Texas to Prohibit Discretionary Clauses in Policies Beginning Feb. 1

The Texas Commissioner of Insurance Mike Geeslin has adopted three rules proposed by the Office of Public Insurance Counsel that prohibit discretionary clauses in health, life and disability insurance policies, OPIC announced.

Discretionary clauses are contract provisions that provide insurers with sole discretion in deciding if, when, and what benefits are due under the insurance policy. OPIC asserted that these provisions alter the way courts review insurers’ decisions on appeal, and make meaningful reviews of an insurer’s decision virtually impossible.

In prohibiting discretionary clauses Commissioner Geeslin wrote: “[d]iscretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead consumers regarding the terms of coverage.”

Public Counsel Deeia Beck said her agency proposed these rules to “assure that health and life insurance benefits are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide what benefits are due.”

Members of the Texas Legislature, the American Association of Retired Persons, the Texas Medical Association, the National Multiple Sclerosis Society, the Center for Public Policy Priorities and many others were instrumental in getting the new rules adopted, OPIC said.

The new rules take effect Feb. 1, 2011, for some types of disability insurance, and June 1, 2011, for all other forms of health, life, and disability insurance policies issued in Texas.

Twenty-three states and the National Association of Insurance Commissioners have now adopted statutes, rules or policies prohibiting discretionary clauses.

Source: Texas Office of Public Insurance Counsel