The New York Insurance Department has issued a proposed regulation that would prohibit life and health insurers from issuing policies that contain discretionary clauses (the “Proposed Regulation”). The Proposed Regulation defines “discretionary clause” to mean a provision in a policy form that:

1. Grants an insurer, plan administrator or claims administrator the discretionary authority to determine eligibility for benefits, resolve disputes, or interpret terms and provisions; or

2. Reserves a right to an insurer, plan administrator or claims administrator to develop standards of interpretation or review.

Under the Proposed Regulation, inclusion of such a discretionary clause in violation of these provisions would be deemed an unfair method of competition or an unfair or deceptive act and practice in the conduct of the business of insurance.

The stated purpose of the Proposed Regulation is to permit courts to review policy provisions de novo, where discretionary provisions limit courts to reviewing whether insurer decisions or interpretations are arbitrary and capricious.

Comments on the Proposed Regulation may be sent to the New York State Insurance Department on or before May 5, 2010. If you would like EAPD to assist you with preparing and submitting comments, please click the “Email the Editor” button and provide your contact information for follow-up by an EAPD attorney.

Click here to view the Proposed Regulation.