Long Term Disability — Watch OUT! Read the fine print.
Ralph Barrera AMERICAN-STATESMAN
David Rankin, sitting with his wife, Deborah, was diagnosed with multiple sclerosis in 2006. He tried to cash in on his long-term disability insurance policy, but a discretionary clause allowed Liberty Mutual to deny his claim.
Ralph Barrera AMERICAN-STATESMAN
David Rankin eventually settled his claim against Liberty Mutual, but not until after he and his wife, Deborah, had drained their savings and retirement accounts, losing more than $35,000.
In a matter of months, David Rankin went from swinging golf clubs to trying to navigate through life with a walker.
Since being diagnosed with multiple sclerosis in 2006, Rankin and his wife, Deborah, had to move into a cheaper and more traversable single-story house with wide doorways in South Austin.
The federal government agreed with doctors' diagnosis, and Rankin soon became eligible for Social Security disability income. Rankin, a former accountant with Temple-Inland, figured he would not have trouble cashing in on his long-term disability insurance policy, considering his doctor and the feds agreed about his condition.
But Liberty Mutual denied his claim. A provision buried in his policy, called a discretionary clause, allowed the company to easily reject him.
Discretionary clauses, which are the subject of a recent public debate between insurers and consumer advocates, give insurance companies the authority to interpret the terms of their policies. They also provide the legal cover to win most lawsuits in which policyholders sue over unpaid claims.
In other words, the clauses effectively give companies the authority to decide who gets paid and who doesn't.
Insurers say the clauses are necessary to keep premiums low and to help them fight off frivolous lawsuits.
But Deeia Beck, the state's public insurance counsel, has asked Insurance Commissioner Mike Geeslin to ban the clauses. Geeslin has solicited preliminary comments from the public and the insurance industry and will decide whether to formally recommend a rule change, which would trigger a formal public comment period before a decision is made.
"The use of these types of clauses is inherently unfair to consumers," Beck said. "These clauses allow insurers to make patently unfair decisions, and consumers will have very little judicial recourse to have those decisions overturned."
Beck has chosen to follow the lead of almost two dozen other states that have taken steps to reel in discretionary clauses, which are most commonly found in long-term disability policies, though Beck said some health care policies contain them, too. She said the new federal health care law would have no effect on discretionary clauses.
Not surprisingly, the insurance industry is fighting back.
Jared Wolfe, head of the Texas Association of Health Plans, said the push for a ban is driven by plaintiffs' lawyers and shoddy evidence.
"To date, the evidence presented consists of a clip from 'Good Morning America,' testimony from attorneys litigating such cases that winning is very difficult," Wolfe wrote in a letter to Douglas Danzeiser, the Insurance Department's deputy commissioner of regulatory matters.
The insurance industry also has questioned the commissioner's authority to ban the clauses.
Beck has responded to the industry's claims of spiking premiums by pointing to a 2005 industry study by Milliman Inc., a consulting and actuarial firm.
The study said that the prohibition of discretionary clauses would lead to a cost increase of 3 to 4 percent in disability policies.
"We don't even think that's valid," Beck said. "It's high."
She added that the insurance industry has had several years to show that banning the clauses in other states has led to high premiums and increased litigation, but they haven't produced any evidence to demonstrate their claims.
If Beck and other advocates manage to persuade Geeslin to make a policy change, it could take awhile before policies in Texas cease to contain discretionary clauses.
If other states' experiences are any indication, the fight will end up in court.
Michigan and Montana, which have banned the clauses, were sued by insurance companies. Both states, however, eventually won appeals after lengthy court fights.
Even if a ban were to lead to a lawsuit, Beck said, pursuing it is still the right thing to do for the countless number of people negatively affected by discretionary clauses.
Rankin eventually settled his case against Liberty Mutual, and now the company pays him $1,200 a month.
But it came at a cost. The couple drained their savings and retirement accounts, losing more than $35,000. David Rankin also was forced to file for bankruptcy.
Deborah Rankin said the denial of coverage "was like getting punched in the gut."
"I was like, 'Oh my God. What are we going to do?'"
Even worse, she said, was seeing her 6-foot-6-inch husband reduced to tears.
They make a point to speak calmly about the situation that wrecked their finances. There's no use in remaining bitter, they said, and the stress takes its toll on David Rankin, who suffers from cognitive and memory problems.
Still, the Rankins said they were fortunate in one way.
"We were one of the lucky ones, because we still have our home," Deborah Rankin said.
teaton@statesman.com; 445-3631
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Which policies have discretionary clauses?
Discretionary clauses are most often found in long-term disability insurance polices. They are also contained in some health and life policies.
They exist mostly in group policies that a person takes out through his or her employer or employee organizations.
What is a consumer's recourse after being denied a claim?
If the policy contains a discretionary clause, the consumer must prove the insurance company's decision was 'unreasonable,' not just incorrect.
What gives insurance companies the right to include discretionary clauses?
The federal Employee Retirement Income Security Act, or more commonly ERISA, regulates the administration of private employee benefit plans.
And in 1989, the U.S. Supreme Court decided in Firestone Tire and Rubber Co. v. Bruch that if policies contain discretionary clauses, then a court must defer to the insurance company's discretion. Further, the insurance company's decision cannot be reversed unless it can be proved that the company acted in an arbitrary and capricious manner.
What do discretionary clauses look like?
From an Aetna policy:
"We have complete discretionary authority, subject to Texas and Federal law, to review all denied claims for benefits under this policy. This includes, but is not limited to, the denial of certification of the medial necessity of hospital or medical treatment. In performing this review, We shall have the discretionary authority to determine whether and to what extent [employees] and beneficiaries are entitled to benefits; and construe any disputed or doubtful terms of this policy."
- Tim Eaton
Lee Ann Torrans
Attorney at Law
6532 LBJ Freeway
Dallas, Texas 75240
http://socialsecuritystrategy.com
ltorrans@gmail.com
214-500-5410 (cell)
214-231-2886 (E-fax)
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