State seeks ban on insurance clauses

May 26, 2010 by Andrew

The Texas Department of Insurance officially proposed a rule Tuesday that would ban the use of certain policy clauses that make it easier for insurance companies to deny benefits to some policyholders.

The move is the first step in a potential ban on so-called discretionary clauses — which often exist in disability, life, accident and health policies.

Discretionary clauses give insurance companies the sole authority to interpret the terms of their policies. In other words, the clauses effectively give companies the authority to decide who gets paid and who doesn’t.

In a filing to propose the rule change, the Insurance Department said: “Discretionary clauses are unjust, encourage misrepresentation, and are de- ceptive because they mislead consumers regarding terms of the coverage.”

Deeia Beck, who represents consumers in insurance issues for the state, asked Insurance Commissioner Mike Geeslin to ban the clauses in October.

And in March, Geeslin made an informal posting of the pro posed rule change to gauge public sentiment. Now, he has taken the next step by formally proposing the change.

The deadline for written comments to the department is June 28, and there will be a public hearing on July 12.

“This is the next step in getting a permanent rule in place,” Beck said. “This is an excellent development to help rid the state of these unfair clauses.”

The insurance industry objected to the proposed change in March.
Jared Wolfe, head of the Texas Association of Health Plans, said the push for a ban is driven by plaintiffs’ lawyers – and shoddy evidence.

Almost two dozen other states have taken steps to reel in discretionary clauses.

More Medical Malpractice Myths