Insurers dispute Calif. disability policy probe

By Judy Greenwald
Business Insurance
Dec. 02, 2005
Posted Dec. 09, 2005

SACRAMENTO, Calif.—Insurers on Thursday filed suit against the California Department of Insurance in response to a department examination of disability policies that could lead to the withdrawal of all previously approved policy forms that it determines contain "unlawful" provisions.

Insurers filing the suit in state Superior Court in Sacramento, Calif., said the department’s action could lead to rate hikes of up to 46% for group disability insurance and up to 33% for individual coverage.

The lawsuit was prompted by an Oct. 3 letter from insurance department general counsel Gary M. Cohen, in which he said the department is concerned that there are provisions in disability income insurance products that "would not be approved if they were submitted to us today, and in many cases have not been approved for many years."

The seven provisions listed in the letter concern: discretionary clauses, which give insurers authority to determine eligibility for benefits and to interpret policy terms and provisions; additional benefit triggers; the definition of total disability; offsets in group disability income insurance; the definition of pre-existing conditions; compulsory uniform provisions; and payment of benefits to the insured.

The letter said one course of action the department is considering is to withdraw approval of all previously approved policy forms that contain provisions "that are determined not to be lawful and appropriate."

Brad Wenger, president of the Sacramento-based Assn. of California Life & Health Insurance Companies, one of the plaintiffs, said the lawsuit was filed because the plaintiffs believe the standards the commissioner is advocating "really require a formal regulatory process." Mr. Wenger said he also disagrees with the department that the provisions listed in the Oct. 3 letter "are not authorized by existing law, so we have procedural and policy differences."

A spokesman for the insurance department said that "what we’ve asked them to do is to follow existing law." No new regulations have been issued, said the spokesman, who added that the department will "vigorously" contest the lawsuit.

The suit seeks an injunction restraining the department from enforcing its "underground regulations" and a judicial declaration that they must be promulgated as regulations "before they can be imposed on an industrywide basis."

Other plaintiffs in the suit are America’s Health Insurance Plans and the American Council of Life Insurers, both Washington-based, and the Sacramento-based California Chamber of Commerce.

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