State of Vermont Abolishes Discretionary Clauses in ERISA Disability Policies

Our disability attorneys have been strong supporters and advocates in abolishing discretionary clauses from disability insurance policies on a nationwide basis. We are happy to report that in July 2012 the state of Vermont became the 20th State to prohibit discretionary clauses. This is a great victory for Vermont residents and levels the playing field for challenging denied disability claims in court. The Vermont Department of Insurance drafted a report on discretionary clauses in January 2012 to the Vermont House and Senate Committee on Health Care which detailed all of the problems with allowing discretionary clauses.

A New Law That Protects Vermont Disability Insurance Claimants

Finally in July 2012, the Vermont legislature passed the following law:


(a) The purpose of this section is to ensure that health insurance benefits, disability income protection coverage, and life insurance benefits are contractually guaranteed and to avoid the conflict of interest that may occur when the carrier responsible for providing benefits has discretionary authority to decide what benefits are due. Nothing in this section shall be construed to impose any requirement or duty on any person other than a health insurer or an insurer offering disability income protection coverage or life insurance.

(b) As used in this section:

(1) “Disability income protection coverage” means a policy, contract, certificate, or agreement that provides for weekly, monthly, or other periodic payments for a specified period during the continuance of disability resulting from illness, injury, or a combination of illness and injury.

(2) “Health care services” means services for the diagnosis, prevention, treatment, cure, or relief of a health condition, illness, injury, or disease.

(3) “Health insurer” means an insurance company that provides health insurance as defined in subdivision 3301(a)(2) of this title, a nonprofit hospital or medical service corporation, a managed care organization, a health maintenance organization, and, to the extent permitted under federal law, any administrator of an insured, self-insured, or publicly funded health care benefit plan offered by a public or private entity; as well as entities offering policies for specific disease, accident, injury, hospital indemnity, dental care, disability income, long-term care, and other limited benefit coverage.

(4) “Life insurance” means a policy, contract, certificate, or agreement that provides life insurance as defined in subdivision 3301(a)(1) of this title.

(c) No policy, contract, certificate, or agreement offered or issued in this state by a health insurer to provide, deliver, arrange for, pay for, or reimburse any of the costs of health care services may contain a provision purporting to reserve discretion to the health insurer to interpret the terms of the contract or to provide standards of interpretation or review that are inconsistent with the laws of this state, and on and after July 1, 2012, any such provision in a policy, contract, certificate, or agreement shall be null and void.

Our disability attorneys have helped disability claimants in Vermont and Nationwide to collect disability insurance benefits. Contact us for a free consultation to discuss your claim.

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