Insurance Provider’s ‘Satisfaction’ Maketh the Proof of Loss

The ability of insurers to avoid paying penalty interest for claims brought under the Uniform Trade Practices Act, MCL 500.2001 et seq (UTPA) starts with understanding when a “satisfactory proof of loss” has been provided.

As discussed in the prior post of this three-part series, penalty interest begins accruing 60 days after an insurer receives what the UTPA terms a “satisfactory proof of loss.” Because nothing is ever easy in life or the law, there is no statutory definition of “satisfactory proof of loss ” in the UTPA.

Neither is there a deep wellspring of published case law on the subject. The best decision upon which insurers can currently rely is Griswold Properties, LLC v. Lexington Ins. Co., 275 Mich. App. 543 (2007). 

In Griswold, an insured submitted a sworn proof of loss with a detailed breakdown of damage and repair bids from contractors. The insurer paid a portion of the claim but declined to pay the rest, arguing the insured had exaggerated the loss. In finding against the insurer, the trial court held that satisfactory proof of loss does not require an agreement as to the damages. Rather, it is a process by which the insured provides sufficient documentation to begin processing the claim.

Importantly, the insurer failed in its statutory duty to specify the materials that constitute satisfactory proof of loss in writing. The court found that, unless an insurer is held to the requirement to provide written notice of specific issues in the proof of loss and specific remedies that will render the proof of loss satisfactory, then insureds are defenseless against blanket rejections.

Further, when an insured responds to the written request, it becomes clear what the basis of any reasonable dispute is regarding the amount of loss. The court further explained that if the insurer fails to specify in writing the materials that constitute a satisfactory proof of loss, then the matter is to proceed as if a satisfactory proof of loss were submitted.

But what about the situation where the proof of loss is only partly deficient? For instance, the claim for repairs to the home is satisfactory, but the contents are not. The Griswold court addressed this situation, finding penalty interest could be awarded for separate portions of the claim for which a satisfactory proof of loss had been provided. However, if the insurer fails to identify which specific portions of the claim are defective and how to remedy the defects, then the insured is excused from submitting a “satisfactory proof of loss.”

What does all this mean for property adjusters?

  • Form letters or templates must be tailored to the specific submissions of each claim.
  • Failing to identify the specific documents or evidence that will make a proof of loss satisfactory will operate as an acceptance of the deficient proof of loss.
  • Blanket claim rejections will rarely prevent the accrual of penalty interest.
  • Citing the language of specific policy provisions to support a rejection of a proof of loss offers more solid footing than generalities.
  • Because there is a fine line distinguishing disagreements regarding the amount of damages versus support for damages, paying the lesser amount will mitigate the amount of penalty interest owed.
  • An insurer will always be assumed to have waived the insured’s obligations. Therefore, the timely documentation of an insured’s non-waiver of those obligations is a must.

Paying penalty interest on property claims isn’t a certainty. However, neglecting the fundamentals of claims handling virtually guarantees you will. Michigan places the burden of ensuring compliance with the contractual obligations and responsibilities under an insurance agreement on the insurer.

By explaining an insured’s obligations in plain language, timely responding to submissions like proofs of loss, and providing detailed explanations for approvals or denials of coverage, insurance companies can minimize or even eliminate penalty interest under the UTPA.

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