Michigan Senate Bill 245: A Step Toward Holding Insurers Accountable for Bad-Faith Practices
Michigan’s Senate Bill 245 (SB 245) aims to address a longstanding gap in the state’s insurance laws by giving policyholders a direct legal avenue to sue insurance companies for bad-faith practices. Currently, Michigan is one of the few states without a robust statutory framework for bad-faith claims, leaving injured parties with limited recourse when insurers unreasonably delay, deny, or underpay valid claims. SB 245 seeks to change this by amending key sections of the Insurance Code of 1956 to explicitly define and prohibit unfair or deceptive acts in the insurance business, including misrepresentations that induce policy lapses or settlements below policy limits.
The bill’s provisions focus on holding insurers accountable when liability is reasonably clear but no timely settlement offer is made within policy limits. Under SB 245, if an insurer fails to create such an offer and acts in bad faith, policyholders could pursue additional damages beyond standard contract remedies. This shift aligns Michigan more closely with majority state practices that recognize bad-faith claims as a separate cause of action, providing a stronger deterrent against insurer misconduct.
Key Provisions of SB 245: Defining Bad Faith in Insurance
SB 245 amends Sections 2005, 2006, 2026, and 2049 of the Michigan Insurance Code, adding Section 2005b and a new Chapter 30B. The core of the bill centers on defining unfair methods of competition and deceptive practices. Specifically, it prohibits insurers from making misleading statements or omissions that:
- Misrepresent policy terms, benefits, or conditions
- Falsely state dividends or surplus shares
- Misrepresent the financial condition of the insurer
- Induce policy lapses, surrenders, or loans through deception
- Misrepresent insurance products as securities
Critically, the bill clarifies that a policy approved by the Commissioner of Insurance and Financial Services is presumed not to misrepresent the true nature of the policy—a safeguard against frivolous claims while emphasizing insurer responsibility for accurate representations.
For bad-faith failure to settle claims, SB 245 specifies that if an insurer fails to make an offer within policy limits when liability is reasonably clear, and this failure is deemed willful, wanton, or reckless, the court may award additional damages. This provision directly responds to the current legal landscape where policyholders often recover only contractual damages plus statutory interest—frequently insufficient to cover the full harm caused by insurer delays or denials.
Why SB 245 Matters to Michigan Policyholders
Personal injury attorneys in Michigan highlight the real-world impact of the state’s current lack of bad-faith protections. As noted by legal practitioners, injured individuals frequently face mounting medical bills, lost wages, and emotional distress while waiting for claim resolutions. Insurers exploiting procedural delays or offering settlements far below policy limits exacerbate these hardships, knowing policyholders have few effective counters.
SB 245 would empower policyholders to seek accountability beyond breach-of-contract claims. By allowing courts to impose additional damages for willful or reckless insurer conduct, the bill aims to level the playing field. This is particularly significant in auto insurance claims, where disputes over fault and settlement amounts are common, and where timely compensation is critical for recovery.
The bill also addresses broader market conduct issues. Prohibiting deceptive practices like misrepresenting policies as securities or inducing unnecessary surrenders protects consumers from complex financial exploitation—a concern echoed in national insurance regulatory trends.
Legislative Progress and Outlook
As of the 2025-2026 legislative session, SB 245 was introduced in the Michigan Senate and has undergone committee review. The bill remains under active consideration, with supporters emphasizing its potential to reduce insurer misconduct without imposing undue burden on compliant companies. Opponents, though not detailed in the provided sources, typically argue such legislation could increase litigation costs or premium pressures—a debate common in insurance reform discussions nationwide.
For Michigan residents, the outcome of SB 245 could determine whether they gain meaningful tools to challenge unfair insurance practices. As the bill progresses, stakeholders across the insurance, legal, and consumer advocacy sectors will continue to shape its final form, balancing accountability with market stability.
Michigan Senate Bill 245: A Step Toward Holding Insurers Accountable for Bad-Faith Practices
Michigan’s Senate Bill 245 (SB 245) aims to address a longstanding gap in the state’s insurance laws by giving policyholders a direct legal avenue to sue insurance companies for bad-faith practices. Currently, Michigan is one of the few states without a robust statutory framework for bad-faith claims, leaving injured parties with limited recourse when insurers unreasonably delay, deny, or underpay valid claims. SB 245 seeks to change this by amending key sections of the Insurance Code of 1956 to explicitly define and prohibit unfair or deceptive acts in the insurance business, including misrepresentations that induce policy lapses or settlements below policy limits.
The bill’s provisions focus on holding insurers accountable when liability is reasonably clear but no timely settlement offer is made within policy limits. Under SB 245, if an insurer fails to make such an offer and acts in bad faith, policyholders could pursue additional damages beyond standard contract remedies. This shift aligns Michigan more closely with majority state practices that recognize bad-faith claims as a separate cause of action, providing a stronger deterrent against insurer misconduct.
Key Provisions of SB 245: Defining Bad Faith in Insurance
SB 245 amends Sections 2005, 2006, 2026, and 2049 of the Michigan Insurance Code, adding Section 2005b and a new Chapter 30B. The core of the bill centers on defining unfair methods of competition and deceptive practices. Specifically, it prohibits insurers from making misleading statements or omissions that:
- Misrepresent policy terms, benefits, or conditions
- Falsely state dividends or surplus shares
- Misrepresent the financial condition of the insurer
- Induce policy lapses, surrenders, or loans through deception
- Misrepresent insurance products as securities
Critically, the bill clarifies that a policy approved by the Commissioner of Insurance and Financial Services is presumed not to misrepresent the true nature of the policy—a safeguard against frivolous claims while emphasizing insurer responsibility for accurate representations.
For bad-faith failure to settle claims, SB 245 specifies that if an insurer fails to make an offer within policy limits when liability is reasonably clear, and this failure is deemed willful, wanton, or reckless, the court may award additional damages. This provision directly responds to the current legal landscape where policyholders often recover only contractual damages plus statutory interest—frequently insufficient to cover the full harm caused by insurer delays or denials.
Why SB 245 Matters to Michigan Policyholders
Personal injury attorneys in Michigan highlight the real-world impact of the state’s current lack of bad-faith protections. As noted by legal practitioners, injured individuals frequently face mounting medical bills, lost wages, and emotional distress while waiting for claim resolutions. Insurers exploiting procedural delays or offering settlements far below policy limits exacerbate these hardships, knowing policyholders have few effective counters.
SB 245 would empower policyholders to seek accountability beyond breach-of-contract claims. By allowing courts to impose additional damages for willful or reckless insurer conduct, the bill aims to level the playing field. This is particularly significant in auto insurance claims, where disputes over fault and settlement amounts are common, and where timely compensation is critical for recovery.
The bill also addresses broader market conduct issues. Prohibiting deceptive practices like misrepresenting policies as securities or inducing unnecessary surrenders protects consumers from complex financial exploitation—a concern echoed in national insurance regulatory trends.
Legislative Progress and Outlook
As of the 2025-2026 legislative session, SB 245 was introduced in the Michigan Senate and has undergone committee review. The bill remains under active consideration, with supporters emphasizing its potential to reduce insurer misconduct without imposing undue burden on compliant companies. Opponents, though not detailed in the provided sources, typically argue such legislation could increase litigation costs or premium pressures—a debate common in insurance reform discussions nationwide.
For Michigan residents, the outcome of SB 245 could determine whether they gain meaningful tools to challenge unfair insurance practices. As the bill progresses, stakeholders across the insurance, legal, and consumer advocacy sectors will continue to shape its final form, balancing accountability with market stability.