Penalties for Non-Payment of Benefits

Statutory Penalties for Non-Payment of Benefits

The No-Fault Act contains specific penalties that can be assessed against no-fault insurance companies who do not honor their legal obligations to pay claims as required by the law. There are two basic types of penalties contained in the statute: (1) penalty interest and (2) penalty attorney fees. These penalties are summarized below.

Penalty Interest

Section 3142 of the No-Fault Act states that when an insurance company does not pay no-fault benefits within 30 days after receiving reasonable proof of the fact and the amount of the loss sustained, the insurer must pay simple interest at the rate of 12 percent per annum on the overdue expense.

Moreover, the statute provides that “if reasonable proof is not supplied as to the entire claim, the amount supported by reasonable proof is overdue if not paid within thirty days after the proof is received by the insurer.” This means that an insurance company cannot legally withhold payment on the entire claim if only a portion is in dispute. If this happens, the portion which is not in dispute is overdue and the 12-percent-interest penalty is collectible. See Farquharson v Travelers, 121 Mich App 766 (1982) and McKelvie v ACIA, 203 Mich App 331 (1994).

Michigan courts have held that if an injured person is required to file a lawsuit against the insurance company to collect benefits, and if the lawsuit results in an actual judgment in favor of the injured person, then the injured person is also entitled to recover “civil judgment interest” under the provisions of the Revised Judicature Act and the Michigan Court Rules.

Penalty Attorney Fees

Section 3148 of the No-Fault Act states that an injured person is entitled to collect reasonable attorney fees against an insurance company “if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment.” Therefore, if a claim is “overdue” because an insurance company did not make payment within 30 days after receiving reasonable proof, and if the court further finds that the delay or denial was “unreasonable,” then the insurance company will be ordered to pay attorney fees to the injured person.

Appellate case law has held that an award of attorney fees under Section 3148 may be based upon an hourly rate or, where otherwise appropriate, on the basis of a contingency fee. See Butler v DAIIE, 121 Mich App 727 (1982); In Re Estate of L’Esperance, 131 Mich App 496 (1084); and University Rehab Alliance v Farm Bureau, 279 Mich App 691 (2008).