Texas Department of Insurance Adopts New Rule Prohibiting Discretionary Clauses in Texas Insurance Policies



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Texas Department of Insurance has banned Discretionary Clauses in Life, Disability, Health, and other policies. Following a National trend, the TDI found that these clauses are unfair and deceptive. The ban goes into effect on policies delivered after February 1, 2011 for Disability policies, and June 1, 2011 for all other policies.

The Texas Department of Insurance has adopted new rules prohibiting the inclusion of discretionary clauses in insurance policies delivered in Texas. Discretionary clauses grant insurers near unfettered discretion to decide which claims to pay. Because they are deceptive and have a tendency to make other policy promises illusory, they are not commonly found in state-law governed policies. They are present in virtually all employer-provided policies however because they are allowed by The Employee Retirement Income Security Act of 1974 (“ERISA”) the federal statute governing these claims.

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.”
Many consumer advocates and attorneys participated in the effort to bring this matter before TDI. Lonnie Roach, an attorney specializing in ERISA long term disability claims, testified as to the unfair impact these clauses have on every Texas consumer who has employer-provided insurance.

In outlawing these clauses, TDI has taken a giant step toward ensuring that claims are decided by the evidence, not by the arbitrary whim of the insurance company. Whether they know it or not, nearly every Texas consumer received important protections today.

The new rules take effect on February 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.


ABOUT THE AUTHOR: Lonnie Roach
Lonnie Roach received his undergraduate degree from the from the University of Texas at Dallas, where he graduated cum-laude, and moved to Austin in 1988 to attend law school at the University of Texas at Austin. After completing law school, Mr. Roach began his career practicing person injury trial law and became Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization the first year he was eligible. Mr. Roach handles only ERISA Long Term Disability cases. He has successfully handled case against all major insurance carries such as UNUM, Hartford, Aetna, Standard, Prudental and many more.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.