Closing the loophole in the Michigan Consumer Protection Act

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In 1976, the Michigan legislature passed the Michigan Consumer Protection Act (CPA), which was initially created to provide broad protection for consumers for unregulated industries – not to replace existing consumer protections in Michigan law in industries like insurance and banking. The CPA specifically states that it does not apply to the Insurance Code of 1956. Chapter 20 of the Insurance Code already provides consumer protection from deceptive insurance trade practices, but that hasn’t stopped lawyers from trying to line their pockets by taking advantage of loopholes in the law.

  • In 1976, the Legislature passed the Michigan Consumer Protection Act (found at MCL 445.904, eff. 4/1/77), which specifically stated that the Act does not apply to, or create, a private cause of action for an unfair, unconscionable, or deceptive method, act or practice that is unlawful under Chapter 20 of the Insurance Code of 1956.
  • In fact, Chapter 20 of the Insurance Code contains remedies to redress deceptive trade practices committed under it. The Insurance Commissioner (DIFS Director) and Attorney General have multiple tools to enforce the Insurance Code without stretching the CPA to apply to the already-regulated insurance industry.
  • In 1985, when faced with this specific question, the Michigan Court of Appeals relied on that legislative intent, and ruled that the CPA specifically exempts transactions between an insurance company and its insured because they are covered under the Insurance Code. (Kekel v. Allstate Insurance Company.)
  • In 1999, however, the Michigan Supreme Court ruled, for the first time, that though the Consumer Protection Act generally exempts deceptive acts that are unlawful under the Insurance Code, the CPA permits a private right of action by an insured against an insurer. (Smith v. Globe Life Insurance Co.)
  • In 2000, the Legislature quickly responded to Smith by amending the CPA to remove the “private action” exception created by the court, in Smith, so that individuals could not file a lawsuit against their insurers for deceptive acts under the Insurance Code. That amendment became effective in 2001.
  • In 2012, the Michigan Supreme Court, resurrected the Smith loophole and widened it, allowing auto accident claimants to file lawsuits against their insurers for alleged CPA violations arising out of accidents that occurred before March 28, 2001, if payments were still being made or had been made within the last year. Converse v Auto Club Group Ins. Co. Because Michigan’s no-fault system pays unlimited lifetime benefits that continue to be paid for many years following an accident, the Supreme Court effectively carved a path around the statute of limitations that would otherwise bar these claims.
  • The Legislature never intended to allow individuals to sue companies in regulated industries (like insurance) under the CPA, either before or after the 2001 Amendment. It certainly did not intend to expand the existing statute of limitations on pre-2001 claims. In contrast, the Legislature created the no-fault system as the exclusive remedy for auto accident claimants, and in exchange for this exclusivity, provided unlimited medical benefits.   When faced with the loophole created by the Smith, the Legislature acted swiftly to reinforce its original intent.
  • HB5558 and SB933 closes the loophole that was created by trial lawyers and restores the original intent of the Legislature.