Texas Insurance Commissioner Forbids Insurers’ Provisions that Allowed Them to Interpret Policies
The Texas Department of Insurance has adopted new rules that prohibit the inclusion of discretionary clauses in health, life, and disability insurance policies delivered in Texas. Discretionary clauses are contract provisions that provide insurers with sole discretion in deciding what, when, and if benefits are due under an insurance policy. The Office of Public Insurance asserted that these provisions alter the way courts review insurers’ decisions on appeal and make meaningful review of an insurer’s decision virtually impossible.
In prohibiting discretionary clauses, Texas Commissioner of Insurance Mike Geeslin wrote:
[d]iscretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead consumers regarding the terms of coverage.
Discretionary clauses are present in nearly all employer-provided disability policies because they are allowed by The Employee Retirement Income Security Act of 1974 (“ERISA”).
Twenty-three states and the National Association of Insurance Commissioners have now adopted statutes, rules or policies prohibiting discretionary clauses. The new rules in Texas will take effect February 1, 2011 for some types of disability insurance and June 1, 2011 for all other forms of health, life, and disability insurance policies issued in Texas.
