2.3 Michigan Property Claims and Settlement

The Prompt-Payment Statute (MCL 500.2006)

Michigan's claims timeline comes from the prompt-payment statute inside the Uniform Trade Practices Act (UTPA). The exam tests the exact triggers and the 12% penalty interest:

The penalty interest is paid in addition to the loss amount and is calculated from day 61. If the loss exceeds policy limits, interest is figured on the limits available, not the full loss.

Worked example: An insured submits a satisfactory proof of loss on March 1 for a $50,000 covered fire loss. The insurer does not pay until September 1, roughly 184 days. Interest runs on the $50,000 from May 1 (day 61) at 12% per year: $50,000 x 0.12 x (123/365) is about $2,022 of penalty interest owed on top of the $50,000.

What a Proof of Loss Contains

• A signed, sworn statement of the loss
• Date, cause, and description of the loss
• An inventory of damaged or destroyed property
• The claimed value and supporting documentation (photos, receipts, estimates)

The insurer must request all needed information up front and may not stall the clock by demanding documents piecemeal, Michigan courts have rejected vague or repeated requests used to delay the running of the prompt-payment period.

Reasonably-in-Dispute Standard

The statute distinguishes between two claimant situations. For a first-party insured, late benefits draw the full 12% penalty interest automatically once 60 days pass. For a third-party claimant, the 12% interest applies only if the insurer's failure to pay was not reasonably in dispute, meaning the insurer had no legitimate basis to contest the claim. So an insurer that genuinely and reasonably disputes a third-party claim can avoid the penalty, but it cannot escape interest on a clear first-party loss simply by arguing about it. Exam questions often test which claimant gets automatic interest, the answer is the insured.

Unfair Claims Settlement Practices (MCL 500.2026)

The UTPA defines unfair methods of competition and unfair or deceptive acts in claims handling. A pattern of these acts is prohibited; isolated acts may also draw scrutiny. Prohibited practices include:

• Misrepresenting policy provisions or facts relating to coverage
• Failing to acknowledge and act promptly on claim communications
• Failing to adopt reasonable standards for prompt investigation
• Refusing to pay claims without a reasonable investigation
• Failing to affirm or deny coverage within a reasonable time after proof of loss
• Not attempting a prompt, fair, and equitable settlement once liability is clear
• Compelling insureds to litigate by offering substantially less than amounts ultimately recovered
• Failing to give a reasonable written explanation for a denial or offer

Enforcement and Penalties

The Appraisal Clause

Property policies contain an appraisal provision to resolve disputes over the AMOUNT of loss, not whether coverage applies (coverage disputes go to court).

1. Either party makes a written demand for appraisal.
2. Each party selects a competent, independent appraiser within 20 days.
3. The two appraisers select a neutral umpire (a court appoints one if they cannot agree).
4. The appraisers state the amount; agreement of any two (two appraisers, or one appraiser plus the umpire) sets a binding award.
5. Each party pays its own appraiser and shares the umpire's cost equally.

Exam Trap: Appraisal cannot decide whether a loss is covered. If a scenario describes a dispute over policy interpretation or an exclusion, appraisal is the wrong answer.

Mortgage Clause and Subrogation

The standard (union) mortgage clause protects the mortgagee's interest independently of the insured. The lender:

• Receives loss payment as its interest may appear
• Is protected even if the insured's own act (such as arson or misrepresentation) would void the insured's coverage
• Must receive notice of cancellation or non-renewal
• May file proof of loss if the insured fails to do so

Subrogation lets the insurer, after paying a claim, recover from a negligent third party who caused the loss. The insured must cooperate and must not impair the insurer's recovery rights, recoveries reduce the insurer's net loss and prevent the insured from double recovery.

Salvage, Pair-and-Set, and Other Loss Conditions

Several standard loss conditions round out Michigan property settlement:

• Salvage: when the insurer pays a total loss, it may take title to and dispose of the damaged property; salvage proceeds offset the insurer's payout.
• Pair and set clause: for a loss to one item of a pair or set (such as a pair of earrings), the insurer pays the difference between the value of the set before and after the loss, not the full set value.
• Other insurance / pro rata: when more than one policy covers the same loss, each pays its proportional share of the limits.
• Abandonment: the insured may not abandon damaged property to the insurer and demand a total-loss payment.

Filing a Complaint with DIFS

If an insurer mishandles a claim, the policyholder may file a written complaint with DIFS, which can investigate, mediate, and order corrective action or impose penalties under the UTPA. Producers should know that the statute of limitations for a first-party property suit is governed by the policy's contractual limitation (commonly one to three years from the loss), while the prompt-payment penalty-interest claim follows a separate statutory period. Advising clients of these deadlines and the DIFS complaint channel is part of the producer's duty of fair dealing.