NU Online News Service, Dec. 30, 2003, 5:32 p.m. EST – Some consumer advocates want state insurance regulators to prohibit use of discretionary clauses in insurance contracts.[@@]

Questions about the clauses, which are contract provisions that give insurers some discretion to decide the amount of benefits that they will pay on claims, surfaced during a recent meeting of the National Association of Insurance Commissioners, Kansas City, Mo.

The consumer advocates say consumers have a hard time challenging decisions based on the clauses.

A consumer must prove that the insurer’s exercise of its discretion has been both arbitrary and capricious, according to Mila Kofman, an NAIC-funded consumer representative and an assistant professor with the Health Policy Institute at Georgetown University.

Because the only relief that the consumer can seek is payment of the claim, few consumers pursue complaints, Kofman says.

But Terri Sorota, senior counsel with the American Council of Life Insurers, Washington, says that there has not been a problem with DI discretionary clauses and that a change in the use of discretionary clauses will “needlessly increase costs.”

The NAIC addressed a related topic in June 2002, when it approved a model act that seeks to prevent the use of discretionary clauses in health insurance contracts.