Insurance Bad Faith Demand Letter - Michigan

INSURANCE BAD FAITH / UNFAIR CLAIM HANDLING DEMAND LETTER

State of Michigan

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
PROTECTED UNDER MRE 408 AND FRE 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [ADJUSTER_EMAIL]

Date: [__/__/____]

[INSURANCE_COMPANY_NAME]
[CLAIMS_DEPARTMENT_ADDRESS]
[CITY], [STATE] [ZIP]

Attention: [ADJUSTER_NAME], [ADJUSTER_TITLE]

Re: FORMAL DEMAND — UNREASONABLE CLAIM HANDLING UNDER MICHIGAN LAW
Insured: [________________________________]
Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[________________________________]
Response Deadline: [__/__/____] (time-limited demand)

Dear [ADJUSTER_NAME]:

I. INTRODUCTION AND NATURE OF DEMAND

This firm represents [________________________________] ("our client") in connection with the above-captioned insurance claim arising under Michigan law. This letter constitutes a formal demand for payment of policy benefits unreasonably withheld and serves as notice of [INSURANCE_COMPANY_NAME]'s ("[CARRIER_SHORT_NAME]") unreasonable claim handling in violation of Michigan's statutory framework governing insurance claim practices.

A candid statement of Michigan law up front. Unlike most jurisdictions, Michigan does not recognize a common law tort of first-party insurance bad faith. In Kewin v. Massachusetts Mutual Life Insurance Co., 409 Mich. 401, 295 N.W.2d 50 (1980), the Michigan Supreme Court held that a first-party insured's remedy for wrongful denial of benefits sounds in contract, not tort; that mental-distress damages are generally unavailable; and that common-law punitive damages are not recoverable for breach of an insurance contract. Michigan's lower courts have consistently adhered to Kewin, and trial-level "bad faith" tort claims against first-party insurers are routinely dismissed. See Coletta v. State Farm Mut. Auto. Ins. Co.; Roberts v. Auto-Owners Ins. Co., 422 Mich. 594 (1985).

But that does not mean this claim lacks teeth. Michigan provides substantial statutory remedies — including:

1. 12% per annum simple penalty interest under MCL 500.2006(4) from 60 days after satisfactory proof of loss, enforceable even where the claim was "reasonably in dispute" as to a first-party insured (Yaldo v. North Pointe Ins. Co., 457 Mich. 341 (1998));
2. Attorney fees under MCL 500.3148(1) if this involves PIP benefits that were "unreasonably refused" or "unreasonably delayed," with a rebuttable presumption of unreasonableness once benefits are "overdue" beyond 30 days of reasonable proof (MCL 500.3142);
3. Michigan Unfair Trade Practices Act violations under MCL 500.2026, actionable through DIFS regulatory enforcement and usable in litigation as evidence of unreasonable handling;
4. Consequential contract damages within the contemplation-of-parties rule of Kewin and Hadley v. Baxendale; and
5. Prejudgment interest under MCL 600.6013 on any judgment.

If this were a third-party (excess verdict / duty-to-settle) claim, Michigan does recognize a common-law duty of good faith under Commercial Union Ins. Co. v. Liberty Mutual Ins. Co., 426 Mich. 127 (1986). See also Frankenmuth Mut. Ins. Co. v. Keeley, 433 Mich. 525 (1989). [CARRIER_SHORT_NAME] should be aware of those distinctions as well.

This is a time-limited demand. [CARRIER_SHORT_NAME] has until [__/__/____] to tender the full amount owed of $[________________________________], together with accrued penalty interest, or face immediate litigation seeking all available remedies under Michigan law.

II. MICHIGAN LEGAL FRAMEWORK — DETAILED

A. MCL 500.2006 — Timely Payment and 12% Penalty Interest

MCL 500.2006(3) requires insurers to pay benefits on a timely basis. MCL 500.2006(4) 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."

For first-party insureds, the 12% penalty interest applies regardless of whether the claim was reasonably in dispute — the "reasonably in dispute" proviso protects insurers only from the separate "unfair trade practice" classification, not from the interest obligation itself as to first-party insureds. Yaldo, 457 Mich. at 348.

For third-party tort claimants, MCL 500.2006(4) imposes a higher bar — interest runs only if the insurer's liability "is not reasonably in dispute, the insurer has refused payment in bad faith, and the bad faith was determined by a court of law."

The Sixth Circuit and Michigan appellate courts have confirmed that a MCL 500.2006 penalty interest claim is a standalone statutory claim subject to Michigan's six-year contract limitations period under MCL 600.5807, not the one-year fire-policy limitation. See Sixth Circuit authority on §2006 limitations periods.

