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On the heels of the recent notice from insurance authorities in the District of Columbia advising that they will not approve forms containing discretionary clauses, the Texas Department of Insurance on December 7th published adopted rules similarly prohibiting the use of discretionary clauses in insurance policy forms.
The news from TX capped a rule-making process that had been in motion since early in 2010. While industry representatives provided testimony at the public hearings that were held on this issue, their input failed to stem the rising tide of state insurance department opposition on this issue.
The regulatory drum on the issue of discretionary clauses continues to beat steady and loud. The shoe that some industry observers expect to drop next is a big one – NY has been silent on this issue since April, when it issued a draft regulation prohibiting discretionary clauses in NY policies.
Friday, December 10, 2010
Monday, December 6, 2010
DC Bulletin on Discretionary Authority
The District of Columbia Department of Insurance last week issued a formal Notice to insurers advising that policies containing discretionary clauses “will be examined to determine if any discretionary clauses can be used improperly to deny claims or to restrict any rights an insured has under the policy which is otherwise properly payable…”
The Notice cites the following language as an example of a discretionary clause:
“We have full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the policy.”
While there are no specific prohibitions on this sort of policy language in the DC insurance code or regulations, the Notice advises that the “Department does prohibit Sole Discretionary language and other types of discretionary clauses in policy forms, and will request changes to the policy form.”
The Notice cites the following language as an example of a discretionary clause:
“We have full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the policy.”
While there are no specific prohibitions on this sort of policy language in the DC insurance code or regulations, the Notice advises that the “Department does prohibit Sole Discretionary language and other types of discretionary clauses in policy forms, and will request changes to the policy form.”
Monday, November 29, 2010
New SERFF Requirement in Connecticut
In one of his last official acts, outgoing CT Insurance Commissioner Thomas Sullivan signed Connecticut Bulletin IC-26 mandating use of SERFF for all form, rate or rule filings made on or after January 1, 2011. The bulletin states that paper filings received after that date will be rejected.
Thursday, November 11, 2010
State Insurance Department Updates
On the heels of our last post regarding Alaska’s reinstatement of its “filing for prior approval” requirement, here’s some other recent insurance department news on the state filing front:
Arkansas issued Bulletin No. 9-2010 dated November 2nd to advise that SERFF and EFT will be required for rate and form filings effective March 1, 2011….Connecticut alerted the industry informally this week that it will be releasing a bulletin soon to implement a SERFF requirement as of some yet to be determined effective date…. Delaware released Forms and Rates Bulletin No. 33 informing insurers that the department will only accept EFT for payment of fees in connection with rate, form, rule and advertisement filings.
Also, Michigan continues to work with trade groups to refine requirements for its anticipated data call for policies sold since January 1, 2000. And Alaska issued Bulletin B-10-07 on October 28th requesting that insurers provide an updated general email address specifically for the purpose of receiving email notifications from the department, to avoid situations where notification emails from the department are returned as undeliverable due to staffing changes at insurers.
Arkansas issued Bulletin No. 9-2010 dated November 2nd to advise that SERFF and EFT will be required for rate and form filings effective March 1, 2011….Connecticut alerted the industry informally this week that it will be releasing a bulletin soon to implement a SERFF requirement as of some yet to be determined effective date…. Delaware released Forms and Rates Bulletin No. 33 informing insurers that the department will only accept EFT for payment of fees in connection with rate, form, rule and advertisement filings.
Also, Michigan continues to work with trade groups to refine requirements for its anticipated data call for policies sold since January 1, 2000. And Alaska issued Bulletin B-10-07 on October 28th requesting that insurers provide an updated general email address specifically for the purpose of receiving email notifications from the department, to avoid situations where notification emails from the department are returned as undeliverable due to staffing changes at insurers.
