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New Michigan Fire Loss Statute Empowers Law Enforcement and Insurers, Raises Questions
The Michigan Legislature has enacted a new fire loss statute, effective April 9, 2017, that will dictate how insurers process many fire loss claims that exceed $2,000 in value. Intended to empower both law enforcement and insurers alike in their identification and prosecution of arson claims, it requires insurers to stop payment on fire loss claims over $2,000 in participating municipalities if the claimant does not submit a signed report within 21 days after receiving a written demand from the municipality. The problem is that the statute leaves some unanswered questions. Although efforts have been made to reach out to sponsoring legislators, some of the vagaries in the wording of the statute have yet to be explained, and one hopes that this does not lead to litigation.
The new statute, M.C.L.A. 500.3011, was modeled after a Detroit local ordinance intended to curb arson claims by giving law enforcement and insurers more tools to track fraud. The statute is directed at mid to large municipalities that, due to their size, might not notice geographical or others trends in fire loss claims like a small town might.
Under the statute, if a municipality chooses to participate in the program, then an insurer must stop payment of claims over $2,000 if the claimant does not submit the municipality’s report requesting details of the fire loss. Such a report is intended to help identify geographic hot spots, repeat claims amongst different carriers and other red flags that might identify an arson ring or suspicious activities. The thinking was that if insurers halted payment on claims over $2,000, claimants would be motivated to satisfy the reporting requirements rather efficiently. Moreover, the report requires a verifying signature, which would help insurers prove fraud if it is later discovered that it was an arson.
In order to participate in the program, municipalities must request in writing to be included in a list prepared by the Michigan Director of Insurance. They cannot participate unless they are located in a county with a population of over 425,000, or at least maintain a population of 50,000 themselves, if the county where they are located has a population of less than 425,000.
Insurers licensed to write fire loss policies in Michigan are supposed to receive a copy of the list of participating municipalities from the State of Michigan. Said list is supposed to be amended as municipalities ask to be added or deleted from the list. These amendments will specify the exact date when a municipality is added or deleted.
Insurers should also receive written notice from the fire and/or police department of the participating municipality indicating if a claimant failed to submit the required report in 21 days, so the insurer can stop payment. An insurer is not liable for damages for withholding money in compliance with the statute.
While noble in intent, and with the potential to be productive, the statute does not explain what happens if there is a notification delay on the part of the State or the municipality. For example, if a municipality is on the State’s participation list, and an insurance carrier receives a claim over $2,000, does a municipality’s failure to a send a notice that the 21 day period has run mean that the carrier should, or should not pay the claim? Is the municipality required to demand such reports, or is it optional? Moreover, what happens if the State sends an amended list with an effective date that passed days, or weeks before? Finally, although the statute provides penalty protections to insurers that withhold payments in accordance with this statute, what happens when a matter falls into one of the above gray areas? Are there penalties to the insurer for not complying with this new statute, and do they outweigh the penalties for not timely paying a fire loss claim?
We will continue to monitor this statute’s evolution and keep you informed.