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Texas Forbids Discretionary Clauses in Insurers’ Policies

Disability Claim Denials, ERISA

The Texas Department of Insurance has promulgated new regulations prohibiting discretionary clauses in health, life, and disability insurance polices in Texas. Discretionary clauses give insurers sole discretion in deciding whether to approve or deny benefits, and affects the standard that a reviewing court uses in determining whether the insurer’s decision was incorrect. Therefore, these clauses can have serious effects upon whether an insurer’s decision can be meaningfully reviewed by a court, and thus on the disableds’ ability to receive benefits if wrongfully denied.

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.

ERISA, the Employee Retirement Income Security Act of 1974, permits discretionary clauses and they are now present in almost all employer-provided group policies. However, states (such as Texas) can prohibit policies containing such clauses from being sold to state residents. 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 are effective February 1, 2011 for some types of disability insurance and June 1, 2011 for all remaining types of policies and insurance.

The disability insurance attorneys at Comitz | Beethe provide legal representation to protect the disability benefits of medical and dental professionals nationwide and throughout metropolitan Phoenix, Scottsdale, Tucson, Flagstaff, Sedona, Lake Havasu City, and Yuma. We provide disability income claim advice, assistance with filing disability claims, including completion of disability claim forms and representation in disability insurance litigation.

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