Tuesday, October 26, 2010
Alaska to Require New Filing Approvals
The Alaska Division of Insurance issued Bulletin B 10-08 recently to provide notice of Order R10-04 repealing the exemption of certain products, including disability, from filing and approval requirements. Beginning January 1, 2011, all new or revised forms must be filed for prior approval by Alaska. Forms not filed prior to January 1, 2011 are not required to be filed for approval unless they are amended.
Alaska now joins Michigan in the ranks of states that have rescinded relatively long standing exemptions from filing and approval requirements in 2010. As the Massachusetts Insurance Division collects survey data from disability insurers, it will be interesting to see what may come of their exemption for the filing of group disability forms for approval as well.
Alaska now joins Michigan in the ranks of states that have rescinded relatively long standing exemptions from filing and approval requirements in 2010. As the Massachusetts Insurance Division collects survey data from disability insurers, it will be interesting to see what may come of their exemption for the filing of group disability forms for approval as well.
Monday, October 11, 2010
Delaware - EFT Required for SERFF Filings Starting November 1
On September 27th, the Delaware Insurance Department issued Bulletin No. 33 requiring use of Electronic Funds Transfers (EFT) for rate, form, rule and advertisement filings that are submitted using the System for Electronic Rate and Form Filings (SERFF). The new EFT requirement is effective November 1, 2010.
Tuesday, October 5, 2010
Senate Hearings on Disability Insurance
The Senate Finance Committee held a hearing in Washington last week on the question “Do Private Long-Term Disability Policies Provide the Protection They Promise?”
The hearing was attended by only 3 of the 23 Senators that make up the committee, a fact that was lamented by Senator Baucus (D-MT), the committee chairman, in his closing remarks.
The committee heard testimony from a vocational rehabilitation counselor, a judge from an AL district court, a prominent disability plaintiffs’ attorney, an ACLI representative and a deputy commissioner from the Social Security Administration.
The hearing was largely a forum on the extent to which there’s “something broken” with long term disability insurance and the degree to which ERISA serves to harm the interests of claimants.
Of note, one of the 3 senators attending remarked that ERISA jurisdiction does not rest with the Finance Committee and seemed more intent on discussing LTD as it pertains to the Social Security disability application process. Another senator suggested that the GAO study the 50 states to see if issues might be better addressed by alternative courses of action at the state level. Committee chairman Baucus did voice his determination to bring his findings to the Senate committee that has jurisdiction over ERISA, in the hope of fixing the perceived problem with private disability insurance.
Notwithstanding the sparse turnout by the committee membership, the hearing did represent at least another indication that the role ERISA plays in regulating employee benefit plans may yet be subject to a more searching examination in Congress.
The hearing was attended by only 3 of the 23 Senators that make up the committee, a fact that was lamented by Senator Baucus (D-MT), the committee chairman, in his closing remarks.
The committee heard testimony from a vocational rehabilitation counselor, a judge from an AL district court, a prominent disability plaintiffs’ attorney, an ACLI representative and a deputy commissioner from the Social Security Administration.
The hearing was largely a forum on the extent to which there’s “something broken” with long term disability insurance and the degree to which ERISA serves to harm the interests of claimants.
Of note, one of the 3 senators attending remarked that ERISA jurisdiction does not rest with the Finance Committee and seemed more intent on discussing LTD as it pertains to the Social Security disability application process. Another senator suggested that the GAO study the 50 states to see if issues might be better addressed by alternative courses of action at the state level. Committee chairman Baucus did voice his determination to bring his findings to the Senate committee that has jurisdiction over ERISA, in the hope of fixing the perceived problem with private disability insurance.
Notwithstanding the sparse turnout by the committee membership, the hearing did represent at least another indication that the role ERISA plays in regulating employee benefit plans may yet be subject to a more searching examination in Congress.
Wednesday, July 21, 2010
More State Activity on Discretionary Authority Provisions
Regulatory activity has been continuing in recent weeks on the discretionary authority front that we have written about in recent posts.
