News that the Texas Department of Insurance has adopted a new rule prohibiting the inclusion of discretionary clauses in disability insurance policies makes us right proud of our southwestern neighbors.
Discretionary clauses are not typically seen in state-law governed policies, but are present in nearly all employer-provided policies because they are permitted by the laws of ERISA, the federal statute that governs most employee benefits.
The use of discretionary clauses in disability insurance policies give insurance companies free reign to make any decision they like – no matter how self-serving and arbitrary. When Courts decide claims where the insurer has had discretion, the battle is quite uphill for claimants, who are required to demonstrate that the insurer “abused” its discretion, or acted in an arbitrary and capricious manner. Many court decisions actually turn depending upon whether an insurer has discretion, where a Judge would have ruled for the claimant but for the discretion issue.
The new rules will come into effect on February 1, 2011 for some types of disability insurance and on June 1, 2011 for all other disability policies and all other health and life insurance policies issued in Texas.
We congratulate the Texas Department of Insurance and all of our colleagues at the Texas bar who worked to get this legislation in place. Twenty three states and the National Association of Insurance Commission have also adopted statutes, rules or policies prohibiting discretionary clauses. This is progress – but it also means that many other disability policyholders in many other states do not enjoy the same protection.
If you want to know more about this issue, or want to know if your state prohibits the use of discretionary clauses, call our office at 1-877-LTD-CLAIM (877-583-2524).