Insurance Bad Faith: When an Insurer Unreasonably Denies or Delays

Your insurer denied your injury claim, let it sit for months, or offered far less than your bills. If you’re wondering whether that’s even allowed, it’s a fair question, and a common one.

The short answer: bad faith means an insurer handled a claim unreasonably, not just that it disagrees with you about value, and a low offer alone usually isn’t bad faith. Michigan’s remedies are mostly statutory: 12% interest when your own insurer pays late and, for no-fault (PIP) benefits, your lawyer’s fee when a court finds an unreasonable refusal or delay. There’s no separate bad-faith lawsuit when your own insurer fails to pay your claim (MCL 500.2006, 500.3142, 500.3148; Roberts v Auto-Owners Ins Co, 1985). This reflects the law as of September 2026.

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What is insurance bad faith?

It’s an insurer’s unreasonable handling of a claim, and each state sets its own rules. The Michigan Supreme Court, in a case about an insurer’s refusal to settle, defined it as “arbitrary, reckless, indifferent, or intentional disregard of the interests of the person owed a duty” (Commercial Union Ins Co v Liberty Mutual Ins Co, 1986).

The same opinion draws the key line: “Good-faith denials, offers of compromise, or other honest errors of judgment are not sufficient to establish bad faith.” Neither is negligence, if the insurer acted honestly and without concealment. But “there can be bad faith without actual dishonesty or fraud.”

Your own insurer or the other side’s?

A claim on your own policy is a first-party claim; a claim against the at-fault person’s liability insurance is a third-party claim (see how insurers evaluate injury claims). The difference matters because an insurer’s obligations “are owed to a particular contracting party/insured” (Kassab v Michigan Basic Property Ins Ass’n, 1992).

Sources: MCL 500.2006(4), 500.3114(1), 500.3142; Nickola v MIC General Ins Co (2017); Roberts (1985); City of Wakefield v Globe Indemnity Co (1929).

How can you tell if an insurance company is acting in bad faith?

Michigan’s insurance code lists unfair claim practices, including (MCL 500.2026(1)):

• refusing to pay without a reasonable investigation
• not trying in good faith to settle promptly and fairly once liability is reasonably clear
• offering “substantially less than the amounts due” to push policyholders into suing
• not promptly explaining the basis for a denial or a compromise offer

They count when they’re a course of conduct, “other than isolated incidents,” but a single slip is still worth writing down.

Is a low offer bad faith?

Usually not, on its own. The Michigan Supreme Court lists “offers of compromise” among the things that don’t establish bad faith (Commercial Union). Lowballing becomes an unfair practice when it’s a pattern of offering policyholders substantially less than they’re owed, forcing them to sue (MCL 500.2026(1)(g)). Ask for the basis of the offer in writing, and answer it with records. Our guide to talking to insurance adjusters explains how.

What can you do about bad faith in Michigan?

Use the statutes. The Michigan Supreme Court has declined “to declare the mere bad-faith breach of an insurance indemnity contract an independent and separately actionable tort” (Kewin v Massachusetts Mutual Life Ins Co, 1980). In Roberts, a no-fault insurer didn’t help a family file a claim for household help, took up to six months to respond and denied benefits it owed. The Court called that “at most” bad faith “justifying imposition of the statutory penalties” (no-fault interest and attorney fees), “but for which this Court has held no separate cause of action can lie,” and threw out the jury’s emotional distress award. The Court of Appeals applied the rule after a house fire (Casey v Auto-Owners Ins Co, 2006).

12% interest when your own insurer pays late

For claims under your own policy, such as UIM or homeowners coverage (MCL 500.2006(3), (4)):

• Proof of loss. Within 30 days after receiving your claim, the insurer must tell you in writing what it needs as “satisfactory proof of loss,” unless it settles first.
• 12% interest. Any part of a claim supported by proof of loss and not paid within 60 days after the insurer receives that proof carries 12% simple interest a year from then, “irrespective of whether the claim is reasonably in dispute” (Nickola v MIC General Ins Co, 2017).
• Limits. If the loss exceeds the coverage, interest is figured on the policy limit. If you turn down an offer and don’t later recover more, no interest is due.

A made-up example: proof of a $10,000 loss arrives, and the insurer pays 120 days later. Interest for the 60 late days is about $197, and you can sue for it yourself (Young v Michigan Mutual Ins Co, 1984).

PIP: interest and attorney fees

PIP benefits not paid within 30 days after the insurer receives reasonable proof of the fact and amount of the loss are overdue and carry 12% simple interest a year (MCL 500.3142). If a court finds the insurer “unreasonably refused to pay the claim or unreasonably delayed in making proper payment,” your lawyer’s reasonable fee is charged to the insurer, on top of your benefits (MCL 500.3148(1)).

Unreasonable isn’t the same as wrong. An insurer can justify a refusal with “a legitimate question of statutory construction, constitutional law, or factual uncertainty.” In Ross v Auto Club Group (2008), the injured man won his benefits, but the fee award was reversed. For deadlines and appeals, see what to do when a Michigan PIP claim is denied.

Unfair practices: a complaint, not a lawsuit

The Department of Insurance and Financial Services (DIFS) enforces the list, part of what the insurance code calls the uniform trade practices act. It can investigate and, after an opportunity for a hearing, order an insurer to stop, fine it and, for knowing and persistent violations, suspend or revoke its license (MCL 500.102, 500.2001, 500.2028, 500.2038).

