U.S. DISTRICT COURT SIDES WITH MORRISON ON KEY CONSUMER PROTECTION ISSUE
Morrison Scores Victory For Working Montanans; Court Decision Sets Precedent For Other States As Well
U.S. District Judge Don Molloy has upheld a key decision by State Auditor and Insurance Commissioner John Morrison to prohibit "discretionary clauses" in group health and disability insurance policies.
"This is a milestone for Montana workers and businesses," said Morrison. "These clauses allowed insurance companies to deny claims with practically no reason. Having coverage doesn't do much good if your claims don't get paid."
Molloy's ruling granted summary judgment to Morrison in a case brought by Standard Insurance Company after Morrison disapproved policies filed by the company that contained the clauses. Standard argued that Morrison's action was preempted by federal law and exceeded his authority. Molloy's opinion concludes that federal law does not preempt Morrison's authority over the content of insurance policies.
Discretionary clauses provide that the insurance company offering a health or disability plan has "discretion" to decide whether to pay claims for benefits. Courts have interpreted the clauses as requiring that claim denials be upheld unless a claimant can prove that the insurer abused its discretion -- a high legal bar to clear. The clauses are contained in nearly every group health and disability insurance policy and have been the subject of extensive litigation.
"This is an excellent opinion that will influence other courts across the country," Morrison added. “Jim Hunt did a great job sorting through the legal issues and making a compelling case for summary judgment.” Hunt represented Morrison’s office in the case.
At Morrison's request, the National Association of Insurance Commissioners several years ago adopted a model rule banning discretionary clauses. Since then, the clauses have been prohibited by insurance commissioners in Montana and a number of other states including New York, Michigan, Illinois and California. Two days after Molloy's ruling in Montana, a federal court in Michigan upheld a similar decision by the Michigan insurance commissioner.
Discretionary clauses affect people who get health or disability insurance through their jobs, a group that includes most insured Montanans and most insured Americans. Blue Cross Blue Shield alone estimates that it covers 167,000 Montanans under such insured group health policies. Removal of the clauses means that the "abuse of discretion" standard will no longer be used in claim disputes; claims will instead be paid when the balance of evidence supports payment. Morrison said the removal of discretionary clauses “restores broad, fundamental rights to tens of thousands of Montanans.”