INSURANCE BAD FAITH DEMAND LETTER

STATE OF MICHIGAN

PRIVILEGED AND CONFIDENTIAL

SETTLEMENT COMMUNICATION

DATE: [__/__/____]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND ELECTRONIC MAIL

TO:

[________________________________]
[Insurance Company Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]

ATTENTION: Claims Manager / Penalty Interest Claims Unit

CC:

[________________________________]
[Registered Agent for Service of Process in Michigan]
[________________________________]
[Address]

CLAIM AND POLICY INFORMATION

I. INTRODUCTION AND PURPOSE OF THIS DEMAND

This letter constitutes a formal demand for the immediate payment of all benefits owed under the above-referenced insurance policy, together with 12% penalty interest as mandated by Michigan's Uniform Trade Practices Act, MCL § 500.2006.

The undersigned represents [________________________________] ("Insured/Claimant") in connection with Insurer's handling of the above-referenced claim. After thorough review of the claim file, policy documents, and Insurer's conduct throughout the claims process, we have determined that Insurer has failed to timely pay benefits owed, triggering statutory penalty interest, and has breached its contractual obligations.

THIS LETTER DEMANDS:

1. Immediate payment of all policy benefits owed in the amount of $[________________________________];
2. 12% annual penalty interest from 60 days after satisfactory proof of loss was received;
3. All consequential damages resulting from Insurer's breach of contract;
4. Attorney's fees where applicable under policy or statute;
5. All costs incurred as a result of Insurer's failure to pay.

IF FULL PAYMENT AND RESOLUTION IS NOT RECEIVED WITHIN THIRTY (30) DAYS of Insurer's receipt of this demand, we will immediately commence litigation seeking all available remedies under Michigan law, including the full statutory penalty interest that will continue to accrue.

II. LEGAL FRAMEWORK: MICHIGAN INSURANCE REMEDIES

A. Important Limitation: No Independent Bad Faith Tort in Michigan

Michigan does not recognize an independent tort for first-party bad faith claims. Unlike many other states, Michigan insureds cannot bring a separate tort action against their insurer for bad faith claims handling. Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 295 N.W.2d 50 (1980).

However, Michigan provides robust statutory remedies that can result in significant liability for insurers who fail to timely pay valid claims.

B. MCL § 500.2006 – 12% Penalty Interest Statute

Michigan's primary remedy for late payment of insurance claims is found in MCL § 500.2006, part of the Uniform Trade Practices Act, MCL § 500.2001 et seq. This statute provides:

"If benefits are not paid on a timely basis, the benefits paid bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum, if the claimant is the insured or a person directly entitled to benefits under the insured's insurance contract."

Key Elements of the Statute:

1. Triggering Event

The 12% penalty interest is triggered when:
- The claimant submits satisfactory proof of loss to the insurer; AND
- The insurer fails to pay benefits within 60 days of receiving that proof.

2. Interest Rate and Calculation

• Rate: 12% per annum, simple interest (not compounded)
• Start Date: 60 days after satisfactory proof of loss received
• Applied To: The amount of benefits owed (or policy limits if loss exceeds limits)

3. No "Reasonably in Dispute" Defense for First-Party Insureds

THIS IS CRITICAL: In 2017, the Michigan Supreme Court clarified in Nickola v. MIC General Insurance Company, 500 Mich. 115, 894 N.W.2d 552 (2017), that:

"An insurer's untimely payment of underinsured motorist (UIM) benefits is subject to penalty interest... The 12% penalty interest under the UTPA [is] payable irrespective of whether the claim is reasonably in dispute when the claimant is the insured and benefits are not paid on a timely basis."

This means that for first-party insureds, the insurer cannot avoid penalty interest by claiming the amount or coverage was "reasonably in dispute." If the insured ultimately prevails and benefits were not paid within 60 days of satisfactory proof of loss, penalty interest applies automatically.

4. Different Standard for Third-Party Tort Claimants

For third-party tort claimants, penalty interest requires additional proof under MCL § 500.2006(4):
- The liability of the insurer was not reasonably in dispute;
- The insurer refused payment in bad faith; AND
- The bad faith was determined by a court of law.

