Many health and disability group insurance contracts contain discretionary clauses—clauses that provide the company writing the contract with the discretion to determine the meaning of contractual terms or to determine the insured’s eligibility for benefits. If your disability insurance policy is subject to ERISA, meaning it was purchased by your employer as part of a group plan, it most likely includes a discretionary clause. In order to prevail in court against an insurer, the claimant must demonstrate not just that the insurer’s decision was wrong, but that the insurer abused its discretion in making that decision. Insurers use these clauses to deny claims, with knowledge of the added difficulty these clauses provide for their customers to succeed in court.
State legislators are reacting to these unfair clauses. California recently enacted a law, making discretionary clauses in disability and life insurance policies