B. MCL 500.2026 — Unfair Trade Practices in Claim Handling

MCL 500.2026(1) enumerates specific prohibited claim-handling practices, but the statute requires that the prohibited conduct be committed "in conscious disregard" of the Act or "with such frequency as to indicate a general business practice." Although MCL 500.2026 does not create a private right of action in most circumstances, violations are:

• Enforceable by DIFS through administrative action, fines, and orders;
• Admissible as evidence in contract litigation on issues of reasonableness and consequential damages; and
• Grounds for DIFS-imposed corrective action plans.

The enumerated practices include (without limitation):

• (a) Misrepresenting pertinent facts or policy provisions;
• (b) Failing to acknowledge promptly or act reasonably promptly on claim communications;
• (c) Failing to adopt and implement reasonable investigation standards;
• (d) Refusing to pay claims without reasonable investigation;
• (e) Failing to affirm or deny coverage within a reasonable time after proof of loss;
• (f) Failing to attempt in good faith to effectuate prompt, fair, and equitable settlements when liability is reasonably clear;
• (g) Compelling insureds to institute litigation by offering substantially less than the amounts ultimately recovered;
• (h) Attempting to settle for less than a reasonable person would believe was due;
• (i) Making claim payments not accompanied by a statement of coverage under which payment is being made;
• (m) Failing to provide promptly a reasonable explanation for denial or compromise of a claim.

C. MCL 500.3148 — Attorney Fees for PIP Claims (If Applicable)

If this claim involves PIP benefits, MCL 500.3148(1) authorizes an attorney fee award as a charge in addition to the benefits recovered "if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment." Under MCL 500.3142, PIP benefits are "overdue" if not paid within 30 days after the insurer receives reasonable proof of the fact and amount of loss. Once benefits are overdue, Michigan courts apply a rebuttable presumption of unreasonableness, shifting the burden to the insurer to show the refusal or delay was the product of a legitimate question of statutory construction, constitutional law, or factual uncertainty. Ross v. Auto Club Group, 481 Mich. 1 (2008); Moore v. Secura Ins., 482 Mich. 507 (2008).

D. Kewin Limits on Contract Damages

Michigan follows the Hadley v. Baxendale contemplation-of-parties rule in insurance contract actions. Kewin, 409 Mich. at 415. Recoverable damages include policy benefits, penalty interest, prejudgment interest, and consequential damages actually foreseeable at contracting. Mental distress damages and punitive damages are not recoverable absent the narrow Kewin exception (policies whose principal purpose is to secure mental tranquility — generally held not to include automobile, homeowners, or disability policies).

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Analysis Under Michigan Law

Michigan courts interpret insurance policies "like any other contract, to give effect to the parties' intent." Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 566 (1992). Ambiguities are construed against the insurer (contra proferentem). Raska v. Farm Bureau Mut. Ins. Co., 412 Mich. 355, 362 (1982). Exclusions are strictly construed. Fire Ins. Exch. v. Diehl, 450 Mich. 678 (1996).

Under these standards, the loss clearly falls within the policy's insuring agreement. [CARRIER_SHORT_NAME] has acknowledged coverage by [ACKNOWLEDGMENT_LANGUAGE / initial payment / adjuster communication]. Having accepted coverage, the Company is obligated to:

• Conduct a thorough, fair, and objective investigation;
• Evaluate the claim in good faith on its merits;
• Promptly pay all amounts owed;
• Communicate honestly and transparently with its insured;
• Refrain from compelling litigation through substantial underpayment; and
• Avoid unreasonable delays in claim handling.

IV. FACTUAL BACKGROUND AND CLAIM TIMELINE

A. The Underlying Loss

On [__/__/____], [DESCRIBE_LOSS_EVENT_IN_DETAIL — include Michigan-specific context such as location by city and county, weather conditions, etc.].

