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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 5966

August 19, 1981

INSURANCE:

Time limits for payment of claims

INSURANCE:

Time limits for cancellation of insurance policies

INSURANCE:

Previous denial of insurance coverage as basis for cancellation of industrial insurance contract

1956 PA 218 requires that fire insurance claims be paid within 30 days after filing proof of loss, disability insurance claims to be paid upon filing proof of loss and life insurance claims to be paid within 60 days after proof of death of the insured. Failure to make payments on any of these claims, within 60 days after filing of the claim may subject the insurer to interest of 12 percent upon the amount of the claim.

Notice of cancellation of an insurance policy must be provided in writing at least 10 days before cancellation except in the case of an automobile insurance policy sought to be cancelled within the first 55 days after its issuance, in which case 20 days notice must be given prior to the effective date of cancellation.

An industrial life insurance policy may not be discontinued or cancelled solely because there has been a previous rejection of the insured. An industrial life insurance company may cancel such an insurance policy if it can demonstrate that the previous rejection was for reasons which would have resulted in a refusal to insure on its part.

Norton L. Berman

Director

Michigan Department of Commerce

Law Building

Lansing, Michigan

You have requested my opinion in regard to possible conflicts between sections of 1956 PA 218, as amended; MCLA 500.100 et seq; MSA 24.1100 et seq. In your letter, you state that conflicts may exist in the following areas:

1. Time limits for payment of claims:

2. Time requirements for notice of cancellation of insurance policies; and

3. Use of a previous denial of insurance coverage as a justification for refusing to insure or refusing to continue to insure.

1. Time Limits for Payment of Claims--

The time specifications for timely payment of claims for fire insurance policies are set forth at 1956 PA 218, Sec. 2836(2); MCLA 500.2836(2); MSA 24.12836(2), which states:

'All losses under any fire insurance policy shall be paid within 30 days, the provisions of any contract or statute to the contrary notwithstanding.'

1956 PA 218, Sec. 3416; MCLA 500.3416; MSA 24.13416, provides the following requirements for contracts of disability insurance:

'There shall be a provision as follows:

'TIME OF PAYMENT OF CLAIMS: Indemnities payable under this policy for any loss other than loss for which this policy provides any periodic payment will be paid immediately upon receipt of due written proof of such loss. Subject to due written proof of loss, all accrued indemnities for loss for which this policy provides periodic payment will be paid ........ (insert period forpayment which must not be less frequently than monthly) and any balance remaining unpaid upon the termination of liability will be paid immediately upon receipt of due written proof.'

1956 PA 218, Sec. 4030; MCLA 500.4030; MSA 24.14030, provides the following required provision in policies of life insurance:

'There shall be a provision that when a policy shall become a claim by the death of the insured, settlement shall be made upon receipt of due proof of death, or not later than 2 months after receipt of such proof.'

The above statutory sections each direct the settlement provisions of the contract of insurance for the specific type of insurance involved. A fire insurance policy may not provide other than a 30-day period within which to pay fire insurance losses, notwithstanding statutes to the contrary. The provisions of a disability insurance policy must provide for payment immediately upon receipt of written proof of loss. A life insurance policy must provide for payment no later than two months after receipt of due proof of death. These provisions regulate the provisions of insurance contracts and give the purchaser a contractual right to their fulfillment which may be enforced upon breach thereof. These provisions all existed prior to the passage of 1956 PA 218, Sec. 2006; MCLA 500.2006; MSA 24.12006. This section was added by 1976 PA 273 and provides in pertinent part:

'(1) A person must pay on a timely basis to its insured, an individual or entity directly entitled to benefits under its insured's contract of incurance, or a third party tort claimant the benefits provided under the terms of its policy, or in the alternative, the person must pay to its insured, an individual or entity directly entitled to benefits under its insured's contract of insurance, or a third party tort claimant 12% interest, as provided in subsection (4), on claims not paid on a timely basis. Failure to pay claims on a timely basis or to pay interest on claims as provided in subsection (4) is an unfair trade practice unless the claim is reasonably in dispute.

(3) An insurer shall specify in writing the materials which 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. If proof of loss is not supplied as to the entire claim, the amount supported by proof of loss shall be deemed to be 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 shall be deemed to be paid on a timely basis if paid within 60 days after receipt of the proof of loss by the insurer. Where the proof of loss provided by the claimant contains facts which clearly indicate the need for additional medical information by the insurer in order to determine its liability under a policy of life insurance, the claim shall be deemed to be paid on a timely basis if paid within 60 days after receipt of necessary medical information by the insurer. Payment of a claim shall not be untimely during any period in which the insurer is unable to pay the claim when there is no recipient who is legally able to give a valid release for the payment, or where the insurer is unable to determine who is entitled to receive the payment, if the insurer has promptly notified the claimant of that inability and has offered in good faith to promptly pay the claim upon determination of who is entitled to receive the payment.

