PROPOSED RULES
INSURANCE COMMISSIONER
Original Notice.
Preproposal statement of inquiry was filed as WSR 08-21-094.
Title of Rule and Other Identifying Information: Discretionary clauses.
Hearing Location(s): Insurance Commissioner's Office, 5000 Capitol Boulevard, Room TR 120, Tumwater, WA 98504-0255, on April 28, 2009, at 10:00.
Date of Intended Adoption: May 6, 2009.
Submit Written Comments to: Kacy Scott, P.O. Box 40258, Olympia, WA 98504-0258, e-mail KacyS@oic.wa.gov, fax (360) 586-3109, by April 27, 2009.
Assistance for Persons with Disabilities: Contact Lorie Villaflores by April 27, 2009, TTY (360) 586-0241 or (360) 725-7087.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The purpose of the proposal is to clarify for carriers that discretionary clauses are not allowed in health and disability policies.
Anticipated Effects: The proposed rule will inform and clarify for carriers that the Washington insurance code prohibits the use of a discretionary clause; this is also consistent with the NAIC endorsement of the prohibition of discretionary clauses as well as similar prohibitions adopted by other state insurance regulators.
Carriers will not be able to rely on a discretionary clause to deny benefits or protections and need to file new contracts or amendments to change contract or policy language containing discretionary clauses. Under RCW 48.01.030 carriers are required to act in good faith with regard to the business of insurance, and if current contracts or policies contain discretionary clauses, are required to administer them as though they did not contain discretionary clauses. A uniform policy of banning discretionary clauses will ensure that all carriers will be subject to the same rules and will not suffer competitive disadvantages. State laws regarding discretionary clauses have been upheld through the courts. The rejected legal challenges asserted that because ERISA doesn't bar discretionary clauses, state action barring them are preempted.
Consumers will receive the benefits and protections in their insurance contracts because when benefits are denied and then reviewed, courts will review the record without deferring to the carrier's exercise of discretion in making its decision.
Reasons Supporting Proposal: A discretionary clause is a clause in an insurance policy which provides the carrier with sole discretionary authority to determine eligibility for benefits or to otherwise interpret the terms and provisions of the policy or contract. This issue came to the attention of the commissioner after a court case was filed against a carrier using a discretionary clause in a health plan contract; a review of other carrier's contracts revealed that they also contained discretionary clauses. The commissioner has determined discretionary clauses are prohibited per RCW 48.18.110, 48.44.020, and 48.46.060, because they unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the agreement.
Statutory Authority for Adoption: RCW 48.20.450, 48.20.460, 48.30.010, 48.44.050, 48.46.200, and 48.02.060.
Statute Being Implemented: RCW 48.18.110, 48.44.020, and 48.46.060.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Mike Kreidler, insurance commissioner, governmental.
Name of Agency Personnel Responsible for Drafting: Donna Dorris, P.O. Box 40258, Olympia, WA 98504-0258, (360) 725-7040; Implementation: Beth Berendt, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7117; and Enforcement: Carol Sureau, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7050.
No small business economic impact statement has been prepared under chapter 19.85 RCW. None of the health carriers offering health care or disability insurance in Washington state meet the definition of small business under the law.
A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Kacy Scott, P.O. Box 40258, Olympia, WA 98504-0258, phone (360) 725-7041, fax (360) 586-3109, e-mail KacyS@oic.wa.gov.
March 10, 2009
Mike Kreidler
Insurance Commissioner
OTS-2184.1
NEW SECTION
WAC 284-44-015
Discretionary clauses prohibited.
(1) No
contract may contain a discretionary clause. "Discretionary
clause" means a provision that purports to reserve discretion
to a carrier, its agents, officers, employees, or designees in
interpreting the terms of a contract or deciding eligibility
for benefits, or requires deference to such interpretations or
decisions, including a provision that provides for any of the
following results:
(a) That the carrier's interpretation of the terms of the contract is binding;
(b) That the carrier's decision regarding eligibility or continued receipt of benefits is binding;
(c) That the carrier's decision to deny, modify, reduce or terminate payment, coverage, authorization, or provision of health care service or benefits, is binding;
(d) That there is no appeal or judicial remedy from a denial of a claim;
(e) That deference must be given to the carrier's interpretation of the contract or claim decision; and
(f) That the standard of review of a carrier's interpretation of the contract or claim decision is other than a de novo review.
