There is no “insurance bad faith claim handling” in under Michigan law (other than bad faith failure to settle a liability claim). Not so in other jurisdictions. Illinois, for example, has very serious insurance bad faith laws for when an insurer improperly handles a claim.
Michigan law does not recognize a bad faith claim handling legal cause because, in most respects,Michigan views insurance policies as standard contracts, and people are given freedom to contract on the terms of their particular agreements. If there are to be special damages for breach of the contract, that can be added into the terms of the contract. Otherwise, a breach is just that, a breach. To pursue a breach of contract, one has to file a lawsuit and bear the cost of his counsel.
But, having a contract does not make an insurer immune from liability for established torts, such as intentional infliction of emotional distress.
If, during the claim process or otherwise, an insurer’s intentional or reckless conduct rises to the level of extreme and outrageous, and that conduct causes severe emotional distress, then the insurer can be liable for damages above the contractually owed insurance benefits.
I would argue, in fact, that if these elements are met, the insurer could be liable for IIED even if insurance benefits are ultimately found to not be owed.