Michigan does not permit an action by a policyholder against a malpractice insurer’s failure to act in good faith. This has long been the law in Michigan, as noted in the fire damage case Casey v. Auto-Owners Insurance Company.1
The Casey court stated:
We conclude that the amendment was futile because the Caseys merely sought to add a variety of theories that had no basis in fact or law, and which had essentially already been dismissed by the trial court. A plaintiff cannot maintain an action for damages for failure to perform a contract. There must be a separate and clear obligation under law. An alleged breach of an insurance contract in bad faith does not give rise to an independent claim for damages. Here, all of Casey̵
7;s proposed claims stem from an alleged bad faith breach of contract; therefore, these counts are moot because they cannot state a cause of action independent of their breach of contract claim. Further, in cases of breach of contract, the general rule is that exemplary damages cannot be awarded without allegations and proof of tortious conduct that is “independent of the breach.” This is because “the plaintiff is adequately compensated” for a breach of contract “when damages are awarded only by reference to the terms of the contract.” The Caseys’ complaint does not state a claim for damages independent of their breach of contract claim. They are therefore not entitled to exemplary damages.
The title of an article in the Michigan Bar Journal, Michigan recognizes bad faith insurance claims but the burden is high and there are many limitations,2 seems to suggest that Michigan recognizes first-party bad faith cases. It does not. Michigan law recognizes that some remote tort actions may be taken, but even those are difficult to prove. The article correctly noted that:
[T]the Legislature enacted the Uniform Trade Practices Act, which defines, prohibits, and punishes insurance company conduct that amounts to bad faith. And while insureds can collect default interest under the statute, the Michigan Court of Appeals found that it did not create a separate private cause of action against insurance companies.
The article also pointed out a practice when dealing with a poorly performing insurer in Michigan:
Other strategies make use of bad faith conduct without raising an independent claim. Take for example Isagholian v Transamerica Insurance Company which involved a plaintiff suing his homeowner’s insurance company for breach of contract and a separate claim for “bad faith dealings.” The bad faith dealing claim could not be pleaded, but the court allowed the jury to hear evidence of the insurer’s conduct, stating “[t]the good faith of both parties was an integral part of this act.’ Although the insured did not expand the damages available to him, he strengthened the claim that went to the jury.
The bottom line is that Michigan does not recognize a classic bad faith action involving a first-party insurance contract. It also does not permit the recovery of attorney’s fees by the prevailing policyholder.
Today’s thought
A woman needs to combine niceness with tenacity, a style that Mary Sue Coleman, president of the University of Michigan, calls relentlessly nice.
—Sheryl Sandberg
1 Casey v. Auto Owners Ins. Co., 273 Mich. App. 388, 401-402, 729 NW2d 277, 286-287 (Mich. Ct. App. 2006).
2 Kutinsky, Adam. Michigan recognizes bad insurance practices claims but the burden is high and there are many limitations. 98 MI Bar Jnl. 28 (2019).
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