You generally can’t sue to enforce the list. The Court of Appeals has held that an insured “does not have an independent cause of action under MCL 500.2026” (Young) and that the act’s enforcement scheme “is exclusive” (Bell v League Life Ins Co, 1986). The Michigan Supreme Court has said its remedies “probably do not include a private cause of action for damages” (Kassab). The 12% interest under section 2006 is the exception (Young).

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What about the at-fault driver’s insurance company?

Its policy, and its duty to settle in good faith, run to its own policyholder, not to you. What Michigan’s statute gives you is narrower: 12% interest on a late payment, but only if the insurer’s liability wasn’t reasonably in dispute, it refused payment in bad faith and a court decided it acted in bad faith (MCL 500.2006(4)).

The duty to settle protects the policyholder. Since 1929, the Michigan Supreme Court has recognized that a liability insurer controlling settlement is liable to its policyholder if it refuses in bad faith to settle within the policy limits and the policyholder ends up owing a larger judgment (City of Wakefield v Globe Indemnity Co). A jury can weigh whether the insurer rejected a reasonable offer within the limits, refused one without properly investigating, or kept settlement offers from its policyholder, judged by the circumstances at the time, not with “20-20 hindsight vision” (Commercial Union).

If your damages exceed the driver’s limits, talk to a lawyer before you make or turn down an offer within them, and check your own uninsured and underinsured motorist coverage.

How do other states handle insurance bad faith?

Some go further. Roberts noted that some states let policyholders sue for bad-faith breach of an insurance contract as a separate claim. Florida has a common-law remedy and a statute (Fla. Stat. § 624.155(11)). Under the statute, a person harmed by an insurer that didn’t try in good faith to settle a claim when it “could and should have done so” can sue, after giving 60 days’ written notice to the state’s Department of Financial Services and the insurer (Fla. Stat. §§ 624.05(1), 624.155(1), (3)).

In 2023, Florida added limits: no bad-faith action over a liability claim if the insurer tenders (offers to pay) the lesser of its limits or the amount demanded within 90 days after actual notice of a claim with enough evidence to support the amount; “mere negligence alone is insufficient to constitute bad faith”; and damages can be reduced if the claimant or policyholder didn’t act in good faith (ch. 2023-15, Laws of Florida; § 624.155(4), (5)).

Your state’s rules may differ. The National Association of Insurance Commissioners (NAIC) complaint guide links to your state’s insurance department.

How do you build a record of bad faith?

The claims process runs on the insurer’s forms and timelines, and the people on the other side handle claims like yours every day. A paper trail evens that out:

• Ask in writing what proof the insurer still needs and why it denied or cut the claim.
• Keep a claim diary. The NAIC suggests a record of every call, email and letter, with dates and times. Add who you spoke with.
• Keep copies of everything, with proof of when you sent it.
• Track the insurer’s clock: in Michigan, 30 days after reasonable proof for most PIP payments, and 60 days after proof of loss for other claims on your own policy.
• Complain if it won’t respond or explain. In Michigan, use DIFS’s complaint page or call 877-999-6442 after trying the insurer first. A complaint isn’t a lawsuit, so keep tracking your deadlines.

Do you need a bad faith insurance lawyer?

Not for every slow claim. A lawyer can help most when:

• A large claim is denied or stuck, such as UIM benefits or a fire loss.
• A PIP claim is denied or cut off. If a court finds the refusal or delay unreasonable, the insurer pays your lawyer’s reasonable fee (MCL 500.3148(1)); ask how that fits with the fee agreement. For other claims on your own policy, section 2006 adds interest but no fee.
• Your damages exceed the at-fault driver’s limits, or you’re a policyholder facing a claim above yours.
• A deadline is close.

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What to do next

1. Get the insurer’s position in writing: what it needs and why it denied, delayed or cut the claim.
2. Answer with documents, and keep copies and a claim diary.
3. Write down your deadlines, including your policy’s own.
4. Complain to your state’s insurance department (in Michigan, DIFS) if the insurer won’t respond or explain.
5. Get a free case review before a deadline gets close. Get a free case review or compare Michigan injury lawyers, and get any fee agreement in writing.

What waiting can cost

• PIP benefits. If the insurer gets no written notice within a year of the crash and hasn’t paid PIP benefits, you can’t sue for them more than a year after the crash. And a PIP suit can’t recover losses from more than a year before filing unless the clock was paused (MCL 500.3145).
• A fire loss. A Michigan fire policy must allow at least a year after the loss to sue, paused from your notice until the insurer formally denies liability (MCL 500.2833(1)(q)).
• Policy deadlines. Michigan courts generally enforce clear policy terms as written, including a policy’s one-year deadline to file an uninsured motorist claim or lawsuit (Rory v Continental Ins Co, 2005).
• Your claim against the at-fault driver. Most Michigan injury lawsuits must be filed within three years (MCL 600.5805(2)).

What a good outcome looks like

Your insurer pays what the policy owes, on time or with 12% interest, plus your lawyer’s fee in a PIP case where a court finds the refusal unreasonable. If it’s an honest dispute about value, you get the reasons in writing and resolve it on the evidence. From wondering whether your insurer is allowed to treat you this way to knowing what counts as bad faith, what Michigan law gives you and what to do next.

For more, see our complete personal injury guide and Michigan personal injury law in plain English.

Updated October 20, 2026

This guide is general information, not legal advice, and laws change. For advice about your situation, talk to a lawyer licensed in your state. Reading this page or contacting us does not create an attorney-client relationship.