Michigan Court of Appeals Rules Insurer Liable for Bad Faith After Denying Medically Necessary Surgery Coverage
In a landmark ruling strengthening policyholder protections across Michigan, the Court of Appeals has held a major auto insurer liable for substantial attorney fees after the company denied no-fault Personal Injury Protection (PIP) benefits for a surgery later proven to be medically necessary. The decision, issued in late July 2026, reinforces the principle that insurance carriers face serious legal and financial consequences when they deny legitimate claims without a documented, reasonable basis for doing so.
Background: The Accident, the Surgery, and the Denial
The case originated from a serious automobile accident in which the plaintiff suffered significant spinal injuries requiring urgent medical attention. Following the accident, the plaintiff’s treating physician recommended spinal surgery as a medically necessary intervention to prevent permanent neurological damage. The insurer, however, denied the PIP benefit claim for the surgery, arguing that the procedure was not medically necessary and that the plaintiff’s injuries were pre-existing conditions unrelated to the accident. The insurer based this position on an internal medical review conducted by a physician who never examined the plaintiff in person.
The plaintiff underwent the surgery independently, financing it through personal savings and medical financing arrangements. Post-operative reports confirmed the surgery had directly addressed damage consistent with acute traumatic injury from the collision. When the insurer’s denial was challenged in court, the trial court sided with the plaintiff entirely and awarded attorney fees on the basis that the denial lacked a reasonable foundation. The insurer appealed, but the Court of Appeals upheld both the coverage ruling and the fee award.
The Legal Standard: What Constitutes a Reasonable Basis for PIP Denial
Under Michigan’s no-fault law, PIP benefits must be paid for all reasonably necessary products, services, and accommodations required for an injured person’s care, recovery, and rehabilitation. The critical legal question in bad faith disputes is whether the insurer had a reasonable basis for the denial at the time it was made. A paper review by a physician who never examined the claimant, without meaningful engagement with the treating physician’s detailed medical records and recommendations, has repeatedly been found insufficient to constitute a reasonable basis for denial in Michigan courts.
This ruling is particularly important because it clarifies that insurers cannot simply hire a medical reviewer to produce a contrary opinion and then hide behind that opinion as a shield against bad faith liability. The quality, independence, and thoroughness of the review process itself is subject to judicial scrutiny, and shortcuts taken to produce a cost-saving denial can expose the carrier to significant additional financial liability beyond the original claim amount.
What Michigan Auto Accident Victims Should Know
If you have been involved in a Michigan auto accident and your insurer has denied PIP benefits for any medical treatment, you should take immediate action. Document all medical opinions and records supporting the necessity of the treatment. Preserve every piece of communication with the insurer, including written denial letters and any verbal explanations provided by adjusters or representatives. Request a full written explanation of the denial, specifically identifying the medical evidence the insurer relied upon. An experienced Michigan no-fault attorney can assess whether the denial lacked a reasonable basis and advise you on recovering both your medical expenses and your legal costs through the bad faith doctrine established and reinforced by this ruling.