District Court Applies Texas Ban on Discretionary Clauses in Insurance Contracts
A federal district court in Louisiana upheld a Texas state law prohibiting insurers from granting themselves discretion to interpret benefit plans when deciding benefit claims. These so-called “discretionary clauses” are routinely found in plans governed by ERISA and generally result in courts deferring to the plan administrator’s decisions. As a practical matter, the current ruling means that, at least in this court’s view, an insurer’s denial of a claim for benefits may receive a higher level of judicial scrutiny than the abuse of discretion standard it would have received if discretionary clauses were permitted and the plan contained such a clause. The court held that the Commissioner of Insurance had broad authority to adopt rules governing insurers and did not exceed his statutory authority in enacting the regulations at issue. The case is Jacob v. Unum Life Insurance Company, No. 16-17666, 2017 WL 4764357 (E.D. La.).