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Wolverine State Bans Discretionary Clauses

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The Office of Financial and Insurance Services reports that Michigan is eliminating use of a common policy provision.

The state banned use of “discretionary clauses,” or provisions that give insurers wide authority to interpret policy terms, in insurance contracts March 1, Michigan regulators report in a notice posted on the Michigan OFIS Web site.

Insurers are supposed to notify insurance regulators about any policies that include discretionary clauses by April 1, regulators write in the notice.

“Given the short timeline for compliance with these three rule sets, the [insurance] commissioner will grant a 60-day extension for compliance, provided the company requesting an extension agrees that it will not deny coverage to a policyholder on the basis of a discretionary clause during the extension,” regulators write.

A copy of the notice, which includes information on procedures for complying with the new discretionary clause reporting requirements, is on the Web .