C. Definition of "Bad Faith" Under Michigan Law

While Michigan does not recognize an independent bad faith tort, the concept of "bad faith" remains relevant for third-party claims and certain penalty provisions. Under Commercial Union Ins. Co. v. Liberty Mutual Ins. Co., 426 Mich. 127, 393 N.W.2d 161 (1986):

"'Bad faith' generally means arbitrary, reckless, indifferent, or intentional disregard of the interests of the person owed a duty."

D. MCL § 500.3142 – No-Fault PIP Benefits Penalty Interest

For Michigan No-Fault Personal Injury Protection (PIP) claims specifically, MCL § 500.3142 provides:

"Personal protection insurance benefits are payable as loss accrues. Personal protection insurance benefits are overdue if not paid within 30 days after an insurer receives reasonable proof of the fact and of the amount of loss sustained."

Overdue PIP benefits bear simple interest at 12% per annum.

E. Statute of Limitations

Under MCL § 600.5813, Michigan's catch-all six-year statute of limitations applies to claims for penalty interest under MCL § 500.2006. The Sixth Circuit confirmed this in Devillers v. Auto Club Ins. Ass'n, 702 F. App'x 372 (6th Cir. 2017).

F. MCL § 500.2026 – Unfair Trade Practices

Michigan's Unfair Trade Practices Act, MCL § 500.2026, prohibits various unfair claims settlement practices, including:

☐ Misrepresenting pertinent facts or policy provisions relating to coverages at issue
☐ Failing to acknowledge and act reasonably promptly upon communications with respect to claims
☐ Failing to adopt and implement reasonable standards for prompt investigation of claims
☐ Refusing to pay claims without conducting a reasonable investigation
☐ Not attempting in good faith to effectuate prompt, fair, and equitable settlements when liability is reasonably clear
☐ Compelling insureds to institute litigation by offering substantially less than amounts ultimately recovered

While these provisions may not create a private right of action, they establish standards of conduct and violations may be relevant to breach of contract claims and penalty interest calculations.

G. Breach of Contract Claims

In the absence of a bad faith tort, Michigan insureds must pursue claims through breach of contract theory. An insurer breaches the insurance contract when it:

• Fails to pay benefits owed under the policy
• Wrongfully denies coverage for a covered loss
• Unreasonably delays payment of valid claims
• Fails to perform its contractual duties

Contract damages include:
- Policy benefits owed
- Interest (including 12% penalty interest)
- Consequential damages if foreseeable
- Attorney's fees if provided by contract

III. FACTUAL BACKGROUND

A. The Insurance Policy

On or about [__/__/____], the Insured purchased the above-referenced insurance policy from Insurer, Policy Number [________________________________]. The policy provides coverage for [________________________________] with policy limits of $[________________________________].

Policy Effective Dates: [__/__/____] through [__/__/____]

Premiums Paid: The Insured has paid all premiums due under the policy totaling $[________________________________] and was in good standing at all relevant times.

Coverage Type and Scope:
[________________________________]
[________________________________]
[________________________________]

B. The Loss Event

On [__/__/____], the Insured suffered a covered loss when:

[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

Location of Loss: [________________________________]

Nature of Loss:
☐ Property Damage
☐ Personal Injury (No-Fault PIP)
☐ Uninsured/Underinsured Motorist
☐ Business Interruption
☐ Personal Property Loss
☐ Vehicle Damage
☐ Theft/Burglary
☐ Fire Damage
☐ Water Damage
☐ Other: [________________________________]

Detailed Description of Loss:
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

C. Claim Submission and Proof of Loss

Initial Claim Notice

On [__/__/____], the Insured promptly notified Insurer of the loss by:
☐ Telephone call to claims department
☐ Written notice via certified mail
☐ Online claim submission
☐ In-person report to agent
☐ Other: [________________________________]

Claim Number Assigned: [________________________________]

Satisfactory Proof of Loss Submitted

Date Satisfactory Proof of Loss Received by Insurer: [__/__/____]