[ADDITIONAL_LOSS_DETAILS]

B. Chronological Timeline — Unreasonable Handling

V. SPECIFIC UNREASONABLE CONDUCT

A. Unreasonable Delay

[CARRIER_SHORT_NAME] has unreasonably delayed investigation, evaluation, and payment of this claim in violation of MCL 500.2006 and MCL 500.2026(1)(b), (c), (e):

• [DESCRIBE_SPECIFIC_DELAY_1 — e.g., 90 days without an inspection]
• [DESCRIBE_SPECIFIC_DELAY_2 — e.g., repeated requests for already-produced documents]
• [DESCRIBE_SPECIFIC_DELAY_3 — e.g., delays attributable solely to carrier-side reshuffling of adjusters]

B. Inadequate Investigation

[CARRIER_SHORT_NAME] failed to conduct a reasonable investigation as required by MCL 500.2026(1)(d):

• [INVESTIGATION_FAILURE_1 — e.g., no independent expert engaged]
• [INVESTIGATION_FAILURE_2 — e.g., failure to interview witnesses]
• [INVESTIGATION_FAILURE_3 — e.g., failure to consider relevant evidence provided]

C. Substantially Low Offers Compelling Litigation

[CARRIER_SHORT_NAME]'s offers have been grossly inadequate in violation of MCL 500.2026(1)(f), (g), (h):

D. Misrepresentation of Facts or Policy Provisions

[DESCRIBE_SPECIFIC_MISREPRESENTATIONS — e.g., misstatement of exclusion applicability, misuse of "wear and tear" language, misapplication of depreciation formulas in violation of MCL 500.2026(1)(a)]

E. Failure to Explain Denial / Compromise

[DESCRIBE_LACK_OF_EXPLANATION — MCL 500.2026(1)(m)]

F. [If PIP] Unreasonable Refusal Under MCL 500.3148

If and to the extent this claim involves PIP benefits under MCL 500.3107 or 500.3107c, the refusal/delay is unreasonable under MCL 500.3148(1) for the following reasons:

• PIP benefits overdue beyond 30 days after reasonable proof of fact and amount (MCL 500.3142);
• Rebuttable presumption of unreasonableness triggered;
• [CARRIER_SHORT_NAME] cannot show a legitimate question of statutory construction or factual uncertainty under Ross v. Auto Club Group, 481 Mich. 1 (2008) and Moore v. Secura Ins., 482 Mich. 507 (2008).

VI. DAMAGES

A. Policy Benefits Owed

B. MCL 500.2006 Penalty Interest

Penalty interest at 12% per annum began to accrue on [__/__/____] (60 days after [CARRIER_SHORT_NAME]'s receipt of satisfactory proof of loss) and continues to accrue daily. Approximate accrued interest through [__/__/____]: $[____________].

C. Consequential Damages (Kewin)

Subject to the contemplation-of-parties rule of Kewin, our client seeks consequential damages actually foreseeable at contracting:

D. Attorney Fees Under MCL 500.3148 (PIP Only)

For PIP components of this claim, our client seeks recovery of reasonable attorney fees under MCL 500.3148(1). Fees to date: $[____________].

E. Prejudgment Interest Under MCL 600.6013

Upon filing of a complaint, statutory prejudgment interest will run under MCL 600.6013 at the applicable rate.

F. Damages NOT Sought (Compliance with Michigan Law)

In good-faith compliance with Michigan law, our client does not seek in this demand:

• Mental distress damages (Kewin, 409 Mich. at 419-420);
• Common law punitive damages (not recognized for breach of insurance contract in Michigan);
• Tort bad-faith damages (Kewin; Coletta; Roberts).

This forbearance should not be mistaken for weakness; the statutory remedies Michigan does provide are substantial and, in this case, precisely applicable.

VII. DEMAND

A. Monetary Demand

Pay $[________________] by the deadline below:

B. Non-Monetary Terms

• Full release by our client upon payment of all amounts (and vice versa);
• Correction of any adverse information reported to ISO, A-Plus, LexisNexis C.L.U.E., or any insurance industry database;
• Written confirmation that the claim file is closed without prejudice to any future claims arising from the loss;
• [Optional: confidentiality consistent with Michigan public-policy limits].

VIII. TIME-LIMITED NATURE OF THIS DEMAND

THIS DEMAND EXPIRES AT 5:00 P.M. EASTERN TIME ON [__/__/____].

Consequences of Failure to Pay by the Deadline

If [CARRIER_SHORT_NAME] fails to tender the full amount by the deadline, our client will:

1. File suit in the [COUNTY] Circuit Court (or U.S. District Court for the [Eastern/Western] District of Michigan if diversity exists), seeking:
   - All policy benefits owed;
   - MCL 500.2006 penalty interest (continuing to accrue);
   - Consequential damages under Kewin;
   - [If PIP] MCL 500.3148 attorney fees;
   - Prejudgment interest under MCL 600.6013;
   - Costs.

2. File a formal complaint with the Michigan Department of Insurance and Financial Services (DIFS):
   - Office of Consumer Services, P.O. Box 30220, Lansing, MI 48909-7720
   - Consumer Hotline: (877) 999-6442
   - Online: www.michigan.gov/difs
   - Documented MCL 500.2026 violations for administrative enforcement.

