Prohibiting the Use of Discretionary Clauses
Updated May 2011
In March 2011, a bill was introduced by Rep. John Smithee to ban the use of discretionary clauses in HMO and insurance contracts.
Building upon the Insurance Comissioner's ban on discretionary clauses last fall, this bill would enter that decision into Texas statute, making the ban "bulletproof."
As of May 20, 2011, HB 3017 had been unanimously approved by the Texas House and Senate.
Stay tuned for more updates!
In December 2010, Texas Insurance Commissioner Mike Geeslin signed an order that prohibits the use of discretionary clauses in insurance policies, calling the now-banned practice "unjust and deceptive." With this decision, Texas joins 22 other states in banning these clauses.
Read the Austin American-Statesman's article (published Dec. 6, 2010) about the decision here.
Discretionary clauses give insurance companies the authority to interpret the terms of their policies, effectively giving the companies the power to decide who gets paid and who doesn't. They also provide the legal cover to win most lawsuits in which policyholders sue over unpaid claims. The use of these clauses will be prohibited in all types of insurance policies, effective June 2011.
MS activists were instrumental in this victory. In 2009, the Society identified a couple whose life had been turned upside-down by an MS diagnosis, and subsequently denied disability benefits due to a discretionary clause. Deborah and David Rankin bravely told their story, sharing the financial and emotional turmoil caused by a discretionary clause.
The Rankins attended every hearing at the Texas Department of Insurance on the issue, shared their story with the media, and championed the cause. They expressed their desire to ensure that no more families be affected by discretionary clauses. They provided an especially important consumer perspective that contrasted with protests by insurance companies (who claimed that eliminating discretionary clauses would increase insurance costs).
The Rankins were featured on the front page of the Austin American Statesman on March 30, 2010. The article told their story about being denied disability benefits due to a discretionary clause in their insurance policy. Read it here.
In August 2010, the Texas Commissioner of Insurance proposed a new rule that would ban discretionary clauses. The National MS Society worked closely with the Texas Office of Public Insurance Counsel, AARP, the Center for Public Policy Priorities, the Texas Medical Association, and other consumer advocates in bringing attention to this issue. Collectively, we supported a rule that was successfully adopted and will ban these clauses in 2011, leveling the playing field for consumers and helping prevent insurers from making unfair decisions on whether to pay out claims.