One insurance department issued a bulletin to clarify that its state's 2005 ban on discretionary clauses in health or disability insurance policies is applicable to new policies issued after 2005 as well as to policies renewed after that date.
Leaving aside the question as to whether policies technically "renew" or not, the department's bulletin advised in no uncertain terms that insurers who "continue to exercise discretionary clauses against their policyholders" are not in compliance with their state's laws and "will be held accountable and subject to regulatory action."
The phrasing of the bulletin is as curious as it is revealing. This is not a good thing for anybody - least of all the insurers who issue group policies, the employers who buy them or the employees whose incomes are protected by them.
Insurers do not "exercise" discretionary authority clauses in the same manner they exercise clauses, for example, that require a person to be disabled for 180 days under certain long term disability policies or that call for the LTD benefit amount to be reduced by the amount of Social Security benefits for that same disability. In fact, you would be hard pressed to find the phrase "discretionary authority" in any of the numerous and sometimes lengthy communications an LTD insurer sends its claimants.
Instead, it is typically the federal courts (where most claims under group policies are litigated) that fix on the inclusion or omission of discretionary clauses as a factor in determining what standard of review the court will apply in hearing a case. The presence of a discretionary clause generally leads the court to apply a standard that is considered more "deferential" to the insurer's claim determination.
This is the legal standard that has governed ERISA litigation for some time now, in an effort to rein in the legal free for all - and spiraling insurance costs - that would result if courts all over the country could substitute their own interpretations for the ones that the insurers' claims people had made. So it is disturbing to read regulatory pronouncements that appear out of touch with what happens in the real world of claim administration and litigation.
At another state insurance department's recent hearings on proposed rules to ban discretionary clauses in policies issued in their state, an insurance department legal representative questioned the evidence supporting the LTD industry's contention that a ban on discretionary authority provisions would lead to rising LTD plan costs, stating that in any event "carriers are free to apply a rate change due to the removal of the clause."
Another regulatory spokesperson at the hearing dismissed industry concerns about the impact a ban on discretionary authority provisions would have on costs, citing the small percentage of overall employee benefits costs that group disability plans represent and the belief that the ban would lead to better claim decisions and eliminate bad lawsuits. In any event, states of late seem more and more eager to push the envelope on the issue of just how important discretionary clauses are in helping to keep the cost of a typical group disability policy fairly modest.
As CA and NY move ahead with their own discretionary authority bans, it's hard to escape the conclusion that something has to give here, and soon, before the court system becomes logjammed with disability claim litigation from claimants and attorneys eager to take advantage of the new ground rules that result from the absence of discretionary authority provisions.
One insurance department issued a bulletin to clarify that its state's 2005 ban on discretionary clauses in health or disability insurance policies is applicable to new policies issued after 2005 as well as to policies renewed after that date.
Leaving aside the question as to whether policies technically "renew" or not, the department's bulletin advised in no uncertain terms that insurers who "continue to exercise discretionary clauses against their policyholders" are not in compliance with their state's laws and "will be held accountable and subject to regulatory action."
The phrasing of the bulletin is as curious as it is revealing. This is not a good thing for anybody - least of all the insurers who issue group policies, the employers who buy them or the employees whose incomes are protected by them.
Insurers do not "exercise" discretionary authority clauses in the same manner they exercise clauses, for example, that require a person to be disabled for 180 days under certain long term disability policies or that call for the LTD benefit amount to be reduced by the amount of Social Security benefits for that same disability. In fact, you would be hard pressed to find the phrase "discretionary authority" in any of the numerous and sometimes lengthy communications an LTD insurer sends its claimants.
Instead, it is typically the federal courts (where most claims under group policies are litigated) that fix on the inclusion or omission of discretionary clauses as a factor in determining what standard of review the court will apply in hearing a case. The presence of a discretionary clause generally leads the court to apply a standard that is considered more "deferential" to the insurer's claim determination.
