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Insurance Department Proposes "Discretionary Clauses" Regulation

The State Insurance Department has posted a regulation concerning "discretionary clauses" in health insurance contracts:

Federal courts have interpreted discretionary clauses under the Employee Retirement Income Security Act (ERISA), codified as Chapter 18 of Title 29 of the United States Code, as limiting judicial review of the provisions of insurance policy forms. If a policy form contains a discretionary clause, a court cannot interpret the provisions of the policy de novo, and is limited in its review as to whether the decision or interpretation of the insurer or other administrator was arbitrary and capricious. This limited standard of review gives the insurer or administrator wide discretion, which can serve to negate essential provisions of policy forms, as well as statutorily required appeal rights.

. . .

Discretionary clauses are therefore contrary to sections 3201(c) and 4308(a) of the Insurance Law, which authorize the superintendent to disapprove a policy form if it is "prejudicial to the interests of policyholders or members or it contains provisions which are unjust, unfair or inequitable" or if its provisions "encourage misrepresentation or are unjust, unfair, inequitable, misleading, deceptive, or contrary to law or to the public policy of this state."

Read the entire proposed regulation on the Insurance Department website. Comments on the proposed regulation are due by May 5, 2010.

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