Auto-Owners hit with nearly $20,000 in penalty interest and attorney fees for dragging its feet on no-fault claim payments.
The Michigan Court of Appeals handed down the decision on February 18, affirming a lower court ruling that the insurer unreasonably delayed payments on medical bills from a motorcycle accident victim's treatment at Spectrum Health facilities.
The case offers a pointed reminder to claims adjusters about the strict timelines governing Michigan's no-fault system. Insurers get 30 days to pay after receiving reasonable proof of loss. No extensions for additional investigation, no matter how thorough the company wants to be.
The trouble started after a May 14, 2023, motorcycle collision in Grand Rapids. Aaron Brown, the motorcyclist, sustained multiple injuries including rib fractures, a scapular fracture, and a significant clavicle displacement that required surgery. His treatment at Spectrum Health generated bills totaling $76,796.33.
Under Michigan's no-fault rules, Auto-Owners was on the hook as the insurer of the other vehicle involved in the crash. But the company hesitated to open its checkbook.
The wrinkle came from a secondhand comment. Leah Woolf, the driver Auto-Owners insured, told the company she overheard Brown tell police officers he had insurance but didn't activate it yet. She thought that meant he had no coverage.
Auto-Owners tried three times to get written confirmation of Brown's insurance policy from his attorney. When those calls went unanswered, the company contacted Progressive directly. A Progressive representative confirmed on June 29, 2023, that Brown had an active policy in effect at the time of the accident. But without Brown's authorization, Progressive wouldn't hand over the actual declarations page.
Despite the verbal confirmation, Auto-Owners denied Spectrum Health's payment requests in September 2023, saying the claim remained under investigation.
The healthcare providers filed suit in November 2023. During discovery, they subpoenaed Brown's policy documents from Progressive and forwarded them to Auto-Owners in March 2024. The paperwork confirmed what Progressive had already told the insurer nine months earlier.
Even then, Auto-Owners didn't begin making payments until July 15, 2024.
The trial court wasn't impressed. Neither was the appeals court. Both found that Auto-Owners' payments were not made within 30 days after the insurer received reasonable proof of the fact and amount of loss sustained.
The appeals court referenced its 2016 Bronson decision, which made clear that insurers are not allowed additional time beyond the statutory 30 days to conduct their own investigations regarding a claimant's eligibility to receive benefits. The system is designed to get money to providers quickly, with disputes sorted out afterward.
The court examined what Auto-Owners knew and when. The police report listed Progressive as Brown's insurer. Progressive confirmed active coverage. Woolf's speculation about what Brown might have said didn't create genuine uncertainty about his insurance status.
The policy documents Auto-Owners eventually received in March 2024 showed Progressive had sent Brown a cancellation notice for nonpayment. But the coverage would only lapse if payment wasn't received or postmarked by 12:01 a.m. on May 14, 2023. Other documents showed Brown made a change to his policy that same day at 7:32 p.m. All of this evidence supported that the policy, although at risk of cancellation at one point, remained in effect on the day of the accident.
Auto-Owners waited another four months after getting those documents before issuing payment. The company deposed Brown on July 18, 2024, three days after finally starting to pay the claims. He testified his insurance was valid and never cancelled. But that testimony came after payments had already begun and couldn't justify the earlier delay.
Michigan's penalty structure for late no-fault payments carries real teeth. Overdue benefits accrue 12 percent interest. That penalty applies regardless of whether the insurer acted in good faith. If a court later determines the insurer should have paid, the penalty interest gets tacked on automatically.
Attorney fees work differently. The statute creates a two-step analysis. First, are the benefits actually overdue under the 30-day rule? Second, was the delay unreasonable? If the answer to both questions is yes, the insurer pays the claimant's legal fees on top of everything else.
Once a claimant proves benefits are overdue, the burden shifts to the insurer to justify the delay. The company can meet that burden by showing the refusal or delay stemmed from legitimate questions about how to interpret the law or genuine factual uncertainty. Auto-Owners argued it faced real uncertainty about Brown's coverage status, but the court disagreed.
The final tally came to $501.09 in remaining medical charges, $2,402.88 in penalty interest, and $17,343 in attorney fees, for a total judgment of $20,246.94.
Auto-Owners also tried arguing the trial court lacked jurisdiction once partial payments reduced the amount in controversy below $25,000, the threshold for circuit court cases. The appeals court rejected that argument too. Jurisdiction is based on the amount alleged in the pleadings when the lawsuit gets filed, not what remains outstanding after the insurer starts paying during litigation.
The decision reinforces what the Michigan Supreme Court has called an axiom of the state's no-fault system. Insurers must pay benefits to claimants promptly and sort out priority and reimbursement questions later. The penalty interest and attorney fee provisions create the very real possibility that steep penalties will be assessed against an insurer that drags its feet in paying benefits to claimants.
The case serves as a practical reminder for claims departments handling no-fault matters in Michigan. Once an insurer receives reasonable proof of the fact and amount of loss, the 30-day clock starts ticking. An insurer is not permitted extra time to confirm for itself and on its own timeline a claimant's eligibility for benefits.
For Auto-Owners, the case represents a costly miscalculation about how much investigation the law allows before the payment clock runs out. For other insurers handling Michigan no-fault claims, it's a clear reminder that the 30-day deadline means exactly that.