This is the legal standard that has governed ERISA litigation for some time now, in an effort to rein in the legal free for all - and spiraling insurance costs - that would result if courts all over the country could substitute their own interpretations for the ones that the insurers' claims people had made. So it is disturbing to read regulatory pronouncements that appear out of touch with what happens in the real world of claim administration and litigation.
At another state insurance department's recent hearings on proposed rules to ban discretionary clauses in policies issued in their state, an insurance department legal representative questioned the evidence supporting the LTD industry's contention that a ban on discretionary authority provisions would lead to rising LTD plan costs, stating that in any event "carriers are free to apply a rate change due to the removal of the clause."
Another regulatory spokesperson at the hearing dismissed industry concerns about the impact a ban on discretionary authority provisions would have on costs, citing the small percentage of overall employee benefits costs that group disability plans represent and the belief that the ban would lead to better claim decisions and eliminate bad lawsuits. In any event, states of late seem more and more eager to push the envelope on the issue of just how important discretionary clauses are in helping to keep the cost of a typical group disability policy fairly modest.
As CA and NY move ahead with their own discretionary authority bans, it's hard to escape the conclusion that something has to give here, and soon, before the court system becomes logjammed with disability claim litigation from claimants and attorneys eager to take advantage of the new ground rules that result from the absence of discretionary authority provisions.
Thursday, June 10, 2010
Discretionary Authority – A House of Cards?
The U.S. Supreme Court on May 17th declined to review the 9th Circuit Court of Appeal’s 2009 decision that upheld the state of Montana’s ban on discretionary clauses in group health and disability policies. Standard Insurance Company sued in 2006 to challenge the state’s prohibition, arguing that state law in this instance should be pre-empted by ERISA, the primary federal law governing employee benefit plans. The MT ban was supported first by the ruling of the district court, and then by the 9th Circuit Court of Appeals.
The Supreme Court’s recent Conkright decision spoke of the important part that ERISA – and with it, the principal of deference to benefit determinations made by claim administrators - plays in promoting the efficiency, uniformity and predictability that recession-plagued employers need in order to continue benefit programs at current cost levels.
The Supreme Court in Conkright seems in one breath to be holding the line on the importance of deference to the decisions of claim administrators, in instances where the plan includes “discretionary authority” language such as the provision that MT banned. But in the next breath, electing to pass on reviewing the MT discretionary authority prohibition seems to be opening the door to more situations where plans will not have that language because of state laws forbidding it.
Maybe, as a Standard spokesperson stated, the Supreme Court “may feel further development in the lower courts is appropriate before it directly addresses the issue” of whether state bans such as the MT one are pre-empted by ERISA. But as the ranks of states barring discretionary authority provisions grow, how much “further development” will be too much?
The Supreme Court’s recent Conkright decision spoke of the important part that ERISA – and with it, the principal of deference to benefit determinations made by claim administrators - plays in promoting the efficiency, uniformity and predictability that recession-plagued employers need in order to continue benefit programs at current cost levels.
The Supreme Court in Conkright seems in one breath to be holding the line on the importance of deference to the decisions of claim administrators, in instances where the plan includes “discretionary authority” language such as the provision that MT banned. But in the next breath, electing to pass on reviewing the MT discretionary authority prohibition seems to be opening the door to more situations where plans will not have that language because of state laws forbidding it.
Maybe, as a Standard spokesperson stated, the Supreme Court “may feel further development in the lower courts is appropriate before it directly addresses the issue” of whether state bans such as the MT one are pre-empted by ERISA. But as the ranks of states barring discretionary authority provisions grow, how much “further development” will be too much?
Wednesday, May 26, 2010
Presentation: "Disability Hot Topics - Legislative and Litigation Update"
Here's a link to my presentation at the AICP New England Chapter's "Education Day" conference in Providence last week.
