Discretionary clauses in
life, health and disability policies became a thing of the past in
California in early-October when the US state’s governor signed
into law Senate Bill 621 (SB621). It was a victory for the author
of the bill, California insurance commissioner Dave
Jones
“SB621 protects consumers of
life, health and disability insurance from discretionary clauses in
their insurance policies which give the insurer the sole discretion
to decide if a beneficiary has become disabled, even if the
consumer has a doctor certify that they are disabled,” said Jones
in a statement.
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He continued that insurers
have increasingly relied on discretionary clauses to reject
legitimate claims for disability insurance when a policyholder
becomes disabled.
“Insurers know that many
consumers will give up their claim and that those who challenge the
claim denial face a very high legal burden to overcome the denial
since the discretionary clause vests sole discretion in the insurer
to decide if the consumer is disabled,” Jones said.
California became the 24th
state to prohibit discretionary clauses in accordance with a model
act introduced by the National Association of Insurance
Commissioners in 2002.
State insurance
commissioners’ right to prohibit discretionary clauses was upheld
by the US Supreme Court in December 2010.
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