More and more over the past several years, states have been trying to fight back against one of the more frustrating inclusions to ERISA policies and ERISA plans. What is this inclusion? It’s called a discretionary clause, and basically it’s language in the policy that says insurers have sole discretion in construing the terms of the plan when they’re deciding whether or not to award a claim.
In theory, states still have the power to regulate insurance policies for their citizens, but their recent attempts to get rid of these discretionary clauses have proven to be less than successful so far. Why are discretionary clauses so important?
The Importance of Discretionary Clauses
Just because an insurer includes language that says they can decide what the policy really means when choosing to accept or deny your ERISA claim doesn’t mean that their word is irrefutable – just mostly irrefutable. Why? Because when a court is reviewing a policy and it includes discretionary language saying that the insurance company has the power to interpret the plan, they have to defer to this except in situations where it seems very clear that the insurer abused their privilege.
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In contrast, policies that don’t give insurance companies this advantage may be looked at and interpreted solely by the court. To put it another way, when a plan includes a discretionary clause, the judge is lawfully required to assume that the insurance company is within their rights unless it can be proven otherwise. Without a discretionary clause, he or she can begin from a truly neutral position.
Doesn’t that sound fairer? More like actual justice? Unfortunately, when states have tried to keep these clauses out, most courts so far have prevented them from doing so because ERISA plans have a “saving clause” that allows them to preempt such attempts in many cases.
Still, it’s important to see that more people are trying to fight back against some of the more restrictive parts of ERISA plans and calling for change. Until then, if you have an ERISA policy and need to sue your insurer, you’d better make sure you work with a disability attorney who knows this area of the law.
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