California Bans the Inclusion of Policy Provisions Giving Insurance Companies Discretionary Authority to Decide Claims
In a major victory for consumers, Governor Jerry Brown signed a bill that makes discretionary clauses – typically contained in ERISA-governed life, health and disability insurance policies/ERISA plans void and unenforceable in new or renewed policies. SB 621 was authored by Senate Insurance Committee Chair Ron Calderon (D-Montebello) and sponsored by Insurance Commissioner Dave Jones, and was similar to AB 1686 vetoed by Governor Schwarzenengger in 2010.
Discretionary clauses are provisions typically found in group life, health and disability plans that give the administrator/insurer the sole discretion to interpret the policy and to decide if a plan participant or beneficiary is entitled to plan benefits. In ERISA cases, federal courts have interpreted these clauses to give administrators/insurers a higher standard of review when courts review their decisions. This meant that the federal courts were required to give greater deference to decisions denying plan benefits under life, health or disability coverages, rather than weighing all the evidence under a “de novo” standard of review and making their own determination as to whether the insured was entitled to benefits under the policy or employee welfare benefit plan.
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California Governor Jerry Brown recently signed a new law that will provide increased protection to seniors and other consumers who are interested in purchasing an annuity. AB 689, which was sponsored by the California Department of Insurance and authored by Assembly Budget Committee Chair Bob Blumenfield (D-San Fernando Valley), requires that insurers verify that an annuity purchase is suitable and appropriate for the consumer based on an evaluation of his or her age, income, financial objectives and ten other factors. The bill was unanimously passed by both the state Senate and the state Assembly.
Because of fairly recent California wild fires and California’s history of rising property values (at least this was the case a few years ago), many California homeowners have found themselves underinsured for fire losses. The California Department of Insurance has been considering new regulations governing standards and training for estimating replacement value on homeowners' insurance for some time. California Insurance Commissioner Steve Poizner had previously called for regulations that would provide more comprehensive and reliable estimates of what it might cost to completely rebuild a destroyed home. Such estimates were previously unregulated and led homeowners to believe they needed less coverage than they truly did in the event of a disaster. 
Policyholder/Employee groups who have group disability insurance coverage through their employers and who find themselves operating in the byzantine world of ERISA have long criticized discretionary clauses contained in such ERISA policies. These often have the effect of giving insurance companies firmer ground to support claim denials because the “abuse of discretion” standard of review typically applies. This higher standard of review makes it more difficult for policyholders/employees to challenge disability claim denials. 
