good morning your honor my name is donald salem senior staff counsel with the california department of insurance and i'm here on behalf of the intervenor california insurance commissioner john garamendi i thank you for allowing me to offer the opportunity to address clauses and policies of group disability insurance the state of the law from the commissioner's perspective in california is that discretionary clauses which purport to confer  determine eligibility for benefits runners the insurance contract containing those clauses fraudulent and unsound and therefore unlawful under california law is that the entire contract or would you just excise  paragraph about this question we would generally excise that but it does have profound effects on the claims paid which are throughout the country the coverages throughout the contract yes there's different coverages in the contract will have different coverages for different possibilities of things happening and when the insurer takes a level of discretion that's above and beyond the normal discretion taken by insurers it tends to impact the rest of the contract especially in the area of how they came claims are  when when did this policy come into fact approximately nine hundred ninety five or ninety six the insurance commissioner stopped approving these clauses in contracts i've read and these interesting one has to do something called insert pages when a disability insured goes to sell his product to an employer he mixes and matches there's a menu of possible broker level they're inserted them to say no the company level these days is the difference it's not so much a pagan or because of computers they can print out the whole policy with everything but in the old days it was like an addendum or another an actual page th go in there and prior to approximately ninety six insurers could file these single pages and they'd be approved or disapproved the commissioner no longer does that and now they've got to be shown in what context but following the firestone case when we started to receive varying policies and insert pages with the discretionary clause language in it the fact of the matter is we did not put two things together we did not realize or understand the impact of firestone at the time and a lot of these pages and policies with the discretion to close language in it were approved now in order to unapproved them while the gives the commissioner the whole special riskiness commissioner a very broad authority to disapprove on a prior approval and it gives him a very broad authority to withdraw approval later it also requires notice and hearing and we just finished policy here i cannot speak to what our consumer people did in relation to that but i do know that the commissioner cannot he doesn't have the authority to have a court of law has as to the terms of an individual policy contractual dispute he can put his two cents think he can put pressure on the companies let me ask another question related to this somewhat and then i understand from this last request request for judicial notice that there's been a settlement at least between several of the major disability insurers you know him and providence in this case that requires the intricately to go back and plaintiffs do not get the benefit of that reassessment is that correct that we understand that the way that your understanding of that clause in some an agreement i wouldn't want to apply and on that your honor i it's a very complicated settlement agreement  please correct me if i'm in there under fire since the supreme court held in effect that a person claiming benefits was entitled to trial they  know and in the trial court unless the contract of insurance limited his or her rights by granting discretion to the committee or to the operating committee of that was administering the claim and the court in reaching that conclusion light on black letter trust law now my understanding is what you're saying is that any provision in an insurance contract that purports to reserve that discretion is for one reason or have litigated this very issue and as you know the district courts to reach conflicting conclusions with full records in front of them we have no record in front of us at all why should not this defer ruling on or considering your position in the full understanding that it will be considered and that ultimately a panel of this court will deal with one of the cases and can can reach of a meaningful conclusion why should this court or this panel in effect vacate the two decisions reached before us well first of all your honor your historical assessment i agree with completely i would note that when the commissioner first became aware of discretionary clause language and began to question its use it was prior to the firestone case commissioner believes that any provision that purports to give this level of discretion is simply illegal in california it's unique it's i can't say it's unique i can say that in my experience and just in years at the department i have never seen a clause in a contract that is purports to give this level of discretion and i believe that is why it is quite the commissioner's attention as to what you will ultimately do i believe that i'm here to say that the commissioner believes that those discretionary clauses are void as issued in california and wait till we hear back from them and are we could just add i think i don't see any other any other option with respect to your position do you i do not and plan's benefit determinations are going to be reviewed by district courts do novo unless you put this questionnaire in language in what happened was sort of an explosion in california insurance companies started putting th discretionary language in and we saw in the early ninety's in our practice that this is very broad discretionary language started to appear in insurance policy and this is where the problem arises and now is why we are here today raising what is really an issue of first impression right injuries in the district court if you've been sensitive to the issue many many years ago well your honor honestly we've been raising it in pi for a long time in the problem years that now we have the backing of the department of insurance we do and that that's a big events because that gives us a lot of support from another agency black and we also have we also is california insurance law and these companies make a profit it would be governed by california insurance law precisely and their their plan for their own employees might be there if they had an employee plan and it was a plan for their own employees that would be governed by a recent law that third parties you're saying is that governed by insurance law well let me try to explain it this way if my law firm created a plan and we funded it with our own with our own money and our employees when it became just evil king to us and we took our money and decided whether or not to pay them whether or not they were disabled we could have discretion to decide whether they were not disabled but if we went out these issues be decided by an appellate panel that has the benefit of a fully developed record and a decision bearing in mind that the district courts in this that said in the state of california have reached conflicting decisions on these various points i mean if if all of the district courts agreed with your position then i suppose you could say well why freedom is for oggi different than anybody else but that hasn't been the case the district courts in the district california disagreed so some  also there is that her doctors did not provide any specific restrictions that would prevent her from providing from performing her job but there's difficulty getting on and off the examining table her doctor wrote this thing kind of letter saying i've treated this woman for many years she doesn't exaggerate her pain i believe her when she tells me she determines otherwise there were no other words the option of arguing de novo is still open to us in this case and in other cases that we have where we have a judgment and we're either pending before this court or and it's been adopted more generally and has been given expression mine a number of ninth circuit and california cases in other contexts i think the question judge  raised with you and i'm not sure you answered it here's where there is a claim on appeal that was not raised in the trial court but a given provision of a contract upon which the trial court relied is unconscionable maybe the appellate court addressed that issue in the first instance on the theory that unconscionable of the use of pure question of law not requiring any factual development  does the california department of surance yet have the power and authority to regulate this policy in a retroactive manner it cannot and the district courts ha employer in line and the courtly life so really what you're saying is that actual record needs to be made that that you that providence should have the opportunity to raise all these arguments  as to why this decree should not apply retroactively and you have not had the opportunity to make all these arguments in this case just your current level are in front of us really until now  any statute or decision that might have come into play for example on the way here i had to buy that let's assume that the legislature created a gas tax today to somehow help out and you know again smokers are against children or something like that charge that one cent gas tax today as i came along here for every gallon i bought but you know what that gas station owner decided this is a really good idea i want to charge everybody else's purchase gas for the submit it to the court if they want to the court does not have automatic abuse of discretion they have to determine whether or not there's a conflict of interest and under those circumstances what's being attacked here is not the claim and the claim hours a day and and they seem to just ignore the whole back issue and just talk about the issue actually that's not my understanding of the administrative record if you look at every single day there are actually the accusation during sitting prolonged sitting as defined by the i me is anything in excess of an hour you can get up you can walk around five or ten minutes which normal people do in the public eye go get a cup of coffee the drop off from some forms of somebody else's desk you can do that come back to