60-Day Deadline for Payment: [__/__/____]

Days Overdue as of This Demand: [____] days

The following documentation was provided constituting satisfactory proof of loss:

Supporting Documentation Included:
☐ Sworn proof of loss statement
☐ Police report / incident report
☐ Photographs and video of damage
☐ Repair estimates from licensed contractors
☐ Inventory of damaged/lost property
☐ Receipts and proof of purchase
☐ Medical records and bills (for PIP/UM/UIM)
☐ Wage loss documentation (for PIP)
☐ Expert reports and opinions
☐ Witness statements
☐ Appraisal reports
☐ Other: [________________________________]

D. Insurer's Response and Claim Handling

Timeline of Insurer's Conduct

Current Claim Status

☐ Claim Denied – Date of denial: [__/__/____]
☐ Claim Underpaid – Amount paid: $[____________] vs. Amount owed: $[____________]
☐ Claim Unreasonably Delayed – Days overdue: [____] days
☐ Claim Partially Paid
☐ Other: [________________________________]

IV. SPECIFIC ALLEGATIONS AND CLAIMS

A. Failure to Pay Within 60 Days – 12% Penalty Interest Triggered

The Insured submitted satisfactory proof of loss on [__/__/____]. Under MCL § 500.2006, Insurer was required to pay all benefits owed within 60 days of that date, i.e., by [__/__/____].

Insurer has failed to make full payment.

Under the Michigan Supreme Court's ruling in Nickola v. MIC General Insurance Company:
- The 12% penalty interest applies irrespective of whether the claim was reasonably in dispute;
- Interest accrues from 60 days after satisfactory proof of loss was received;
- Interest continues to accrue until full payment is made.

Penalty Interest Calculation:

Formula: Benefits Owed × 12% × (Days Overdue / 365) = Penalty Interest

B. Breach of Insurance Contract

☐ Applicable to this claim

Insurer has breached the insurance contract by:

☐ Failing to pay benefits clearly owed under the policy
☐ Wrongfully denying coverage for a covered loss
☐ Unreasonably delaying payment of valid claims
☐ Failing to investigate the claim properly
☐ Misrepresenting policy terms or coverage
☐ Other: [________________________________]

Specific breach allegations:
[________________________________]
[________________________________]
[________________________________]
[________________________________]

C. Unreasonable Denial of Coverage

☐ Applicable to this claim

Insurer denied coverage on [__/__/____] based on:
[________________________________]
[________________________________]

This denial was improper because:
[________________________________]
[________________________________]
[________________________________]

The policy language at issue:
[________________________________]
[________________________________]

D. Inadequate Investigation

☐ Applicable to this claim

Insurer failed to conduct a reasonable investigation:

☐ Failed to promptly acknowledge receipt of the claim
☐ Failed to begin investigation within a reasonable time
☐ Assigned an unqualified adjuster
☐ Failed to interview key witnesses
☐ Failed to obtain or consider relevant documentation
☐ Relied on biased experts
☐ Ignored evidence supporting coverage
☐ Failed to consider all available information
☐ Other: [________________________________]

Specific investigation failures:
[________________________________]
[________________________________]

E. Unfair Trade Practice Violations (MCL § 500.2026)

☐ Applicable to this claim

Insurer's conduct violates Michigan's Unfair Trade Practices Act:

☐ Misrepresenting pertinent facts or policy provisions
☐ Failing to acknowledge and act reasonably promptly upon communications
☐ Failing to adopt reasonable standards for prompt investigation
☐ Refusing to pay claims without conducting reasonable investigation
☐ Not attempting in good faith to effectuate prompt, fair settlement
☐ Compelling insured to institute litigation by offering substantially less than ultimately recovered
☐ Other: [________________________________]

F. No-Fault PIP Specific Claims (If Applicable)

☐ Applicable to this claim

For No-Fault PIP claims, Insurer has violated MCL § 500.3142:

☐ Benefits not paid within 30 days after receiving reasonable proof of loss
☐ Failed to pay as loss accrued
☐ Improperly denied allowable expenses
☐ Improperly denied wage loss benefits
☐ Improperly denied replacement services
☐ Other: [________________________________]

PIP Benefits Owed:

V. DAMAGES CLAIMED

A. Contract Damages – Policy Benefits Owed

B. 12% Statutory Penalty Interest (MCL § 500.2006)

C. Consequential Damages

D. Attorney's Fees and Costs

E. Summary of Total Damages Claimed

VI. SETTLEMENT DEMAND

In order to resolve this matter without litigation, the Insured demands payment of the following:

NOTE: Penalty interest continues to accrue at 12% per annum until full payment is made. The longer Insurer delays, the greater its exposure.