3. Take depositions of [ADJUSTER_NAME] and supervisors, with particular attention to:
   - Internal reserve history;
   - Claim-handling manuals and training materials relevant to this claim type;
   - Metrics and performance evaluations tied to claim-closure speed or payout minimization;
   - Use of automated claim-evaluation tools.

4. Reserve all rights to seek any additional remedies permitted by Michigan law, including any remedies that may become available if investigation uncovers a pattern of conduct supporting "general business practice" findings under MCL 500.2026.

IX. DOCUMENT PRESERVATION NOTICE

This letter constitutes formal notice to preserve all documents and ESI related to this claim. Spoliation will be addressed under MCR 2.313 and Michigan case law. Items to preserve include, without limitation:

• The complete claim file, including drafts and prior versions;
• All internal communications regarding the claim;
• All external communications with the insured/claimant;
• Adjuster diary notes, activity logs, and timestamps;
• Reserve history, including each reserve change and supporting rationale;
• Photographs, videos, inspection notes, and site reports;
• Expert reports, estimates, and evaluations (all versions);
• Xactimate/Symbility files (native format with underlying line items);
• Claim-handling manuals, guidelines, and training materials in effect on [DATE_OF_LOSS];
• Quality assurance and audit reports relating to this claim or adjuster;
• Supervisor notes, approvals, authority grants;
• Reinsurance communications (to the extent non-privileged);
• Output from any automated claim-evaluation, AI, or decision-support tools;
• SIU file, if any; and
• Complaint logs and prior DIFS correspondence.

X. CONCLUSION

[CARRIER_SHORT_NAME]'s handling of this claim is the kind of conduct that the Michigan Legislature sought to deter through MCL 500.2006 and MCL 500.2026. While Michigan has elected — through Kewin and its progeny — to limit first-party relief to contract damages and statutory remedies rather than expansive tort damages, the statutory remedies Michigan does provide are substantial, compounding, and entirely applicable here. [CARRIER_SHORT_NAME] now has the opportunity to resolve this matter before penalty interest, consequential damages, and regulatory scrutiny escalate further.

Please direct all communications regarding this matter to the undersigned.

Respectfully submitted,

[LAW_FIRM_NAME]

By: _______________________________
[ATTORNEY_NAME], Esq.
State Bar of Michigan No. P[________]
[ADDRESS]
[CITY], MI [ZIP]
Phone: [(___) ___-____]
Fax: [(___) ___-____]
Email: [________________________________]

Counsel for [CLIENT_NAME]

ENCLOSURES:

• Policy declarations page and endorsements
• Relevant claim correspondence chronology
• Proof-of-loss documentation
• Damage documentation / medical records / expert reports
• Calculation of penalty interest under MCL 500.2006

CC:

• [CLIENT_NAME]
• Michigan Department of Insurance and Financial Services, P.O. Box 30220, Lansing, MI 48909-7720 (to be filed upon expiration of demand)

MICHIGAN INSURANCE CLAIM-HANDLING QUICK REFERENCE

SOURCES AND REFERENCES

• MCL 500.2006 (timely payment; 12% penalty interest) — https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-500-2006
• MCL 500.2026 (unfair trade practices — claim handling) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-500-2026
• MCL 500.3148 (PIP attorney fees) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-500-3148
• MCL 500.3142 (PIP benefits overdue) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-500-3142
• MCL 500.3107 / 500.3107c (PIP allowable expenses and tier options) — https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-500-3107C
• MCL 600.6013 (prejudgment interest) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-600-6013
• Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 295 N.W.2d 50 (1980) — https://law.justia.com/cases/michigan/supreme-court/1980/60756-3.html
• Yaldo v. North Pointe Ins. Co., 457 Mich. 341 (1998)
• Commercial Union Ins. Co. v. Liberty Mut. Ins. Co., 426 Mich. 127 (1986)
• Ross v. Auto Club Group, 481 Mich. 1 (2008)
• Moore v. Secura Ins., 482 Mich. 507 (2008)
• McCormick v. Carrier, 487 Mich. 180 (2010)
• 2019 PA 21 (Michigan No-Fault Reform) — https://www.legislature.mi.gov/documents/2019-2020/publicact/pdf/2019-PA-0021.pdf
• Michigan Department of Insurance and Financial Services — https://www.michigan.gov/difs
• Michigan DIFS Consumer Services — (877) 999-6442