Last time, we talked in-depth about the 2004 NAIC Model Act, which was created as a way to ban discretionary clauses from health and long term disability insurance policies. As we noted, these clauses help insurance providers to deny claims to people that otherwise appear to be covered under the policy. More than half the states in our country have acknowledged the unfairness of discretionary clauses and enacted either a version of the NAIC Model Act or another ban to do away with them, but insurers still attempt to get around these bans.
Here are just a few arguments that you might end up having to fight against if your claim is denied and you fight the decision in court:
Ban took effect after policy was issued. Discretionary clause bans only take effect after the date they are signed into law, and they’re not retroactive. Because of this, insurers will often argue that the ban doesn’t apply to your policy because it was issued before the ban started. However, many states have gotten around this argument by including language stating that the ban applies for policies that are renewed after it takes effect. In short, even if you’ve had your policy for years, it can no longer have discretionary clauses when you renew it if the ban is in effect in your state.
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Discretionary clause isn’t in policy – it’s in the plan. Insurance policies are individual, and bans modeled after the NAIC Model Act one say they can’t include discretionary clauses. However, these say nothing about insurance plans (such as those under ERISA) having similar clauses in their Summary Plan Documents. A good disability attorney, though, will know to argue that statements in the SPD aren’t necessarily part of the plan unless they are also included in governing plan documents.
Policy wasn’t issued in a state with a ban. Often, insurers will argue that their policy was “issued” or “delivered” in a state that doesn’t include a ban and therefore isn’t subject to one. This becomes problematic when the policy is issued to someone who lives in a state that does have a ban. The solution that states like California have come up with is basically to say “we side with the claimant” by including language in their law saying it doesn’t matter where the policy was created – California residents are covered.
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More problematic for workers disability claims is the argument that ERISA preempts all state bans, but this is something that is still being played out in courts and bears watching. Stay up to date with all the latest news by following this blog, and learn as much as you can by reading our free disability policy eBook.
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