Insurance ‘Bill of Rights’ would create uncapped liability for emotional distress

An “Insurance Policyholder Bill of Rights” bill in the Michigan House would impose a new layer of ambiguous regulations on insurance companies. The legislation creates new regulations for auto, property, liability and life insurance policies.

House Bill 4681 was introduced by Rep. Kelly Breen, D-Novi, on May 25. It requires insurers to act “fairly and reasonably” when dealing with claims and includes restrictions on the way they investigate, evaluate and pay claims. The legislation is in the House Committee on Insurance and Financial Services.

Read it for yourself: House Bill 4681 of 2023, the “Insurance Policyholder Bill of Rights”

The bill also says that “other acts not specified” in the law “may also be considered to be a violation of this chapter.”

Its requirements are guided by the principle that “an insurer shall give all reasonable doubt to the claim of a claimant” as it investigates and evaluate claims.

“Any ambiguity in an insurance contract or policy must be construed in favor of the insured,” the bill adds.

When a homeowner or other insured files a claim for fire damage, the insurer must pay out for additional living expenses as it investigates the claim. If the company denies the claim, the legislation says, it must notify the claimant and continue to pay the claimant’s expenses for 30 days. The same requirements apply when an insured business files for business interruption expenses.

Insurance companies are subject to punitive damages under the bill, and they also may have to pay a claimant’s legal expenses.

Insurers on the wrong side of the law would also be liable for damages owing to “emotional distress, humiliation, and anxiety experienced and reasonably likely to be experienced in the future.”

That means a claimant could collect damages for emotional distress, humiliation and anxiety even if he or she has not experienced any of these feelings. Those feelings just have to be “reasonably likely to be experienced in the future.”

There are no caps on the damages possible from such claims.

The bill does not define "good faith and fair dealing," said Michael Van Beek, the Mackinac Center’s director of research. Nor does existing state law. Trial attorneys may argue that any number of actions by an insurer violate the law and thus file a lawsuit. Not all lawsuits would be successful, Van Beek said, but their numbers would likely increase if the state enacts this bill.

The bill would provide lucrative benefits to trial attorneys and a small group of claimants who win lawsuits against insurers, Van Beek said. The costs would be passed on to other insurance buyers, who would face higher costs.

The House Fiscal Agency has yet to publish an analysis of the bill. 

Will Young is a Michigan Capitol Confidential intern.