'(4) When benefits are not paid on a timely basis the benefits paid shall bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum, if the claimant is the insured or an individual or entity directly entitled to benefits under the insured's contract of insurance. Where the claimant is a third party tort claimant, then the benefits paid shall bear interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum if the liability of the insurer for the claim is not reasonably in dispute and the insurer has refused payment in bad faith, such bad faith having been determined by a court of law. The interest shall be paid in addition to and at the time of payment of the loss. If the loss exceeds the limits of insurance coverage available, interest shall be payable based upon the limits of insurance coverage rather than the amount of the loss. If payment is offered by the insurer but is rejected by the claimant, and the claimant does not subsequently recover an amount in excess of the amount offered, interest shall not be due. Interest paid pursuant to this section shall be offset by any award of interest that is payable by the insurer pursuant to the award.'

These practices are defined to be unfair trade practices and give the insured a right apart from the provisions of the insurance contract. In Fletcher v Aetna Casualty & Surety Co, 80 Mich App 439; 264 NW2d 19 (1978), the plaintiff contended that the 12% rate provided in 1956 PA 218, Sec. 2006, supra, should be given retroactive effect. The Court stated with regard to the plaintiff's contention:

'The statute referred to by plaintiff is in the nature of a penalty to be assessed against insurers for dilatory practices in settling meritorious claims. That statute was enacted after this controversy arose. Such statutes, having a punitive purpose, are never given retroactive effect. Shwab v Doyle, 258 US 529; 42 S Ct 391; 66 L Ed 747 (1922). Further, a statute will not be applied retroactively unless such a legislative intent is clearly and unequivocally expressed. Briggs v Campbell, Wyant & Cannon Foundry Co., 379 Mich 160; 150 NW2d 752 (1967).'

Thus, 1956 PA 218, Sec. 2006, supra, is a statutory penalty which may be applied in all cases where a court finds that the insurance company has been dilatory in the settlement of a meritorious claim. The insurance contract provisions referred to above do not provide for any penalty. At the time that the contract provisions are enforced, the court may order the interest to be paid as required by 1956 PA 218, Sec. 2006, supra, if the Court finds that payment was not made within the 60-day period set forth in 1956 PA 218, Sec. 2006, supra.

It is my opinion, therefore, that 1956 PA 218, Sec. 2006, supra, is not in conflict with the above contract provisions, but instead augments them by providing a statutory requirement that insurance companies failing to make timely settlement of meritorious claims may be compelled to pay interest on the claim.

2. Time Limits for Cancellation of Insurance Policies--

Turning to the second aspect of your inquiry, namely the time requirements for notice of cancellation of insurance policies, 1956 PA 218, Sec. 3020; MCLA 500.3020; MSA 24.13020, states in pertinant part:

'(b) That the policy may be cancelled at any time by the insurer by mailing to the insured at the insured's address last known to the insurer or an authorized agent of the insurer, with postage fully prepaid, a 10 days' written notice of cancellation . . .' (Emphasis added)

1956 PA 218, Sec. 3224(3); as added by 1966 PA 324, MCLA 500.3224(3); MSA 24.13224(3), states:

'The notice shall be mailed at least 20 days prior to the effective date of cancellation. For the purpose of this chapter only, delivery of such written notice by the insurer shall be the equivalent of mailing. The notice shall contain the reasons for the cancellation and shall state in bold type that the insured has the statutory right within 7 days from the date of mailing to appeal to the department. The commissioner shall approve the form of the cancellation notice.' (Emphasis added.)

1956 PA 218, Sec. 3020, supra, requires a 10-day written notice of cancellation for all categories of casualty insurance except worker's compensation, while 1956 PA 218, Sec. 3224(3), supra, requires that the notice of cancellation be mailed at least 20 days prior to the effective date of cancellation if the same occurs within the first 55 days of coverage. Thus, during the first 55 days of coverage, there is a conflict between the above quoted sections. However, 1956 PA 218, Sec. 3020, supra, applies to all categories of casualty insurance except workers' compensation, and 1956 PA 218, Sec. 3224(3), supra, applies only to cancellation of an automobile insurance policy. In Evanston YMCA Camp v State Tax Commission, 369 Mich 1, 8; 118 NW2d 818, 821 (1962), cert den, 375 US 19; 84 S Ct 63; 11 L Ed 2d 39 (1963), the Michigan Supreme Court stated:

'When we construe statutory language containing both specific and general provisions, we adopt the rule set forth in 50 Am Jur, Statutes, Sec. 367, p 371:

"Where there is in the same statute a specific provision, and also a general one which in its most comprehensive sense would include matters embraced in the former, the particular provision must control, and the general provision must be taken to affect only such cases within its general language as are not within the provisions of the particular provision."

