AUSTIN, Texas, June 1, 2016 /PRNewswire/ -- Bemis, Roach, & Reed, a disability law firm in Texas, is pleased to report that in a recent decision a Texas Federal Judge ruled to uphold the ban on discretionary clauses in insurance policies answering the question of whether the ban would survive federal preemption.
In December 2010, the Texas Department of Insurance adopted new rules prohibiting the inclusion of discretionary clauses in insurance policies delivered in Texas. Discretionary clauses grant insurers near unfettered discretion to decide which claims to pay. Because they are deceptive and have a tendency to make other policy promises illusory, they are not commonly found in state-law governed policies. They are present in virtually all employer-provided policies, however, which are typically governed by The Employee Retirement Income Security Act of 1974 ("ERISA"). In prohibiting discretionary clauses Commissioner Geeslin wrote "[d]iscretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead consumers regarding the terms of coverage."
Many consumer advocates and attorneys participated in the effort to bring this matter before TDI. Lonnie Roach, an attorney specializing in ERISA long term disability claims and a partner in the Austin law firm of Bemis, Roach & Reed, testified as to the unfair impact these clauses have on every Texas consumer who has employer-provided insurance.
In outlawing these clauses, TDI took a giant step toward ensuring that claims are decided by the evidence, not by the arbitrary whim of the insurance company. Whether they knew it or not, nearly every Texas consumer received important protections with the passage of this rule.
After the action taken by the TDI to ban discretionary clauses, the Texas Legislature codified the rule into Texas statutory law. See, Tex. Ins. Code Ann. § 1701.062.
Despite writing the ban into Texas law, a substantial question remained as to whether the ban would survive federal preemption under the ERISA statute. 29 U.S.C. §1101 et. seq. The ERISA statute preempts most state laws that govern ERISA claims. Many consumers are surprised to learn that protections they take for granted, such as the Prompt Payment provisions of the Texas Insurance Code and the duty of Good Faith and Fair Dealing an insurance company owes its insureds do not apply in an ERISA case. Those state laws are preempted by ERISA.
The question of whether the Texas ban on discretionary clauses would survive federal preemption was recently answered by a Federal District Court for the Northern District of Texas. In 3:15-cv-2328-B, Curtis v. Metropolitan Life Insurance Company, United States District Judge Jane J. Boyle examined the issue and held that, under a common-sense view, Texas laws prohibiting discretionary clauses in insurance policies are laws regulating insurance and thus saved from preemption by ERISA's Savings clause.
Judge Boyle's comprehensive analysis should likely settle the issue once and for all, guaranteeing Texans the protections from these arbitrary clauses that the TDI put in place more than 5 years ago.
For more information visit http://www.brrlaw.com/ or call Bemis Roach & Reed at 512-454-4000
About Bemis Roach & Reed
Bemis, Roach and Reed is a Social Security and Long Term Disability law firm located in Austin Texas that has been protecting the rights of the disabled since 1993.
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SOURCE Bemis, Roach and Reed