AICP Presentation
A couple of CT updates since the presentation was compiled.... the legislature amended SB 141 to require a separate and prominent disclosure to employees regarding offsets, instead of prohibiting offsets for dependent Social Security as the original version of the bill called for. And SB 194, a proposal to require rate filings for individual disability income products, died in the legislative session.
AICP Presentation
A couple of CT updates since the presentation was compiled.... the legislature amended SB 141 to require a separate and prominent disclosure to employees regarding offsets, instead of prohibiting offsets for dependent Social Security as the original version of the bill called for. And SB 194, a proposal to require rate filings for individual disability income products, died in the legislative session.
Friday, May 21, 2010
Association of Insurance Compliance Professionals (AICP) – New England Regional Chapter Education Day
Just back from Providence, where I presented last week on “Hot Topics in Disability Insurance – Legislative and Legal Update” at the annual Education Day sponsored by the New England chapter of the Association of Insurance Compliance Professionals (http://www.aicp.net/).
Several conference attendees confirmed that they too are running into new filing issues related to variability in MO and several other states, as regulators raise objections and impose requirements that were not raised on filings approved as recently as several months ago.
On another note, a MA Insurance Department representative stated at the conference that his department will soon be releasing a draft survey to insurers regarding disability insurance, a product not regulated by MA up to now (at least on the group side). There was no mention, however, of any imminent plans by the department to push for greater regulation or required filings of disability income products.
Learn more about CDS at http://www.customdisability.com/
Several conference attendees confirmed that they too are running into new filing issues related to variability in MO and several other states, as regulators raise objections and impose requirements that were not raised on filings approved as recently as several months ago.
On another note, a MA Insurance Department representative stated at the conference that his department will soon be releasing a draft survey to insurers regarding disability insurance, a product not regulated by MA up to now (at least on the group side). There was no mention, however, of any imminent plans by the department to push for greater regulation or required filings of disability income products.
Learn more about CDS at http://www.customdisability.com/
Friday, April 23, 2010
Whither Discretionary Authority?
The New York State Insurance Department (NYSID) recently released a draft of Regulation 184 - Prohibition of Discretionary Clauses.
Here is the link http://www.ins.state.ny.us/r_outreach/r_out_discret_clause.pdf
NY took some initial halting steps on discretionary authority in 2006, with the release of Circular Letter 14 proposing to ban discretionary authority provisions in insurance policies, but it has been very surprising that NY had not jumped back into the discretionary authority mosh pit since then. Perhaps emboldened by similar recent stirrings in other jumbo states (TX and CA), it appears NY is now moving ahead with promulgating such a regulation. NY has asked that comments on the draft it is now proposing be submitted by May 5th. As the list of states acting on the topic of discretionary authority grows, it seems only a matter of time before this issue bubbles up to the Supreme Court for a decision that will have a profound impact on employee benefit plans and ERISA.
Here is the link http://www.ins.state.ny.us/r_outreach/r_out_discret_clause.pdf
NY took some initial halting steps on discretionary authority in 2006, with the release of Circular Letter 14 proposing to ban discretionary authority provisions in insurance policies, but it has been very surprising that NY had not jumped back into the discretionary authority mosh pit since then. Perhaps emboldened by similar recent stirrings in other jumbo states (TX and CA), it appears NY is now moving ahead with promulgating such a regulation. NY has asked that comments on the draft it is now proposing be submitted by May 5th. As the list of states acting on the topic of discretionary authority grows, it seems only a matter of time before this issue bubbles up to the Supreme Court for a decision that will have a profound impact on employee benefit plans and ERISA.
Monday, March 29, 2010
Financial Services Reform
For the most part, the insurance industry escaped the glare of the financial services reform proposal rolled out in Congress recently by Senator Dodd (who is not running for re-election). However, the proposal does recommend the creation of an office of national insurance within the Treasury Department to monitor the insurance industry and assess ways to modernize insurance regulation. Specifically, the proposed national insurance office would evaluate the merits of providing insurers with the option for federal charters, and thus federal regulation. It is hard to imagine a Congressionally-created, federal office of anything concluding that state regulation is a more favorable framework, but my instincts and my sense of history tell me that this is another small step in the slow drift toward a dual regulatory system similar to the one that oversees the banking industry. We can only hope that a federal system of insurance regulation would be more diligent and well-informed than the regulatory framework that was charged with keeping the activities of our banking giants under control.