VII. DEADLINE FOR RESPONSE

Insurer must provide a substantive written response to this demand within THIRTY (30) DAYS of receipt.

Response Deadline: [__/__/____]

The response must include:

☐ Acceptance of the settlement demand and payment of all amounts owed; OR
☐ A detailed, good-faith counter-offer with specific factual and legal analysis; OR
☐ A complete written explanation of any continued denial, including:
- Specific policy provisions relied upon
- Factual basis for the denial
- All documents and evidence considered

FAILURE TO RESPOND will result in immediate commencement of litigation.

VIII. PRESERVATION OF EVIDENCE

LITIGATION HOLD NOTICE

You are hereby placed on notice to preserve all documents, communications, and evidence related to this claim, including but not limited to:

☐ The complete claim file and all related files
☐ The insurance policy and all endorsements
☐ All underwriting files
☐ All communications (emails, letters, phone records)
☐ All internal memoranda and notes
☐ All adjuster reports and notes
☐ All expert reports and communications
☐ All photographs, videos, and recordings
☐ All training materials related to claims handling
☐ All claims handling manuals and guidelines
☐ All reserve information and documents
☐ Electronic data, metadata, and backup tapes

Destruction of any relevant evidence may result in sanctions and adverse inference instructions.

IX. RESERVATION OF RIGHTS

The Insured expressly reserves all rights and remedies available under Michigan law, including:

• Claims for breach of contract
• Statutory penalty interest under MCL § 500.2006
• No-Fault penalty interest under MCL § 500.3142 (if applicable)
• Consequential damages
• Attorney's fees where applicable
• Any other claims or remedies available at law or in equity

Nothing in this demand shall be construed as a waiver of any rights or claims.

X. CONCLUSION

Insurer has failed to timely pay benefits owed under the policy, triggering mandatory 12% penalty interest under MCL § 500.2006. Under the Michigan Supreme Court's ruling in Nickola, this penalty interest applies regardless of whether the claim was "reasonably in dispute."

We strongly urge Insurer to pay all benefits owed plus accrued penalty interest immediately. The penalty interest continues to accrue daily, increasing Insurer's liability with each passing day.

Respectfully submitted,

[________________________________]
Attorney for [________________________________]

[________________________________]
[Law Firm Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]

Telephone: [________________________________]
Facsimile: [________________________________]
Email: [________________________________]

Michigan Bar Number: [________________________________]

VERIFICATION

STATE OF MICHIGAN

COUNTY OF [________________________________]

I, [________________________________], being first duly sworn, state that I am the ☐ Insured ☐ Authorized Representative of the Insured. I have reviewed the foregoing Insurance Bad Faith Demand Letter and verify that the factual statements contained herein are true and accurate to the best of my knowledge, information, and belief.

_______________________________________________
Signature

Subscribed and sworn to before me this [____] day of [____________], 20[____].

_______________________________________________
Notary Public

My Commission Expires: [__/__/____]

CERTIFICATE OF SERVICE

I hereby certify that on [__/__/____], a true and correct copy of the foregoing Insurance Bad Faith Demand Letter was served upon:

[________________________________]
[Insurance Company Name]
[________________________________]
[Address]

Via:
☐ Certified Mail, Return Receipt Requested
☐ Federal Express or other overnight delivery
☐ Electronic mail to: [________________________________]
☐ Facsimile to: [________________________________]
☐ Personal delivery

_______________________________________________
Signature

_______________________________________________
Printed Name

Date: [__/__/____]