MCL 500.2006: Payment Timeline, 12% Penalty Interest, and Claims

Michigan Compiled Laws 500.2006 requires an insurer to pay insurance benefits within 60 days of receiving satisfactory proof of loss, and when it misses that deadline the overdue amount accrues simple interest at 12% per year.¹ The catch most claimants miss is that the penalty is automatic only if you are the policyholder. If you are suing someone else’s insurer, you have to prove bad faith in court before the 12% kicks in.

The Payment Timeline the Statute Sets

The statute runs on two clocks after you file a claim.

Within 30 days of receiving the claim, the insurer must tell you in writing what documentation it needs to treat your proof of loss as satisfactory. That step is skipped only if the insurer settles the claim inside those 30 days.¹

Once satisfactory proof of loss is in the insurer’s hands, it has 60 days to pay the amount that proof supports. If your documentation covers only part of what you are claiming, the insurer must pay the supported portion on its own 60-day clock and gets a fresh 60 days for the rest once further documentation arrives.¹ This matters in practice because insurers sometimes hold an entire payment while waiting for additional records. Under the statute, they cannot. The supported amount has to go out.

Life insurance has one wrinkle. If your proof of loss itself shows the insurer needs additional medical records to decide liability, the 60-day window starts when those medical records arrive, not when the initial proof came in.¹

There is a narrow exception for cases where the insurer genuinely cannot figure out who is legally entitled to the money or there is no one who can give a valid release. To use that exception, the insurer has to promptly notify the claimant and offer to pay as soon as the issue is sorted out.

How the 12% Penalty Interest Works

Interest at 12% per year begins accruing 60 days after the insurer received satisfactory proof of loss, not from the date you first filed the claim.¹ It is simple interest, meaning it accumulates on the original overdue amount rather than compounding on itself. It is added to the benefits the insurer owes.

The numbers add up quickly. On $50,000 in overdue benefits paid 18 months late, the penalty interest alone runs around $9,000. That is well above commercial interest rates, and that is the point. The statute is built to make delay cost more than prompt payment.

One more thing worth knowing. An insurer that loses a coverage dispute in court does not automatically commit an unfair trade practice as long as it pays the 12% penalty interest on the overdue amount. The statute essentially offers a choice: pay on time, or pay with interest.¹

First-Party vs. Third-Party Claims

This is the split that controls whether the 12% is actually within reach.

If You Are the Insured

When you are the policyholder or someone directly entitled to benefits under the insurance contract, the penalty interest is automatic. You do not have to prove bad faith. You do not have to show the claim was not reasonably in dispute. If payment is late, interest accrues 60 days after satisfactory proof of loss, period.¹ Michigan courts have read the statute this way, holding that the “reasonably in dispute” limitation applies only to third-party tort claimants, not to insureds pursuing their own policies.

So your own homeowner’s, health, disability, or life insurer cannot drag out your claim and then argue the claim was debatable to escape the penalty. Late is late.

If You Are Claiming Against Someone Else’s Insurer

Third-party tort claimants face a much higher bar. To collect the 12% penalty interest, three conditions all have to be met:

The insurer’s liability was not reasonably in dispute.
The insurer refused to pay in bad faith.
A court determined that the refusal was in bad faith.¹

All three. In practice, that means a third-party claimant almost always has to litigate and win a bad-faith finding before penalty interest comes into play. An insurer can legitimately dispute liability on a third-party claim, lose, and still owe no 12% penalty. That is a fundamentally different posture from a first-party claim.

Who the Statute Covers

The obligation falls on any “person” obligated to pay benefits under an insurance policy. In practice that mostly means licensed insurers operating in Michigan, though the language reaches other entities that contract to provide insurance benefits, including those that take on risk through reinsurance.¹

Three groups of claimants are protected: the insured, anyone directly entitled to benefits under the insured’s contract (named life insurance beneficiaries, medical providers with direct payment rights under a health plan), and third-party tort claimants on the terms described above.

How to Actually Collect the Interest

The 12% penalty is not something an insurer typically volunteers. There are two realistic paths.

Michigan’s Department of Insurance and Financial Services (DIFS) investigates consumer complaints against insurers. You can file online, or download a form and submit by mail, email, or fax; DIFS recommends trying to resolve the issue directly with the insurer first.² A DIFS complaint can trigger regulatory action, but DIFS does not award penalty interest or damages to you. To recover the 12% owed under MCL 500.2006, you generally have to go to court.

In a civil lawsuit, the court can order the insurer to pay the original benefits plus the 12% simple interest that has been accruing since the 60-day deadline passed.¹ For a first-party claimant the factual questions are usually narrow: when did satisfactory proof of loss arrive, and when did the insurer actually pay. Third-party cases are harder because of the bad-faith requirement.

MCL 500.2006 does not itself contain an attorney fee provision. If your overdue claim is a no-fault personal injury protection (PIP) claim, a separate statute, MCL 500.3148, allows a court to award attorney fees if the insurer unreasonably refused to pay or unreasonably delayed proper payment. That statute also runs the other way: a court can award fees to the insurer against a claimant who filed a fraudulent or baselessly excessive claim.³ The two statutes have different triggers and different remedies, so on an overdue no-fault claim both may apply at once. For other types of insurance, whether attorney fees are available depends on the specific circumstances and any other applicable statutes or contract terms.

1
Michigan Legislature. Michigan Compiled Laws 500.2006
2
State of Michigan. Filing a Complaint with DIFS
3
Michigan Legislature. Michigan Compiled Laws 500.3148