It should also be noted that, in addition to being more specific, 1956 PA 218, Sec. 3224(3), supra, is the later enacted statute which also aids in construing the legislative intent.

It is my opinion, therefore, that the 20-day requirement for notice for cancellation of an automobile insurance policy within the first 55 days of coverage prevails over the general 10-day requirement for cancellation.

3. Use of a Previous Denial of Insurance Coverage as a Justification for Refusing to Continue to Insure--

In the third phase of your inquiry, you state that there may be a conflict between 1956 PA 218, Sec. 2027; as added by 1976 PA 273, MCLA 500.2027; MSA 24.12027, and 1956 PA 218, Sec. 4244(1)(b); MCLA 500.4244(1)(b); MSA 24.14244(1)(b). You further state that this appears to be another example in which 1956 PA 218, ch 20, provides a general principle, while 1956 PA 218, Sec. 4424(1)(b), supra, applies to a specific type of policy and therefore you ask whether 1956 PA 218, Sec. 4424(1), supra, is controlling.

1956 PA 218, Sec. 2027, supra, states as follows:

'Unfair methods of competition and unfair or deceptive acts or practices in the business of insurance include:

(b) Refusing to insure or refusing to continue to insure an individual or risk solely because the insured or applicant was previously denied insurance coverage by an insurer.' (Emphasis added.)

1956 PA 218, Sec. 4244(1), supra, states as follows:

'No policy of industrial life insurance issued on or after January 1, 1944, shall be issued or delivered in this state if it contains any of the following provisions:

(b) A provision giving the insurer the right to declare the policy void because the insured had been rejected for insurance, unless such right be conditioned upon a showing by the insurer that knowledge of such rejection would have led to a refusal by the insurer to make such a contract.'

1956 PA 218, Sec. 4244(1), supra, limits the contractual rights of an industrial life insurance company by prohibiting certain provisions from being included within the insurance contract. Industrial insurance is defined in 1956 PA 218, Sec. 4201; MCLA 500.4201; MSA 24.14201, as that form of life insurance in which premiums are payable weekly or in which the premiums are payable at least monthly, but less often than weekly with a maximum face amount of $1,000 and the words 'industrial policy' printed upon the policy. These policies are issued without a prior physical examination and are therefore treated differently from other life insurance contracts both legislatively and judicially.

In Ogilvie v Inter-Ocean Insurance Co, 12 Mich App 652, 653; 163 NW2d 457 (1968), the Michigan Court of Appeals held that the plaintiff may not recover from defendant because of a provision in the policy which provided: 'This policy shall take effect on its date of issue, provided the insured is then alive and in good health, but not otherwise.' The Court stated:

'It is the general rule that the foregoing good health provision in an industrial life insurance policy issued without a medical examination is a valid condition precedent to liability on the part of the insurer, and where it appears that the insured was not in sound health at the date of issue there can be no recovery. . . .'

Moreover, industrial insurance policies are treated uniquely by the Insurance Code. The provision in 1956 PA 218, Sec. 4244(1)(b), supra, is limited to industrial life insurance contracts. 1956 PA 218, Sec. 4244(1)(b), supra, is in harmony with 1956 PA 218, Sec. 2027, supra. The language of 1956 PA 218, Sec. 2027, supra, provides that a prior rejection may not be the sole reason for refusal to insure or to continue to insure. 1956 PA 218, Sec. 4244(1)(b), supra, permits an insurer to declare the policy void because of prior rejection by a life insurer only if the insurer shows that knowledge of the rejection would have led to a refusal by the insurer to enter into the insurance contract. In order to make such a contention, the insurer would have to show more than simply a prior rejection. The prior rejection would have to have been for a reason material to the risk. The assumption of the statute is that, since industrial insurance policies are issued without a physical examination, insureds who have been previously rejected may have been rejected because a physical examination revealed a material risk. It would be necessary for the industrial life insurance company to demonstrate that the previous rejection was for reasons that would have resulted in a refusal to insure on their part.

It is my opinion, therefore, that the provisions of 1956 PA 218, Sec. 4244(1)(b) supra, and 1956 PA 218, Sec. 2027, supra, are not in conflict. Each would prohibit a refusal to continue to insure solely because there has been a previous rejection.

Frank J. Kelley

Attorney General


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