What is the discretionary clause in a disability insurance policy?

The discretionary clause is a contractual term in a disability insurance policy that provide insurers with sole discretion in deciding if, when, and what benefits are due under the insurance policy.

These clauses are only detrimental to a claimant if the policy is governed by ERISA. An example of a discretionary clause in a disability policy would state, “The administrator (insurance company) has sole discretionary and authority to determine eligibility for benefits or to interpret the terms or provisions of the policy or contract.“

The existence of a discretionary clause limits the way that a Court can review a disability claim denial and makes it extremely difficult for a court to conduct a fair review of a disability claim.

More than 12 different states have enacted laws that prohibit disability insurance companies from selling disability policies that contain a discretionary clause. The National Association of Insurance Commissioners model rules propose the abolishment of all discretionary clauses.