Texas’ insurance commissioner is considering a rule to prohibit the use of discretionary clauses in life, accident and health insurance policy forms that allow insurers to determine what to pay to its customers.

If enacted, Texas would become the 23rd state to enact legislation, adopt rules or prohibit the clauses altogether.

Mike Geeslin

In a bulletin, Mike Geeslin said his department received a petition from the state’s office of public insurance counsel (OPIC) for the adoption of a rule prohibiting the use of the clauses for insurers last October.  The office, which represents state consumers, said that such clauses give insurers broad discretion to interpret policy terms and evaluate claims for benefits and also instruct reviewing courts to presume the insurer’s decision is correct “making it nearly impossible to overturn,” it said in a statement.

“OPIC believes these clauses are harmful to consumers,” the agency said. “They effectively nullify a carrier’s promise to pay benefits owed. These clauses may also deny Texans the protections of the insurance and other laws of this state. Further, these clauses create an inherent conflict of interest as the insurer responsible for providing benefits also has discretionary authority to decide what benefits are due.”

Two months after receipt of the petition, the Texas Department of Insurance held a public meeting on the matter, receiving numerous comments on the practical effect of the clauses, the harm to citizens and policyholders and comments regarding the long-term use of the clauses without any debilitating effect upon Texas citizens and policyholders, Geeslin’s office said.

As the department considers a new rule, it is urging life, accident and health insurers to suspend filing insurance policy forms with discretionary clauses for a 90-day period.

The Dallas Morning News reported that prohibiting the clauses has won the support of AARP Texas, but opposition from the health insurance industry, who contends that eliminating the language would hurt consumers by leading to more lawsuits and higher costs.