(2) Nothing in this section prohibits a carrier from including a provision in a contract that informs an insured that as part of its routine operations the carrier applies the terms of its contracts for making decisions, including making determination regarding eligibility, receipt of benefits and claims, or explaining its policies, procedures, and processes.
[]
OTS-2185.1
NEW SECTION
WAC 284-46-015
Discretionary clauses prohibited.
(1) No
contract may contain a discretionary clause. "Discretionary
clause" means a provision that purports to reserve discretion
to a health maintenance organization, its agents, officers,
employees, or designees in interpreting the terms of a
contract or deciding eligibility for benefits, or requires
deference to such interpretations or decisions, including a
provision that provides for any of the following results:
(a) That the carrier's interpretation of the terms of the contract is binding;
(b) That the carrier's decision regarding eligibility or continued receipt of benefits is binding;
(c) That the carrier's decision to deny, modify, reduce or terminate payment, coverage, authorization, or provision of health care service or benefits, is binding;
(d) That there is no appeal or judicial remedy from a denial of a claim;
(e) That deference must be given to the carrier's interpretation of the contract or claim decision; and
(f) That the standard of review of a carrier's interpretation of the contract or claim decision is other than a de novo review.
(2) Nothing in this section prohibits a carrier from including a provision in a contract that informs an insured that as part of its routine operations the carrier applies the terms of its contracts for making decisions, including making determination regarding eligibility, receipt of benefits and claims, or explaining its policies, procedures, and processes.
[]
OTS-2186.1
NEW SECTION
WAC 284-50-321
Discretionary clauses prohibited.
(1) No
disability insurance policy may contain a discretionary
clause. "Discretionary clause" means a provision that
purports to reserve discretion to an insurer, its agents,
officers, employees, or designees in interpreting the terms of
a policy or deciding eligibility for benefits, or requires
deference to such interpretations or decisions, including a
provision that provides for any of the following results:
(a) That the insurer's interpretation of the terms of the policy is binding;
(b) That the insurer's decision regarding eligibility or continued receipt of benefits is binding;
(c) That the insurer's decision to deny, modify, reduce or terminate payment, coverage, authorization, or provision of health care service or benefits, is binding;
(d) That there is no appeal or judicial remedy from a denial of a claim;
(e) That deference must be given to the insurer's interpretation of the contract or claim decision; and
(f) That the standard of review of an insurer's interpretation of the policy or claim decision is other than a de novo review.
(2) Nothing in this section prohibits an insurer from including a provision in a policy that informs an insured that as part of its routine operations the insurer applies the terms of its policies for making decisions, including making determination regarding eligibility, receipt of benefits and claims, or explaining its policies, procedures, and processes.
[]
OTS-2187.1
NEW SECTION
WAC 284-96-012
Discretionary clauses prohibited.
(1) No
disability insurance policy may contain a discretionary
clause. "Discretionary clause" means a provision that
purports to reserve discretion to an insurer, its agents,
officers, employees, or designees in interpreting the terms of
a policy or deciding eligibility for benefits, or requires
deference to such interpretations or decisions, including a
provision that provides for any of the following results:
(a) That the insurer's interpretation of the terms of the policy is binding;
(b) That the insurer's decision regarding eligibility or continued receipt of benefits is binding;
(c) That the insurer's decision to deny, modify, reduce or terminate payment, coverage, authorization, or provision of health care service or benefits, is binding;
(d) That there is no appeal or judicial remedy from a denial of a claim;
(e) That deference must be given to the insurer's interpretation of the contract or claim decision; and
(f) That the standard of review of an insurer's interpretation of the policy or claim decision is other than a de novo review.
(2) Nothing in this section prohibits an insurer from including a provision in a policy that informs an insured that as part of its routine operations the insurer applies the terms of its policies for making decisions, including making determination regarding eligibility, receipt of benefits and claims, or explaining its policies, procedures, and processes.
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