Texas has passed amended the Texas Insurance Code to prohibit what are known as discretionary clauses in insurance disability insurance contracts. This applies even to insurance policies governed under restrictive federal ERISA law.
Under the terms of most disability policies, the insurance company administers the appeals process and retains the sole authority to grant or deny benefits to applicants. Because the insurance company both pays benefits and retains the sole authority to grant or deny benefits, the disability insurance company has an inherent conflict of interest.
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However for disability policies issued in Texas, things are changing for the better. For disability insurance policies, certificates or riders offered, issued, renewed or delivered on or after February 1, 2011 said “discretionary clauses” are prohibited under the Texas Insurance Code. Further, for disability insurance policies issued prior to February 1, 2011 that do not contain a renewal date, the discretionary clause prohibition applies after June 1, 2011 upon any rate increase or any change, modification or amendments on or after June 1, 2011. This is finally some good news for the consumer.
More information about this topic can be found in my free e-book, Disability Insurance Policies; How to Unravel the Mystery and Prove Your Claim. Visit our website for a free downloadable copy or call 1-800-562-9830 to discuss your particular long term disability issue. Be sure to check back each week for new blog posts!
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Under ERISA the insurance company has a fiduciary duty to act in the best interests of their policy holders, but because of the conflict of interest described above, insurance companies are notorious for denying claims. However, because of the discretionary clauses’ in the insurance policies, the courts have had to give deference to the insurance company’s decision to deny claims.
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The legal standard of review for the courts to consider is whether the insurance company was “Arbitrary and Capricious” when it denied the claim. This is a difficult and complex burden put on the disabled claimant and insurance companies know how to use this to their advantage. In short, under this standard, the insurance company can come up with fairly suspect evidence but still win and this is because the discretionary clause language allows them to get away with it.
However for disability policies issued in Texas, things are changing for the better. For disability insurance policies, certificates or riders offered, issued, renewed or delivered on or after February 1, 2011 said “discretionary clauses” are prohibited under the Texas Insurance Code. Further, for disability insurance policies issued prior to February 1, 2011 that do not contain a renewal date, the discretionary clause prohibition applies after June 1, 2011 upon any rate increase or any change, modification or amendments on or after June 1, 2011. This is finally some good news for the consumer.
More information about this topic can be found in my free e-book, Disability Insurance Policies; How to Unravel the Mystery and Prove Your Claim. Visit our website for a free downloadable copy or call 1-800-562-9830 to discuss your particular long term disability issue. Be sure to check back each week for new blog posts!
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