Legislature Prohibits Discretionary Clauses

AUSTIN—On January 1, 2012, a new law banning discretionary clauses in certain insurance policies went into effect.  House Bill 3017, 82nd Legislature Regular Session (2011), prohibits the inclusion of discretionary clauses in Health Maintenance Organization (HMO) evidence of coverage forms and life, health, and disability insurance policies. Discretionary clauses are contract provisions that provide insurers the sole discretion in deciding if, when, and what benefits are due under the insurance policy. These provisions alter the way courts review insurers’ decisions on appeal, making meaningful reviews of these decisions virtually impossible. The statute took effect on January 1, 2012.

 

The new law reinforces rules adopted by the Texas Commissioner of Insurance. OPIC petitioned the Texas Department of Insurance (TDI) to create rules prohibiting discretionary clauses in October 2009. The petition received strong support from members of the Texas Legislature, the American Association of Retired Persons, the Texas Medical Association, the National Multiple Sclerosis Society, the Center for Public Policy Priorities and many others. The rules went into full effect on June 1, 2011.