HARVEY KRUSE, P.C.
Michael F. Schmidt P25213
HARVEY KRUSE, P.C.
1050 Wilshire Drive, Suite 320
Troy, MI 48084
Fax (248) 649-2316
Subject to specific policy terms and conditions, insurers have a contractual duty to
defend and indemnify their insured. Implicit in that contractual relationship is an insurer's
duty of good faith and fair dealing. Accordingly, when an insured believes he has been
wronged, he may attempt to bring suit alleging both breach of contract and bad faith.
This outline will briefly address the two basic factual scenarios in which claims of bad-
faith arise. The first scenario arises when an insurer fails to settle a claim against its
insured within policy limits, thereby exposing the insured to excess liability. As discussed
below, such failure-to-settle claims are actionable in Michigan.
The second instance in which bad faith claims are commonly brought arises when an
insurer fails to timely pay claims submitted by its insured. Recovery on such claims is
governed by the "penalty interest" statute, MCL 500.2006; MSA 24.12006, contained
within Michigan’s Uniform Trade Practices Act ("UTPA"), MCL 500.2001 et seq; MSA
24.12001 et seq.
Claims seeking damages under the UTPA commonly contain claims for various
emotional damages in addition to those provided by the Act. An independent cause of
action for the bad faith breach of an insurance contract does not exist in Michigan.
Accordingly, damages for mental distress are not recoverable absent an allegation and
proof of tortious conduct existing independent of the breach. The most common
independent tort alleged in an action alleging a bad faith breach of an insurance contract
is intentional infliction of emotional distress. An award for such a claim, however, has
not yet been upheld on appeal.
B. FAILURE TO SETTLE
1. Existence of the Cause of Action
An insurer owes its insured a d