BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 621|
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THIRD READING
Bill No: SB 621
Author: Calderon (D)
Amended: 3/31/11
Vote: 21
SENATE INSURANCE COMMITTEE : 8-0, 3/23/11
AYES: Calderon, Gaines, Anderson, Corbett, Lieu,
Lowenthal, Price, Wyland
NO VOTE RECORDED: Correa
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Insurance: life: disability: discretionary
clauses
SOURCE : Department of Insurance
DIGEST : This bill invalidates any discretionary clause
contained in a life and disability insurance policy and
prohibits the Insurance Commissioner from approving
disability insurance policies that contain such a
discretionary clause.
ANALYSIS : Existing law generally regulates life and
disability insurance policies, and requires the Insurance
Commissioner to disapprove any disability policy for
issuance or delivery in this state in specified
circumstances.
This bill:
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1. Makes void and unenforceable a provision in a life
insurance or disability insurance policy, contract,
certificate, or agreement that is issued, delivered or
renewed, as defined, for a California resident, if the
provision reserves discretionary authority to the
insurer, or its agent, to:
Determine eligibility for benefits or coverage;
Interpret the terms of the policy, contract,
certificate, or agreement; or
Provide standards of interpretation or review that
are inconsistent with the laws of this state.
2.Defines "renewed" as continued in force on or after the
policy's anniversary date.
3.Provides that nothing in the bill prohibits an insurer
from including contract language informing their insured
that as part of its routine operations the insurer
applies the terms of its contracts for making decisions,
including making determinations regarding eligibility,
receipt of benefits and claims, or explaining policies,
procedures, and processes, so long as the provision could
not give rise to a deferential standard of review by any
reviewing court.
4.Prohibits the Insurance Commissioner from approving a
disability policy that reserves discretionary authority
to the insurer or its agent to
Determine the eligibility for benefits or coverage;
Interpret the terms of the policy; or
Provide standards of interpretation or review that
are inconsistent with the laws of this state.
Comments
Purpose of the bill . This bill, sponsored by the
Department of Insurance, prohibits life and disability
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insurance policies from containing a discretionary clause,
and prohibits the Insurance Commissioner from approving
disability insurance policies that contain a discretionary
clause.
The Department of Insurance explains that a discretionary
clause is a provision that reserves discretionary authority
to the insurer to determine eligibility for benefits or
coverage, to interpret the terms of the policy, or to
provide standards of interpretation or review that are
inconsistent with the
laws of this state.
Under existing law, the Insurance Commissioner must not
approve disability insurance policies containing any clause
or provision that is "unintelligible, uncertain, ambiguous,
abstruse, or likely to mislead a person to whom the policy
is offered, delivered, or issued."
In 2002, The National Association of Insurance
Commissioners, in recognition of the issues this bill seeks
to address, adopted a Model law (Model 42) which it
describes as follows:
"(MDL-42) This models helps ensure that health insurance
benefits and disability-income protection coverage are
contractually guaranteed, and helps avoid the conflict of
interest that occurs when the carrier responsible for
providing benefits has discretionary authority to decide
what benefits are due."
Prior legislation . This bill is identical to AB 1868
(Jones), 2009-10 Session, which was vetoed in 2010. In the
veto message of AB 1868, Governor Schwarzenegger stated:
"I am returning Assembly Bill 1868 without my signature.
"This bill would prohibit the Insurance Commissioner from
approving any disability or life insurance policy if it
includes a provision that would reserve discretionary
authority to the insurer to determine eligibility for
benefits, and voids certain provisions of a policy or
agreement if it provides or funds life insurance or
disability insurance coverage.
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"This bill is unnecessary, as the Insurance Commissioner
already has the authority to prohibit the use of
discretionary clauses."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 4/11/11)
Department of Insurance (source)
Congress of California Seniors
Consumer Attorneys of California
United Policyholders
ARGUMENTS IN SUPPORT : The Consumer Attorneys of
California state: "Under current law, when an ERISA
�Employee Retirement Income Security Act] disability
carrier in California decides a claim, the consumer has the
right to an administrative appeal (before a different
reviewer, employed by the same insurance company). Most
ERISA disability policies reserve broad discretion to
interpret the language and terms of the contract. Thus, if
the consumer chooses to appeal his or her claim, it must be
done in Federal Court. But, the claimant's hands are tied
and he or she must show that the insurance company abused
its discretion in reaching its decision without the ability
to bring in new information or facts. This makes it near
impossible for the consumer to have a fair and impartial
hearing."
DLW:kc 4/12/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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