Outside Legal Counsel PLC

OLC Files Class Action Lawsuit Against Detroit for 'Stolen' Insurance Proceeds

For Immediate Release | Feb 03, 2025
https://olcplc.com/public/media?1738598393



Outside Legal Counsel has filed a federal class action lawsuit against the City of Detroit alleging that its "Fire Insurance Withholding Program" is an unconstitutional taking of private citizen's property under the Fifth Amendment.

In November 2024, a home on Mount Vernon Street caught fire. Fortunately, it was properly insured. When the claim was made, the City of Detroit required the insurance company to withhold and send to the City twenty-five percent of the insurance proceeds. The property owner never knew about or consented to this seizure of these monies beforehand.

Detroit seized the proceeds under a little-known provision of the Michigan Insurance Code that purports to allow enrolled municipalities to seize and "escrow" up to twenty-five percent (25%) of fire victims' insurance settlement or payouts regarding fire-destroyed homes and businesses. For residential property, the seizure cannot exceed a maximum amount which is adjusted annually in accordance with the consumer price index. The current amount (as of 2025) is over $16,000.00.

The program specifies "if a claim is filed for a loss to insured real property due to fire or explosion and a final settlement is reached on the loss to the insured real property, an insurer shall withhold from payment 25% of the actual cash value of the insured real property at the time of the loss."

The cash-grab program creates substantial hardships for victims of fires. Homeowners of fire-damaged residential or commercial properties have the serious financial burden of repairing or remediating upfront. Yet municipalities (like Detroit) are snagging large amounts of funds that should be available to repair or remediate fire-damaged properties from insurance companies. Taking these funds often leads to significant financial strains. In cases where homeowners lack the necessary extra funds for immediate repairs, the program causes delays in the rebuilding and recoupment process.

The FIW Program is not required of cities and municipalities but the class action lawsuit alleges that Detroit's decision to operate the Michigan "FIW" Program violate the Fifth Amendment.

"Insurance proceeds, secured for by long-paid insurance premiums, is the private property of homeowners, not local governments," states Philip L. Ellison, one of the attorneys who brought the case. "The Supreme Court has been clear that even the temporary taking of private property that does not otherwise belong to the government violates the Fifth Amendment."

According to city records, Detroit currently is holding over 1,000 fire victims' private insurance monies.

The case has been assigned to Judge Laurie J. Michelson who sits in Detroit.

###