1.2 Disciplinary Actions, Unfair Trade Practices, Fraud & Consumer Privacy

Disciplinary Actions, Unfair Trade Practices, Fraud & Consumer Privacy

Quick Answer: Under MCL 500.1244, the Director of DIFS may impose civil fines of up to $1,000 per violation (unintentional) or $5,000 per violation (if the person knew or reasonably should have known), up to a $50,000 aggregate cap, plus restitution and license revocation. Violating a final cease-and-desist order carries up to $20,000 per violation up to $100,000. Adjusters who report suspected insurance fraud without malice enjoy statutory civil immunity under MCL 500.4509.

Adjusters operating in Michigan are subject to comprehensive administrative and statutory oversight under Chapters 5, 12, 20, 45, and 79 of the Michigan Insurance Code. Understanding the administrative hearing procedures, monetary penalty tiers, prohibited unfair trade practices, felony insurance fraud statutes, consumer privacy notices, and guaranty association limits is essential for passing the Michigan PSI adjuster exam.

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Disciplinary Actions, Hearings & Civil Penalties (MCL 500.1242, .1244, .2029–.2043)

Under MCL 500.1242(1), the Director must refuse a license to an applicant who fails to meet Chapter 12's requirements—for an adjuster, a reasonable understanding of the insurance to be adjusted and of Michigan insurance law, good-faith intent to act as an adjuster, a good business reputation, and good moral character (MCL 500.1224(3)). Under MCL 500.1242(2), after notice and an opportunity for a hearing, the Director may suspend or revoke an adjuster license when the adjuster fails to maintain the standards required for initial licensing or violates any provision of the Insurance Code. Under MCL 500.1242(3), the Director may also refuse to grant or renew a license if the applicant's business or primary occupation is likely to produce coercion, indirect rebating, or other prohibited practices. When a violation is found after a hearing, MCL 500.1244 requires a cease-and-desist order and allows civil fines, refunds of overcharges, restitution, and suspension or revocation.

Administrative Due Process & Hearing Timelines

1. 30-Day Hearing Request on License Refusal (MCL 500.1242(1)): If the Director refuses to issue an adjuster license based on lack of good moral character or another statutory disqualification, the Director must mail written notice of refusal to the applicant detailing the specific grounds. The applicant has 30 days after the notice of refusal is mailed to file a written request for an administrative hearing.
2. Notice & Opportunity for Hearing on Suspension or Revocation (MCL 500.1242(2), .2029, .2043): Before revoking, suspending, or placing an active adjuster license on probation, or before issuing a permanent cease-and-desist order under the Uniform Trade Practices Act, the Director must serve a written statement of charges and a notice of hearing. Under MCL 500.2029, before a Chapter 20 unfair-trade-practices hearing the Director must give written notice of the general nature of the complaint, and DIFS staff must first offer the person a chance to confer; the matter may be resolved summarily by agreement.
3. Summary Suspension (MCL 500.1242(4)): Without a prior hearing, the Director may summarily suspend a license when protection of the public requires emergency action (for example, an adjuster actively misappropriating settlement funds) and the order says so. The suspension takes effect on the date in the order or on service of a certified copy, whichever is later. If the licensee requests it, the hearing must be held within 20 days after the suspension takes effect (unless the licensee asks for a later date), and the Director announces the decision within 30 days after the hearing ends.

Statutory Civil Fine Tiers (MCL 500.1244, .2038, .2040, .2064, .2069)

In addition to civil fines paid to the state treasury, MCL 500.1244(1) empowers the Director to order a refund of overcharges and restitution to the insured or other claimant for losses, damages, or other harm caused by the violation.

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Unfair and Prohibited Trade Practices (MCL 500.2003 et seq.)

Chapter 20 of the Michigan Insurance Code (Uniform Trade Practices Act, MCL 500.2001–.2093) prohibits engaging in any trade practice that is defined as, or determined to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance (MCL 500.2003):

• Misrepresentation & Twisting (MCL 500.2005, .2005a, .2055, .2057, .2064, .2218): Prohibits making, issuing, or circulating any estimate, illustration, circular, or statement misrepresenting the terms, benefits, advantages, or dividends of any insurance policy. Twisting occurs when a licensee uses misrepresentations or incomplete policy comparisons to induce a policyholder to lapse, forfeit, surrender, terminate, or convert an existing policy. Under MCL 500.2055, publicly misrepresenting an insurer's capital or financial condition is a misdemeanor for each participating director or officer, and MCL 500.2057 bars advertising or stationery that conceals or misrepresents which insurer actually carries the risk. Under MCL 500.2218, a misrepresentation by an applicant on an insurance application does not void a policy or defeat recovery unless the misrepresentation was material—meaning that knowledge by the insurer of the falsity would have led to a refusal by the insurer to make the contract.
• Deception, False Advertising & Defamation (MCL 500.2007, .2009; MCL 600.2911): MCL 500.2007 prohibits publishing or disseminating in any newspaper, magazine, radio, television, or electronic medium any advertisement, announcement, or statement that is untrue, deceptive, or misleading. Defamation (MCL 500.2009; MCL 600.2911) consists of making, publishing, disseminating, or circulating any oral or written statement or pamphlet that is false, or maliciously critical of or derogatory to the financial condition of an insurer, and that is calculated to injure any person engaged in the business of insurance.
• Boycott, Coercion, and Intimidation (MCL 500.2012): Prohibits entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in unreasonable restraint of the business of insurance (such as colluding to boycott certain repair facilities or coercing debtors into purchasing insurance from a specific vendor).
• Unfair Discrimination & Redlining (MCL 500.2019, .2020, .2027, .2082): Life insurers may not discriminate unfairly between individuals of the same class and equal expectation of life (MCL 500.2019), and accident and health insurers may not discriminate between individuals of the same class and essentially the same hazard (MCL 500.2020). For all lines, MCL 500.2027 makes it unfair to refuse to insure, refuse to continue to insure, or limit coverage because of race, color, creed, marital status, sex, national origin, gender, gender identity or expression, or sexual orientation (marital status may still be used to classify family units), or because of residence, age, disability, lawful occupation, or the location of the risk unless there is a reasonable relationship to the risk. For property insurance, location may be used only if it has a statistically significant relationship to fire losses within the ZIP code area—Michigan's anti-redlining rule. MCL 500.2082 separately bars life insurers from discriminating based on race or color.

