California is supposed to start imposing a ban on use of discretionary clauses in disability insurance policies Jan. 1, 2012
That will be probably cause tactical problems for disability insurers in the short run, but, in the long run, it seems like a necessary step.
It seems likely to me that there are more malingers in the world than there are unjustly denied disability claims. If, for example, a would-be disability claimant has the energy and skill to flood the Internet with diatribes against a mean disability insurer, maybe that claimant still has the ability to work in his or her own occupation.
But selling a policy with a provision that, to a layperson, appears to give the insurer the ability to avoid paying claims at will is not a great way to win consumer confidence.
Plaintiffs’ lawyers use the clauses to put out press releases that make disability insurers look like ogres.
Donahue & Horrow L.L.P., Los Angeles, a law firm that handles disability insurance cases, uses the discretionary clause in a recent release suggesting that insurers use the clauses to deny valid claims because they know that it is often very difficult for the insureds to challenge the decisions in court.