California governor signs bill banning discretionary causes in insurance

Oct 06, 2011

A new bill will help protect life insurance policy holders in California.

California Governor Jerry Brown signed a bill today protecting customers from "discretionary clauses" in health, disability and life insurance policies, according to the California Department of Insurance. Dave Jones, California insurance commissioner, applauded the governor for signing the bill.

Senate Bill 621, authored by Senate Insurance Committee Chairman Ron Calderon, a Democrat from Montebello, makes discretionary clauses in new or renewed policies void and unenforceable. These clauses are policy provisions that give insurance companies sole discretion to interpret the policy and to decide if a policyholder is entitled to benefits, according to the California Department of Insurance.

"Discretionary clauses have been increasingly relied upon by insurers to reject legitimate claims for disability insurance when a consumer becomes disabled - insurers know that many consumers will give up their claim and that those who challenge the claim denial face a very high legal burden to overcome the denial since the discretionary clause vests sole discretion in the insurer to decide if the consumer is disabled," Jones said.

The bill will go into effect on January 1, 2012. IndyBay.org said thousands of workers in California faced disaster due to discretionary clauses. The website said while people have been killed and hurt on the job, insurance companies could reap the reward of workers' health or life insurance policy.

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