Monday, March 15, 2010
Discretionary Authority – Another One Bites the Dust
The KY Department of Insurance last week issued Advisory Opinion 2010-01, stating its opinion that “discretionary clauses deceptively affect the risk purported to be assumed in any policy and as such, any forms containing discretionary clauses may be disapproved.” This opinion rescinds Advisory Opinion 2008-05, which KY issued a couple years ago to advise that the department would allow discretionary clauses so long as the insurer construed and interpreted the benefits according to the policy and did not use the discretionary clause to deny benefits otherwise promised by the policy. In the wake of recent similar activity in TX, this is a pretty clear sign that regulatory pressure on discretionary clauses is not going away or lessening, as some industry insiders thought it might after the initial wave of state activity against these provisions several years ago.
Friday, March 12, 2010
Readability
The NAIC Spring meeting scheduled for late March in Denver will include a public hearing to focus on readability and plain language of insurance contracts and other consumer materials distributed by insurance companies, across all lines of business. I have not seen an agenda for the hearing. Maybe they intend to focus on some of the more exotic contracts that came to prominence in the financial meltdown (credit default swaps etc). But I do think there is a growing regulatory sense that insurers’ policies need to do more than just achieve minimum “reading ease” (Flesch) test scores or re-package the same wording and provisions into a Q and A format. Maybe we are seeing the start of another regulatory cycle of legislative action to make insurance policies more understandable to lay person purchasers, similar to the movement that swept the insurance industry about a generation ago. Such regulatory efforts would no doubt have substantial impacts on disability policy language drafting and product development efforts in general.
Thursday, February 18, 2010
Opening Post
Welcome to the opening installment of The Murphy Files, our forum for what we hope will become a stimulating exchange of ideas and information regarding regulatory and legal matters of interest to disability professionals. We do request that people sign their posts, and would also remind everyone that it is illegal for employees from different companies to share information regarding their company’s rating practices or any other information that could be deemed “anti-competitive” or is confidential or proprietary. While we’re at it, here’s the rest of the disclaimer:
CDS is committed to adhering to the letter and the spirit of anti-trust laws. “The Murphy Files” is intended solely as a forum for the expression of various points of view on the regulatory and legal topics identified there. Under no circumstances shall “The Murphy Files” be used as a mechanism or means for competing companies to reach any understanding, expressed or implied, which tends to restrict competition or, in any way, impair the ability of members to exercise their independent business judgment regarding matters affecting competition.
Topic - The Interstate Compact (IC)
As we wait patiently for the IC to develop group disability product standards, we’re curious about what sort of experiences companies are having in filing other products with the IC. Are reviewers adhering closely and consistently to the product standards? How are the turnaround times for IC filings, compared with turnaround times for state fillings (which admittedly vary widely from state to state)? Any other comments?
CDS is committed to adhering to the letter and the spirit of anti-trust laws. “The Murphy Files” is intended solely as a forum for the expression of various points of view on the regulatory and legal topics identified there. Under no circumstances shall “The Murphy Files” be used as a mechanism or means for competing companies to reach any understanding, expressed or implied, which tends to restrict competition or, in any way, impair the ability of members to exercise their independent business judgment regarding matters affecting competition.
Topic - The Interstate Compact (IC)
As we wait patiently for the IC to develop group disability product standards, we’re curious about what sort of experiences companies are having in filing other products with the IC. Are reviewers adhering closely and consistently to the product standards? How are the turnaround times for IC filings, compared with turnaround times for state fillings (which admittedly vary widely from state to state)? Any other comments?
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