Question: Michigan's Insurance Code has a statutorily incorporated penalty requiring an insurer to pay 12% interest on any delayed or unpaid amounts owed to insureds that

Michigan's Insurance Code has a statutorily incorporated penalty requiring an insurer to pay 12% interest on any delayed or unpaid amounts owed to insureds that are delayed or withheld in 'bad faith'. (MCL 500.2006). Court decisions have defined bad faith as actions made by insurers that are "conscious doing[s] of wrong to plaintiff as a result of dishonest purpose or moral obliquity." By establishing this penalty via statute, the Michigan Legislature has provided an additional monetary remedy for bad faith related to untimely payments to insureds.

What interests are served by creating this statutory penalty? In what ways do insurers benefit? Is this an appropriate way to handle these kinds of damages or do you think there is another way to assess a penalty that is fairer?

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