Long-term disability (LTD) insurance is an important type of coverage that can provide financial security to individuals who become unable to work due to a disability. When a policyholder becomes disabled and files a claim, the insurance company will evaluate the claim to determine whether the individual meets the criteria for coverage under the policy. In some cases, the insurance policy may include discretionary clauses, which give the insurance company broad authority to interpret the policy and make decisions regarding the claim.
Discretionary clauses are provisions in an LTD insurance policy that give the insurance company discretion to interpret the policy and make decisions about the claim. These clauses often give the insurer the final say in determining whether a claimant is entitled to benefits, even if the claimant presents evidence to support their claim. The insurance company may also have discretion in determining the amount and duration of benefits that are payable under the policy.
Here is a sample discretionary clause in a Unum group disability plan:
“The Plan, acting through the Plan Administrator, delegates to Unum and its affiliate Unum Group discretionary authority to make benefit determinations under the Plan. Unum and Unum Group may act directly or through their employees and agents or further delegate their authority through contracts, letters or other documentation or procedures to other affiliates, persons or entities. Benefit determinations include determining eligibility for benefits and the amount of any benefits, resolving factual disputes, and interpreting and enforcing the provisions of the Plan. All benefit determinations must be reasonable and based on the terms of the Plan and the facts and circumstances of each claim.”
Here is another sample discretionary clause in a Hartford group long term disability plan / policy:
The benefits described in your booklet-certificate (Booklet) are provided under a group insurance policy (Policy) issued by the Hartford Life and Accident Insurance Company (Insurance Company) and are subject to the Policy’s terms and conditions. The Policy and Booklet are incorporated into, and form a part of, the Plan. The Plan has designated and named the Insurance Company as the claims fiduciary for benefits provided under the Policy. The Plan has granted the Insurance Company full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the Policy, to the extent permitted by applicable state law.
Here is third discretionary clause in a New York Life policy, underwritten by Life Insurance Company of North America (LINA):
The Plan Administrator has appointed the Insurance Company as the named fiduciary for adjudicating claims for benefits under the Plan, and for deciding any appeals of denied claims. The Insurance Company shall have the authority, in its discretion, to interpret the terms of the Plan, to decide questions of eligibility for coverage or benefits under the Plan, and to make any related findings of fact. All decisions made by the Insurance Company shall be final and binding on Participants and Beneficiaries to the full extent permitted by law.
Here is a final example of a discretionary clause in a Reliance Standard group plan policy, which are typically administered by Matrix Absence Management:
Reliance Standard Life Insurance Company shall serve as the claims review fiduciary with respect to the insurance policy and the Plan. The claims review fiduciary has the discretionary authority to interpret the Plan and the insurance policy and to determine eligibility for benefits. Decisions by the claims review fiduciary shall be complete, final and binding on all parties.
While discretionary clauses are common in LTD insurance policies, they have been the subject of much controversy in recent years. Critics of discretionary clauses argue that they give too much power to insurance companies and can result in unfair claim denials. These critics argue that when an insurance company has discretion to interpret the policy, they may be more likely to deny claims in order to save money and protect their bottom line.
In response to these concerns, some states have passed laws that limit or ban the use of discretionary clauses in insurance policies. For example, in 2010, the state of California passed a law that prohibited the use of discretionary clauses in disability insurance policies. Other states have also passed similar laws, including Montana, Oregon, and Washington.
Despite these efforts to limit the use of discretionary clauses, they are still commonly used in LTD insurance policies. If you are considering purchasing an LTD insurance policy, it is important to carefully review the policy language and understand the implications of any discretionary clauses that may be included.
If you are already covered by an LTD insurance policy that includes a discretionary clause, it is important to understand your rights and options if your claim is denied. While the insurance company may have discretion in interpreting the policy, they are still required to act in good faith and make decisions that are reasonable and consistent with the policy terms. If you believe that your claim has been unfairly denied, you may be able to appeal the decision or file a lawsuit against the insurance company.
To increase your chances of a successful claim, it is important to provide as much evidence as possible to support your claim. This may include medical records, statements from your healthcare providers, and other documentation that demonstrates the extent of your disability and the impact it has had on your ability to work.
In conclusion, discretionary clauses are a common feature of LTD insurance policies, but they can be controversial and have been the subject of much debate in recent years. If you are considering purchasing an LTD insurance policy, it is important to carefully review the policy language and understand the implications of any discretionary clauses that may be included. If you are already covered by an LTD insurance policy and your claim has been denied, it is important to understand your rights and options for appealing the decision or taking legal action against the insurance company. With the right approach and the help of an experienced attorney, you can increase your chances of a successful claim and secure the benefits you are entitled to under your policy.