In this video Marc Whitehead, a Board Certified Disability Attorney, explain why Texas outlaws Discretionary Clauses in ERISA Long Term Disability Claims.
Texas has amended the Texas insurance code to prohibit what are known as Discretionary Clauses in Insurance Disability Contracts. This applies even to insurance policies governed under the restrictive Federal ERISA law.
Under the terms of most disability insurance policies the insurance companies administers the appeals process and retains the sole authority to grant or deny benefits to the applicant. 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.
Under ERISA the insurance company has a fiduciary duty to act in the best interest of their policy holders. But because of the conflict of interest, insurance companies are notorious for denying claims. However, because of the discretionary clauses in the insurance policies the courts has has to give deference to the companies decision to deny claims. The legal standard of review for the courts to consider is whether the insurance company was arbitrary when it denied the claim. This is a difficult and complex burden to put on a 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 claims issued in Texas things are changing for the better. For insurance policies, certificates or writers offered, issued, renewed or delivered on or after February 1st of 2011, the discretionary clauses are prohibited under the Texas Insurance Code. Further, for disability insurance policies issued prior to February 1st of 2011 that don’t contain a renewal date, the discretionary clause prohibition still applies after June 1st of 2011 upon any rate increase, change, modification or amendments. Finally some good news for consumers.