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Insurance Fraud & Civil Immunity for Reporting (MCL 500.2088, .4501–.4511)

Chapter 45 of the Michigan Insurance Code (MCL 500.4501–.4511) and MCL 500.2088 govern insurance fraud. Under MCL 500.4503, a person commits a fraudulent insurance act when they knowingly and with intent to injure, defraud, or deceive an insurer present, cause to be presented, or prepare with knowledge or belief that it will be presented to an insurer any oral or written statement containing false, incomplete, or misleading information concerning any fact material to an application or claim. Examples include staging automobile collisions or property losses, submitting fabricated inventory lists, inflating contractor repair invoices to cover deductibles, or colluding with medical clinics or restoration contractors.

• Felony Criminal Penalties (MCL 500.4511): A person who commits a fraudulent insurance act is guilty of a felony punishable by imprisonment for up to 4 years and/or a fine of up to $50,000, plus court-ordered restitution to the defrauded insurer. Entering into a conspiracy to commit a fraudulent insurance act is a felony punishable by up to 10 years imprisonment and/or a $50,000 fine.
• Release of Investigation Information (MCL 500.4507): Upon written request from an authorized agency investigating suspected insurance fraud, an insurer or its authorized agent may release relevant information—policy and application data, premium payment records, prior claim history, and investigation materials such as statements, proofs of loss, and notices of loss. An insurer may also notify an authorized agency of a suspected fraudulent act on its own initiative (MCL 500.4507(2)), and information requested or released under this section may be used only to investigate suspected fraud.
• Civil Immunity for Fraud Reporting (MCL 500.4509): In the absence of malice, any person, insurer, or adjuster who files a report or furnishes oral or written information concerning suspected, anticipated, or completed insurance fraud to DIFS, the National Association of Insurance Commissioners (NAIC), a government agency established to detect and prevent insurance fraud, or another organization (such as an insurer's special investigation unit) is immune from civil liability for libel, slander, or any other tort, unless the person acts with malice or knows that the information reported is false.

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Consumer Privacy Regulation (MCL 500.501–.547; Mich. Admin. Code R 500.551–.560)

Chapter 5 of the Michigan Insurance Code (MCL 500.501–.547) and Mich. Admin. Code R 500.551–.560 establish privacy standards pursuant to Title V of the federal Gramm-Leach-Bliley Act (GLBA) to protect nonpublic personal financial information (NPFI) collected during applications and claims:

• Customer vs. Consumer Distinction (MCL 500.503, .507, .513):
  • A Customer is a consumer who has a continuing relationship with the licensee (such as an active policyholder). A Customer must receive an initial privacy notice at the time the customer relationship is established (MCL 500.507) AND an annual privacy notice at least once in every 12-consecutive-month period while the relationship continues (MCL 500.513).
  • A Consumer is an individual who seeks to obtain or has only an isolated interaction with the licensee for personal, family, or household purposes (including an applicant whose quote is declined, a beneficiary, or a third-party claimant). A Consumer does not receive an annual privacy notice and must be given an initial privacy notice and opt-out notice only before the licensee discloses their NPFI to a nonaffiliated third party outside statutory exceptions (MCL 500.507).
• Opt-Out Rights & Claim-Servicing Exceptions (MCL 500.519, .529, .537, .539): Before sharing NPFI with a nonaffiliated third party outside the statutory exceptions, the licensee must give a clear and conspicuous opt-out notice (MCL 500.519) and a reasonable opportunity to opt out (MCL 500.529). However, under MCL 500.537, the consumer initial-notice and opt-out requirements do not apply to disclosures necessary to effect, administer, or enforce a transaction the consumer requests or authorizes—expressly including servicing, adjusting, or processing an insurance product. MCL 500.539 adds further exceptions, such as disclosures to protect against fraud, to resolve consumer disputes, to rating organizations or guaranty funds, or as required by law. Separately, Michigan's insurance data security law requires each licensee to maintain a comprehensive written information security program (MCL 500.555).

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Michigan Property and Casualty Guaranty Association (MPCGA, MCL 500.7901–.7949)

All authorized insurers writing direct property and casualty insurance in Michigan must belong to the Michigan Property and Casualty Guaranty Association (MPCGA) (MCL 500.7911). When a member insurer is declared insolvent and ordered liquidated, the MPCGA steps in to pay covered claims under MCL 500.7925:

1. Statutory Covered Claim Cap (MCL 500.7925(6)): Covered claims are capped at a statutory base of $5,000,000 per claim (adjusted annually for the Consumer Price Index), except that Workers' Compensation claims and Michigan Personal Protection Insurance (No-Fault PIP, MCL 500.3107) claims are not subject to this dollar cap.
2. High Net Worth Exclusion (MCL 500.7925(4)): A covered claim does not include any first-party or third-party claim by or against an insured whose consolidated net worth exceeds $25,000,000 (base amount adjusted annually for CPI) on December 31 (or the insured's fiscal year-end) of the year preceding the insurer's insolvency.