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California Hammers Out Discretionary Clause Settlement - Updated

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Golden State regulators say they have negotiated model claims provisions for disability insurers.

The California Department of Insurance has come up with a settlement with Hartford Life Insurance Company, a unit of Hartford Financial Services Group Inc., Hartford, to resolve a dispute over disability insurance policy discretionary clauses, officials say.

Under the terms of the settlement, the policies that Hartford Life sells in California no longer will contain discretionary clause language, officials say.

The settlement also establishes requirements for Hartford Life’s disability benefits decisionmaking process, officials say.

Under the terms of the settlement, Hartford Life must:

- Obtain only information that is necessary to evaluate and decide whether to accept or deny a claim for benefits.

- Consider and interpret the policy and all information that relates to the claim for benefits and make a determination of the claimant’s eligibility for benefits based on the new policy language.

- Provide written explanations of claim denials.

The California “department intends to apply the terms of the settlement to all disability income insurance policies sold in the state,” officials say.

California Insurance Commissioner Steve Poizner has issued a statement praising Hartford Life for agreeing to the settlement.

“I want to commend the Hartford for working cooperatively with the department to resolve this important consumer issue,” Poizner says in the statement.

“The settlement essentially clarifies the existing law,” Hartford Life says in a statement about the California discretionary clause announcement.. “The clarification was initiated by the California Department of Insurance. There will be no material change in how the Hartford will pay claims or honor its obligations going forward. The dispute focused solely on the question of the discretionary clause.”

Hartford Life notes that there never was any dispute about Hartford Life claims payments.

“The Hartford has met and continues to meet all of its obligations to policyholders,” the company says. “The Hartford is proud of its record of paying claims and is pleased to continue serving the disability income protection needs of California consumers.”

The California settlement appears to apply both to individual disability policies and to group disability policies.

Hartford Life and other insurers have been engaged in formal negotiations with California insurance regulators over disability insurance policy discretionary clauses since 2004.

Critics of the clauses say the clauses give insurers and other users of the clauses, such as group plan administrators, unlimited rights to interpret policies and weigh claims evidence as they see fit.

Supporters of the clauses say the clauses give users some extra flexibility to interpret policy contract terms within firm guidelines established the federal and state laws and regulations.

In related news, the American Council of Life Insurers, Washington, and America’s Health Insurance Plans, Washington, today announced plans to file a federal suit over efforts by Michigan insurance regulators to ban discretionary clauses from insurance policies sold in Michigan.

Michigan has no jurisdiction over use of discretionary clauses in policies sold to employer groups covering 50 or more employees because the Employee Retirement Income Security Act puts those policies under the jurisdiction of the U.S. Department of Labor, the ACLI and AHIP argue in their complaint.


NOTE: An earlier version of this article did not include Hartford Life’s statement about its reaction to the California settlement.