Accident & Injury Law in Texas

Discretionary clauses, which are the subject of a recent public debate between insurers and consumer advocates, give insurance companies the authority to interpret the terms of their policies. They also provide the legal  cover to win most lawsuits in which policyholders sue over unpaid claims.

In other words, the clauses effectively give companies the authority to decide who gets paid and who doesn’t.

Insurers say the clauses are necessary to keep premiums low and to help them fight off frivolous lawsuits.

But Deeia Beck, the state’s public insurance counsel, has asked Insurance Commissioner Mike Geeslin to ban the clauses. Geeslin has solicited preliminary comments from the public and the insurance industry and will decide whether to formally recommend a rule change, which would trigger a formal public comment period before a decision is made.

“The use of these types of , clauses is inherently unfair. to consumers,” Beck said. “These clauses allow insurers to make patently unfair decisions, and consumers will have very little judicial recourse to have those decisions overturned.”

Beck has chosen to follow the lead of almost two dozen other states that have taken steps to reel in discretionary clauses, which are most comonly found in long-term disability policies, though Beck said some health care policies contain them, too. She said the new federal health care law would have no effect on discretionary clauses.

Not surprisingly, the insurance industry is fighting back.

Jared Wolfe, head of the Texas Association of Health Plans, said the push for a ban is driven by plaintiffs’ lawyers and shoddy evidence.

The insurance industry also has questioned the commissioner’s authority to ban the clauses.

Beck has responded to the industry’s claims of spiking premiums by pointing to a 2005 industry study, by Milliman Inc., a consulting and actuarial firm.

The study said that the prohibition of discretionary clauses would lead to a cost increase of 3 to 4 percent in disability policies, and that may be on the high side.

Beck added that the insurance industry has had several years to show that banning the clauses in other states has led to high premiums and increased litigation, but they haven’t produced any evidence to demonstrate their claims.

If Beck and other advocates manage to persuade Geeslin to make a policy change, it could take awhile before policies in Texas cease to contain discretionary clauses.

If other states’ experiences are any indication, the fight will end up in court.

Michigan and Montana, which have banned the clauses, were sued by insurance companies. Both states, however, eventually won appeals after lengthy court fights.

Even if a ban were to lead to a lawsuit, Beck said, pursuing it is still the right thing to do for the countless number of people negatively affected by discretionary clauses.

You can also read our Questions and Answers about discretionary clauses.

Congress eyes black boxes for all vehicles

Bookmark to: