BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1868 
                                                                  Page  1

          Date of Hearing:   April 28, 2010
                        
                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    AB 1868 (Jones) - As Amended:  April 13, 2010 

          Policy Committee:                              InsuranceVote:8-4

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill prohibits the approval of a disability insurance (DI)  
          contract by the California Department of Insurance if it  
          contains a discretionary clause. This kind of contract clause  
          provides authority to the insurer to determine eligibility for  
          benefits or coverage, interpret the terms of the policy, or  
          interpret the terms of the contract in a manner inconsistent  
          with state law. 

           FISCAL EFFECT 

          One-time fee-supported special fund costs to the California  
          Department of Insurance to establish oversight of the  
          prohibition on discretionary clauses. 

           COMMENTS  

           1)Rationale  . This bill prohibits specified clauses in disability  
            insurance contracts. These discretionary clauses provide the  
            insurer with authority to determine eligibility and deny  
            claims in a manner that is inconsistent with other provisions  
            of state law. This bill clarifies current law to ensure that  
            employees are not denied benefits due to insurer discretion. 

           2)Background  . Many DI policies are offered as an employment  
            benefit. These benefits are generally governed by the federal  
            Employee Retirement Income Security Act (ERISA), not state  
            law. According to the author, this bill stems from a recent  
            federal court case. In Standard Insurance Company v. Morrison,  
            584 F.3d 837 (2009), the Ninth Circuit Court of Appeals held  
            that the Montana insurance commissioner's practice of  
            disapproving discretionary clauses is not preempted ERISA.  








                                                                  AB 1868 
                                                                  Page  2

            This bill modifies state law to account for this recent  
            conclusion by the Ninth Circuit. 


           Analysis Prepared by  :    Mary Ader / APPR. / (916) 319-2081