Part 2 of a 3-part Series
How do insurance professionals know if they have timely paid a claim under the Uniform Trade Practices Act (UTPA), MCL 500.2001?
This second installment of a three-part series covers the statutorily created timeline that determines when a claim is timely paid. For an overview of section 2006 of the UTPA and how the failure to pay claims timely can result in significant penalty interest, check out part one.
Subsection three of the UTPA starts by creating a duty for insurers upon receipt of a claim.
An insurer shall specify in writing the materials that constitute a satisfactory proof of loss not later than 30 days after receipt of a claim unless the claim is settled within the 30 days.
Functionally, when an insurer receives notice of a claim, be it a notice of occurrence, a notice of claim, or even a phone call from the insured, it has 30 days to specify in writing the materials that constitute a “satisfactory proof of loss.”
In Angott v Chubb Group Ins, 270 Mich App at 486 (2006), the court ruled an insurer’s failure to specify in writing what constitutes a satisfactory proof of loss excuses the insured from this requirement, and the claim proceeds as if a satisfactory proof of loss had been submitted.
The remaining part of subsection three addresses when the proof of loss only supports part of the claim.
If proof of loss is not supplied as to the entire claim, the amount supported by proof of loss is considered paid on a timely basis if paid within 60 days after receipt of proof of loss by the insurer. Any part of the remainder of the claim that is later supported by proof of loss is considered paid on a timely basis if paid within 60 days after receipt of the proof of loss by the insurer.
In practice, this means total rejections of only completely deficient proofs of loss will expose insurers to penalty interest. While the first proof of loss is commonly deficient in multiple ways, insurers must thoroughly examine each part of the proof and pay on the claims that are supported.
The case law is conflicting on what “the amount supported by the proof of loss” means. Sometimes it is as broad as the entire coverage under a section of the policy, such as Coverage A – Dwelling, or as narrow as the specific items being claimed, such as a television. With such differing opinions, insurers should err on the side of caution and reject only those specific items within the proof of loss that are deficient. With such differing opinions, insurers should err on the side of caution, only rejecting specific items within the proof of loss on an individual basis.
For example, after a fire, the insured submits a proof of loss for damage to the home, detached garage, and destroyed personal property. The proof of loss contains two separate quotes to rebuild the home and the detached garage but does not include an inventory or proof of ownership for any of the personal property.
The best practice would be to send the insured a letter acknowledging receipt of a satisfactory proof of loss for the home and detached garage, then make a payment for those coverages within 60 days of when the proof of loss was submitted.
A follow up letter to the insured should also be sent outlining the rejection of the proof of loss for the personal property, citing the policy provisions supporting the rejection, informing the insured they need to submit a proof of loss with an inventory and proof of ownership to cure the rejection. The letter should also remind the insured of their duties under the policy and set a firm date by which the insured must supply the revised satisfactory proof of loss.
By being consistent, insurers can protect themselves from penalty interest by thoroughly handling proof of loss submissions. The case law requires insurers to explain exactly what makes a proof of loss deficient and the specific steps an insured needs to take to correct those deficiencies.
Of course, the statutory penalty interest clock doesn’t start running until 60 days after receipt of a satisfactory proof of loss. Knowing what makes a proof of loss “satisfactory,” though, is the subject of the next post in this series.
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