Questions and Answers about Discretionary Clauses

Apr 5, 2010 by Andrew

Which policies have discretionary clauses?

Discretionary clauses are most often found in long-term disability insurance polices. They are also contained in some health and life policies.

They exist mostly in group policies that a person takes out through his or her employer or employee organizations.

What is a consumer’s recourse after being denied a claim?

If the policy contains a discretionary clause, the consumer must prove the insurance company’s decision was ‘unreasonable,’ not just incorrect.

What gives insurance companies the right to include discretionary clauses?

The federal Employee Retirement Income Security Act, or more commonly ERISA, regulates the administration of private employee benefit plans. You can learn more about how ERISA can screw you in an accident claim in our free guide for accident victims.

And in 1989, the U.S. Supreme Court decided in Firestone Tire and Rubber Co. v. Bruch that if policies contain discretionary clauses, then a court must defer to the insurance company’s discretion. Further, the insurance company’s decision cannot be reversed unless it can be proved that the company acted in an arbitrary and capricious manner.

What do discretionary clauses look like?

Here is a sample:
“We have complete discretionary authority, subject to Texas and Federal law, to review all denied claims for benefits under this policy. This includes, but is not limited to, the denial of certifica tion of the medical necessity of hospital or medical treatment. In performing this review, we shall have the discretionary authority to determine whether and to what extent [employees] and beneficiaries are entitled to benefits; and construe any, disputed or doubtful terms of this policy.”

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