Michigan

M.C.L. § 500.2026 and Common Law:

Michigan law states, pursuant to M.C.L. § 500.2026, unfair methods of competition and unfair or deceptive acts or practices in the business of insurance, other than isolated incidents, are a course of conduct indicating a persistent tendency to engage in that type of conduct and include: . . . (f)failing to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.[1]

An insurer “is liable to the insured for an excess of judgment over the face of the policy when the insurer, having exclusive control of settlement, fraudulently or in bad faith refuses to compromise a claim for an amount within the policy limit.”[2] The insurer is liable to its insured for a judgment exceeding the policy limits when the insurer, who has exclusive control of defending and settling the suit, refuses to settle within policy limits in ‘bad faith.’”[3] Bad faith is defined as “arbitrary, reckless, indifferent, or intentional disregard to the interests of the person owed a duty” and not simply an error in judgment or negligence.[4] Factors that Michigan Courts use to determine bad faith include:

1. failure to keep the insured fully informed of all developments in the claim or suit that could reasonably affect the interests of the insured,
2. failure to inform the insured of all settlement offers that do not fall within the policy limits,
3. failure to solicit a settlement offer or initiate settlement negotiations when warranted under the circumstances,
4. failure to accept a reasonable compromise offer of settlement when the facts of the case or claim indicate obvious liability and serious injury,
5. rejection of a reasonable offer of settlement within the policy limits,
6. undue delay in accepting a reasonable offer to settle a potentially dangerous case within the policy limits where the verdict potential is high,
7. an attempt by the insurer to coerce or obtain an involuntary contribution from the insured in order to settle within the policy limits,
8. failure to make a proper investigation of the claim prior to refusing an offer of settlement within the policy limits,
9. disregarding the advice or recommendations of an adjuster or attorney,
10. serious and recurrent negligence by the insurer,
11. 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
12. 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.[5]

In Michigan, “the primary carrier does not owe a direct duty to the excess carrier to act in good faith to defend and settle a claim within the former’s policy limits.[6] The excess carrier has the right to bring a subrogation action against the primary insurer for bad faith failure to settle. The excess carrier has “no less or greater rights than those held by the insured.”[7]

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[1] M.C.L. § 500.2026(1)(f).

[2] City of Wakefield v. Globe Indem. Co., 246 Mich. 645, 648 (1929).

[3] Commercial Union Ins. Co. v. Medical Protective Co., 426 Mich. 109, 116 (1986).

[4] Tibblev. Am. Phys. Capital Inc., 2014 Mich. App. LEXIS 2088 at *25-26 (Ct. App.2014).

[5] Commercial Union Ins. Co. v. Liberty Mut. Ins. Co., 426 Mich. 127, 138 (1986).

[6] Commercial Union Ins. Co. v. Med. Protective Co., 393 N.W.2d 479, 486 (Mich. 1986).

[7] Id.