California Hammers Out Discretionary Clause Settlement - Updated

"The settlement essentially clarifies the existing law," Hartford Life says in a statement about the California discretionary clause announcement.. "The clarification was initiated by the California Department of Insurance. There will be no material change in how the Hartford will pay claims or honor its obligations going forward. The dispute focused solely on the question of the discretionary clause."

Hartford Life notes that there never was any dispute about Hartford Life claims payments.

"The Hartford has met and continues to meet all of its obligations to policyholders," the company says. "The Hartford is proud of its record of paying claims and is pleased to continue serving the disability income protection needs of California consumers."

The California settlement appears to apply both to individual disability policies and to group disability policies.

Hartford Life and other insurers have been engaged in formal negotiations with California insurance regulators over disability insurance policy discretionary clauses since 2004.

Critics of the clauses say the clauses give insurers and other users of the clauses, such as group plan administrators, unlimited rights to interpret policies and weigh claims evidence as they see fit.

Supporters of the clauses say the clauses give users some extra flexibility to interpret policy contract terms within firm guidelines established the federal and state laws and regulations.

In related news, the American Council of Life Insurers, Washington, and America's Health Insurance Plans, Washington, today announced plans to file a federal suit over efforts by Michigan insurance regulators to ban discretionary clauses from insurance policies sold in Michigan.

Michigan has no jurisdiction over use of discretionary clauses in policies sold to employer groups covering 50 or more employees because the Employee Retirement Income Security Act puts those policies under the jurisdiction of the U.S. Department of Labor, the ACLI and AHIP argue in their complaint.

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NOTE: An earlier version of this article did not include Hartford Life's statement about its reaction to the California settlement.