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New York Withdraws Opinion on Discretionary Clauses in ERISA Disability Income Insurance Claims

In April of this year, New York joined the growing list of states banning discretionary clauses in ERISA long term disability policies, much to the benefit of disabled workers.  Unfortunately, the New York State Insurance Department recently rescinded it’s prior advisory letter in favor of proceeding with formal rule making in the future.  While it is clear that New York still feels that "discretionary clauses" are unfair to ERISA long term disability plan participants, this newest circular letter does subject current disability claimants to uncertainty in the near future.

New York Insurance Department Circular Letter # 8, dated 3/27/06, required long term disability insurance companies to remove "discretionary clauses" from disability income policies within 30 days they were "unjust, unfair, inequitable,  misleading , deceptive or contrary to public policy".  New Circular Letter # 14, dated 6/29/06, super cedes and withdraws Circular #8, and states that the Department will be drafting regulations which would "prohibit the use of discretionary clauses".  In the interim, the Department "suggests" that long term disability insurers remove discretionary clauses from policies.

While the latest statement from the New York Insurance Department takes a little wind out of the initial announcement in March, it could lead to stronger permanent regulations which will have more impact in court.   In addition, the formal rule making process allows for public comment.  You can be sure the long term disability carriers will use this opportunity to water down the new regulations to their economic benefit.   You can also be sure that Turley Redmond & Rosasco will counter all such comments vigorously to protect disabled policyholders in their long term disability claims.


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