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CA Department of Insurance

Insurance Commissioner Dave Jones Applauds Governor for Signing Bill that Voids Discretionary Clauses in Life and Disability Insurance

News: 2011 Press Release

For Release: October 3, 2011
Media Calls Only: 916-492-3566
Insurance Commissioner Dave Jones Applauds Governor for Signing Bill that Voids Discretionary Clauses in Life and Disability Insurance
Legislation Levels Playing Field for Consumers

Insurance Commissioner Dave Jones today applauded Governor Jerry Brown for signing legislation protecting consumers from "discretionary clauses" in life, health, and disability insurance policies. SB 621, authored by Senate Insurance Committee Chair Ron Calderon (D-Montebello) and sponsored by Insurance Commissioner Dave Jones, makes discretionary clauses in new or renewed policies void and unenforceable.

Discretionary clauses are policy provisions that give the insurer the sole discretion to interpret the policy and to decide if an insured is entitled to benefits. Even if a consumer has a doctor certify that they are disabled and entitled to benefits, with a discretionary clause in the insurance policy, the insurance company can substitute its own decision that the consumer is not disabled and deny him or her the disability insurance they or their employer paid for. Insurers use the discretionary clauses to deny claims, knowing that if challenged the consumer has a very high and insurmountable legal burden to overcome to prove that the insurance company acted arbitrarily.

"SB 621 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 Commissioner Jones. "Discretionary clauses have been increasingly relied upon by insurers to reject legitimate claims for disability insurance when a consumer 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. SB 621 levels the playing field and gives consumers an even chance to prove that they are entitled to disability and other insurance, by eliminating the 'discretionary clauses' that insurers have been putting into their insurance policies."

Insurance companies have used discretionary clauses to protect their decisions from being challenged by consumers or reversed by the courts. The practice has left many consumers without benefits at a time when they are sick, disabled, or grieving the loss of a loved one, and in dire financial need.

SB 621 goes into effect on January 1, 2012.

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The California Department of Insurance, established in 1868, is the largest consumer protection agency in California, regulating the $123 billion insurance marketplace. In 2013 the California Department of Insurance received more than 170,000 calls from consumers and helped recover over $63 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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