Is Insurance Bad Faith Coming to Michigan?
We have heard the horror stories coming out of states like Florida and California arising from “bad faith” claims against insurance companies. A bad faith claim occurs when an insurance company refuses an opportunity to settle a case within an insured’s policy limits, goes to trial on the case, and a judgment more than the available policy limits is entered against the insured. Bad faith claims can create extra-contractual exposure to insurers well beyond the policy limits available to resolve a claim. For that reason, insurers and their defense counsel become concerned when the specter of “bad faith” arises on one of their cases.
Currently, Michigan only has a common law (case law) basis to make a bad faith claim which is generally unfavorable to Plaintiffs. Michigan’s current bad faith law requires an insured to have assets amenable to satisfaction of a judgment more than policy limits. The controlling case is Frankenmuth Mutual v. Keely, on rehearing, 436 Mich. 372 (1990) which adopted the dissenting opinion of Justice Levin from Frankenmuth Mutual v. Keely, 433 Mich. 525, 541 (1989). Currently controlling Michigan bad faith case law states: “The measure of damages in a breach of duty to settle is limited to the assets of the assignor [insured] not exempt from legal process.” Frankenmuth, id. at pg. 376. Very few cases in Michigan result in bad faith exposure for insurers.
Michigan may become the next state to create a statutory claim for insurance bad faith. Senate Bill 245 which is currently under consideration seeks to amend the Unfair Trade Practices Act to create a cause of action for insurance bad faith. If adopted, this bill would allow consumers to hold their insurance companies accountable when they fail to uphold their contractual obligations; particularly where an insured refuses payment in bad faith or exceeds certain deadlines for paying a claim.
SB 245, as currently considered, would state that “conduct occurring during claims handling and resolution is not precluded from” being characterized as an “unfair or deceptive insurance business practice.” Under the proposed new statute, within 30 days after an insurer receives a claim it must specify in writing what materials a claimant needs to submit which would constitute satisfactory proof of loss. An insurer must pay a properly supported proof of loss within 60 days after receiving the requested proof of loss materials. If an insurer fails to timely pay a claim, a third-party tort claimant may be entitled to 12% penalty interest on the Judgment if an insurer refused payment even if the increased amount would exceed the limits of insurance coverage.
Senate hearings were held in December, 2025 to address SB 245. It is unknown whether SB 245 will make its way into Michigan law.
Read full version of SB 245:
https://legislature.mi.gov/documents/2025-2026/billintroduced/Senate/pdf/2025-SIB-0245.pdf
About Alexander & Angelas, P.C.
Attorney Peter A. Angelas represents defendants in civil liability litigation across Michigan. His practice areas include insurance defense litigation, premises liability, motor carrier (trucking) defense, corporate and commercial litigation, construction defect litigation, auto negligence, insurance coverage disputes, emergency casualty response services, alternative dispute resolution, subrogation claims, workers’ compensation, employment law, and liquor liability.
Mr. Angelas practices in all state and federal courts in Michigan, including Wayne County (Detroit), Macomb County (Mount Clemens), Oakland County (Pontiac), Washtenaw County (Ann Arbor), and Genesee County (Flint).
A 24/7 Emergency Hotline is available (800-219-0007) for trucking and insurance company clients. When an accident requires an immediate response to protect evidence, members of the firm quickly launch an investigation with the assistance of well-qualified accident investigators, crash re-constructionists, mechanical engineers, civil evidence photographers, and independent adjusters positioned throughout Michigan.
