and to make sure you’re compensated fairly for the wait.

For third-party claimants, such as someone injured in a Michigan car accident, the rules are slightly stricter. A court must determine that the insurer refused to pay in bad faith before interest penalties are applied. Moreover, if the insurer made a reasonable offer but you rejected it, and you failed to recover more than what was offered, no interest is owed.

The Michigan Supreme Court has provided clear indicators that can help determine whether an insurer is acting in bad faith. These include:

• • Failure to keep the insured fully informed of all developments in the claim or suit that could reasonably affect the interests of the insured;

• • Failure to inform the insured of all settlement offers that do not fall within the policy limits;

• • Failure to solicit a settlement offer or initiate settlement negotiations when warranted under the circumstances;

• • Failure to accept a reasonable compromise offer of settlement when the facts of the case or claim indicate obvious liability and serious injury;

• • Rejection of a reasonable offer of settlement within the policy limits;

• • Undue delay in accepting a reasonable offer to settle a potentially dangerous case within the policy limits where the verdict potential is high;

• • An attempt by the insurer to coerce or obtain an involuntary contribution from the insured in order to settle within the policy limits;

• • Failure to make a proper investigation of the claim prior to refusing an offer of settlement within the policy limits;

• • Disregarding the advice or recommendations of an adjuster or attorney;

• • Serious and recurrent negligence by the insurer;

• • Refusal to settle a case within the policy limits following an excessive verdict when the chances of reversal on appeal are slight or doubtful; and

• • Failure to take an appeal following a verdict in excess of the policy limits where there are reasonable grounds for such an appeal, especially where trial counsel so recommended.

If your experience includes one or more of these actions, it might be time to talk to a qualified personal injury attorney in Michigan who can help you explore your legal options.

Legal Remedies Available to Victims of Bad Faith

If you’ve been a victim of bad faith insurance practices, Michigan law gives you a path to seek justice. When your personal injury claim is unfairly denied, delayed, or underpaid, you might be entitled to compensation that includes the original policy benefits, interest on the delayed payment, and in some cases, attorney’s fees. These remedies aim to make you whole again and hold insurers accountable for failing to honor their obligations.

It’s important to note that not all damages are recoverable in bad faith cases. In Michigan, you generally cannot claim exemplary damages or damages for mental or emotional distress if your case is based solely on a no-fault insurer breach of contract. In other words, you might be able to recover what the insurer owes you, plus interest, but you can’t claim damages for the stress or frustration the delay caused.

Legal remedies, however, aren’t always straightforward. Insurance companies often try to frame their decisions as reasonable disputes to avoid penalties. Having legal support can ensure you receive the compensation you’re entitled to. A competent personal injury attorney can gather the right evidence, identify suspicious patterns in how the insurer handled your claim, and present a solid case in court if necessary. 

Why Legal Representation Is Essential in Bad Faith Cases

Insurers have teams of legal professionals on their side whose only job is to protect the bottom line of the company, not yours. If you try to take on a bad faith case alone, you might find yourself outmatched and overwhelmed, especially when facing delays, legal technicalities, or pressure to accept an unfair settlement.

Shafer Swartz PLC is here to protect your right to fair compensation. Our seasoned Newaygo personal injury attorneys know how to take on insurance companies that use bad faith insurance practices. Contact us today at (231) 722-2444 or here to discuss your case. Let our team fight for the compensation you deserve.