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.
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.