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Advocacy Efforts Gain Momentum in Outlawing the Use of Discretionary Clauses in Long-Term Disability Benefits

By Gregory G. Paul, Morgan & Paul, PLLC

Long-Term Disability Benefits provide replacement income when an individual is unable to work due to an injury or illness. Individuals may purchase long-term disability policies through an insurance agent. However, many employees are covered by group long-term disability policies through their employer.  Generally, long-term disability benefits provide 60% of an employee's salary if unable to perform his or her own occupation for a period of time such as 24 months.  After 24 months, in order to maintain eligibility for long-term disability benefits, an employee must establish that he or she is unable to perform any occupation as that is defined in the insurance policy.  For group policies such as those through an employer, a federal law known as the Employee Retirement Income Security Act (ERISA) sets forth procedural rights and obligations in the interpretation of whether an individual is eligible for long-term disability benefits. 

            Unlike many state and federal laws that provide for a jury trial right, ERISA does not provide such a right and decisions are usually made by federal judges reviewing only the administrative or claims file containing information that was presented to establish eligibility for benefits. Additionally, the federal courts apply what is known as an “abuse of discretion” standard of review which means that an employee denied long-term disability benefits must establish that the insurance company abused their discretion or made an unreasonable decision.  As a result, the federal courts review only the claims file without any testimony from witnesses. 

The language in the long-term disability insurance policies that provide for this abuse of discretion of review are known as discretionary clauses.  In order to level the playing field, many states have enacted bans on discretionary clauses in disability insurance policies through the insurance commissions.  On December 6, 2010, the Texas Commission on Insurance adopted a rule which prohibits discretionary clauses in disability insurance policies.  The result will permit courts to make a de novo or “new” determination as to whether long-term disability benefits should be awarded. Similarly, Illinois passed a ban on discretionary clauses based upon the National Association of Insurance Commissioner's Model Act.  Other states that have passed similar legislation banning the use of discretionary clauses in disability plans includes California, Hawaii, Maine, Michigan, Minnesota, Montana, New Jersey, New York, Oregon and Utah. 

This site is sponsored by Morgan & Paul, PLLC, a law firm representing individuals and families in disability, employment and injury cases. For more information, visit or call at 1-888-967-5674. 

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Litigation Experience

Greg Paul has over 20 years experience litigating in state and federal courts: 1) Fighting for long-term disability benefits against insurance companies such as Aetna, CIGNA, Guardian,Hartford, Liberty Mutual, Mutual of Omaha, Principal, Prudential, Reliance Standard, Standard, Sun Life, and Unum.