Michigan total-loss appraisal: how the appraisal clause works

Michigan regulates first-party automobile total losses through two layered authorities: the Uniform Trade Practices Act at MCL § 500.2026 (unfair and deceptive acts in claim handling), and the Vehicle Code's salvage-title trigger at MCL § 257.217c (the 75%-of-pre-damage-actual-cash-value threshold). MCL § 500.2026 — Unfair Methods in Claim Handling. The statute identifies a course of conduct indicating a persistent tendency, in claims handling, to engage in any of the following: (e) failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; (f) failing to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear; (g) compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts due the insureds; (h) attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled, by reference to written or printed advertising material accompanying or made part of an application; (l) delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring subsequent submission of formal proof of loss forms, seeking solely the duplication of a verification; (m) failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy; and (n) failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement. MCL § 500.2006 — Penalty Interest for Untimely Claim Payment. When a claim is not paid on a timely basis, Michigan law imposes 12% simple interest as a penalty against the insurer, separate from the contractual obligation to pay the claim itself. MCL § 257.217c — Total-Loss Threshold and Salvage Title. Subsection (2)(a)(ii) provides that if the estimated cost of repair (parts and labor) is equal to or more than 75% but less than 91% of the pre-damaged actual cash value, the insurance company must apply for a salvage certificate of title; if the estimated cost of repair is equal to or greater than 91% of the pre-damaged actual cash value, the insurance company must apply for a scrap certificate of title. Subsection (27) defines "actual cash value" as the retail dollar value of a vehicle as determined by an objective vehicle evaluation using local market resources such as dealers or want ads, by an independent vehicle evaluation or vehicle appraisal service, or by a current issue of a nationally recognized used vehicle guide for financial institution appraisal purposes in this state. The 75% threshold is therefore the operational total-loss threshold in Michigan as a function of state vehicle code rather than insurance code. Michigan operates under a no-fault insurance regime (PIP/MPCA), but for collision and comprehensive total-loss coverage, the policy's appraisal clause governs valuation disputes. Important Michigan-specific note: under MCL § 500.3135 (specifically subsection (3)(e), with the $3,000 cap for motor-vehicle accidents that occur after July 1, 2020), Michigan's mini-tort allows recovery of up to $3,000 from an at-fault driver for vehicle damage not paid by the insured's own collision coverage. That can be relevant when the insured's collision settlement is below the actual replacement cost in the local Michigan market. (MCL § 500.3145 — the PIP claim statute of limitations — does not govern the mini-tort.)

Michigan's bad-faith doctrine in first-party claim handling has historically been more constrained than many states. Roberts v. Auto-Owners Insurance Co., 422 Mich. 594 (1985), established that Michigan does not recognize a stand-alone tort cause of action for an insurer's bad-faith handling of a first-party claim — the remedy runs through the contract claim plus the statutory penalty interest at MCL § 500.2006 plus the unfair-practice framework at MCL § 500.2026. That said, the combination of statutory penalty interest at 12% simple under MCL § 500.2006 and the unfair-practice list at MCL § 500.2026 (14 enumerated practices) gives Michigan policyholders meaningful economic leverage against a non-paying or low-balling insurer, even without a free-standing bad-faith tort.