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California Officials Welcome Disability Settlement

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Golden State insurance regulators say a proposed settlement they have negotiated with group disability insurers gives them much of what they want.

Insurance trade groups have emphasized a section in the proposed agreement that will require the California Department of Insurance to hold off from withdrawing approval of policies containing discretionary clauses until Hartford Life Insurance Company vs. State of California, a case filed in a state court in San Francisco, is resolved.

But California Insurance Commissioner John Garamendi says the proposed settlement agreement will establish strong consumer protection standards for disability insurance policyholders.

The proposed settlement agreement “provides significantly more protection for consumers from arbitrary and harmful practices within the industry,” Garamendi says in a statement.

California regulators and the insurance groups and other groups that negotiated the proposed settlement hope to get court approval of the settlement Friday.

California regulators announced in October 2005 that they believed they had the right to withdraw approval for disability policies containing discretionary clauses, or clauses giving carriers wide authority to interpret contract language, and other provisions simply by sending a written notice.

Several state and national insurance and employer groups filed a suit to block policy disapprovals in November 2005, in a state court in Sacramento, Calif.

The plaintiffs in the case are the American Council of Life Insurers, Washington; America’s Health Insurance Plans, Washington; the California Association of Life and Health Insurance Companies, Sacramento; 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 that the trial court already has ruled issued a preliminary ruling coming down on the side of the California Department of Insurance.

Even before the Hartford Life case is resolved, California regulators will require group disability insurers to use one of several approved definitions of terms such as “pre-existing condition,” “total disability – own occupation” and “total disability – any occupation,” according to the settlement agreement.

California regulators said in October 2005 that they would prohibit disability insurers from adding benefit trigger requirements to policies. In the proposed settlement agreement, regulators agree not to withdraw approval of policies over that issue, but they say they plan to adopt regulations governing the use of additional benefit triggers.

California regulators also plan to enforce settlement terms that would regulate the way group disability insurers can offset a portion of disability benefits with income that claimants’ receive from other sources, such as disability benefits paid by an employer’s retirement plan.


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