Kentucky Defines Discretionary Clause Scope

If an insurer believes a clause gives it “unfettered authority to decide what benefits are due,” that could “unreasonably or deceptively affect the risk purported to be assumed under the policy,” Burkholder writes. “Hence, the office finds the above interpretation or similar interpretations to be objectionable and in violation of Kentucky’s insurance code.”

An insurer cannot use a discretionary clause to deny benefits otherwise granted under the terms of the insurance contract, and, if any terms in a contract are ambiguous, the Kentucky office will construe the terms in favor of the insured, Burkholder writes.

But an insurer “may determine eligibility for benefits and may interpret the terms and provisions of its policy,” if it does so “within the 4 corners of the policy, Burkholder writes.

In Kentucky, an advisory opinion represents the current position of the Kentucky Office of Insurance. An advisory opinion is not legally binding, officials note.