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Calif. Regulators, Disability Insurers Negotiate Settlement

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The California Department of Insurance and groups representing disability insurers have negotiated a settlement agreement that could resolve a dispute over California disability policy standards.

California regulators triggered the dispute in October 2005, by announcing that they would deal with concerns about certain types of disability policy provisions, such as provisions giving the issuers full discretion over interpretation of policy terms, by using written notices to withdraw approval for existing policies.

California regulators now have agreed to let insurers continue to use group disability policies containing discretionary clauses while a San Francisco state court case, Hartford Life Insurance Company vs. State of California, is in progress.

But, under the terms of the proposed settlement agreement, California regulators could start enforcing some other provisions, such as provisions governing policy definitions, about 60 days after the agreement takes effect.

At press time, the parties that negotiated the agreement were in the process of getting court approval for the proposed settlement.

California Insurance Commissioner John Garamendi says the proposed settlement agreement “provides significantly more protection for consumers from arbitrary and harmful practices within the industry.”

Representatives from trade groups that have been fighting California’s disability policy regulatory efforts also are welcoming the proposed settlement.

The California agreement “gives our members a clearer definition of the ground rules under which we can make our products available in the state,” says Karen Ignagni, president of America’s Health Insurance Plans, Washington.

The American Council of Life Insurers, Washington, “is committed to working with [California department] staff to implement this agreement and resolve any concerns they may have about approving these policies,” says John Mangan, an ACLI regional vice president.

Brad Wenger, president of the Association of California Life and Health Insurance Companies, Sacramento, Calif., says the agreement “will ensure that California employers and individuals will have more choices as they seek disability income protection insurance.”

Several groups teamed up in November 2005 to try to keep California from withdrawing approval from existing policies, by filing a suit in a state court in Sacramento, Calif.

In addition to the ACLI, AHIP and the California insurers group, the plaintiffs in the case include the California Chamber of Commerce, Sacramento, and the National Association of Insurance and Financial Advisors-California, Sacramento.

Although California regulators have agreed to hold off on enforcing the provision banning discretionary clauses until litigation of the Hartford Life case is over, officials note the trial court already has issued a preliminary ruling in favor of the California Department of Insurance.

Under the agreement, some provisions would take effect regardless of what happens to the Hartford Life case.

Regulators would refrain from withdrawing approval for group disability policies if the issuers use one of several approved definitions for terms such as “pre-existing condition,” “total disability–own occupation” and “total disability–any occupation,” or the issuers follow standard rules governing how disability insurers can use payments from employer-sponsored retirement plans, state disability insurance funds and other sources to “offset” policy benefit payments.

California also has agreed to adopt regulations governing additions of new benefits triggers, instead of simply withdrawing approval for group disability policies that contain new benefits triggers.

California has agreed to refrain from withdrawing approval for policies affected by the settlement agreement within about 60 days after the proposed settlement agreement takes effect.


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