PUBLIC SUBMISSION

As of: 11/25/15 3:04 PM

Received: November 19, 2015

Status: Pending_Post

Tracking No. 1jz-8mcf-j24k

Comments Due: January 19, 2016

Submission Type: API

Docket: EBSA-2015-0017

Claims Procedure for Plans Providing Disability Benefits

Comment On: EBSA-2015-0017-0001

Claims Procedure for Plans Providing Disability Benefits

Document: EBSA-2015-0017-DRAFT-0001

Comment on FR Doc # 2015-29295

Submitter Information

Name: Jeffrey Delott

Address: 

366 North Broadway

Suite 410

Jericho, NY, 11753

Phone: 888-572-0861

General Comment

Please see attached

Attachments

Prop Reg

Page 1 of 1

https://www.fdms.gov/fdms/getcontent?objectId=0900006481d5ada5&format=xml&sho... 11/25/2015
I	represent	disabled	claimants	seeking	benefits	under	group	and	individual	

disability	insurance	policies,	and	am	writing	in	support	of	the	proposed	regulations	

at:

https://www.federalregister.gov/articles/2015/11/18/2015-29295/claimsprocedure-for-plans-providing-disability-benefits.

I	am	unaware	of	any	rampant	or	systemic	abuse	by	insurance	companies	

reviewing	claims	under	individual	disability	insurance	policies.		On	the	other	hand,	

rampant	and	systemic	abuse	by	insurance	companies	reviewing	claims	under	group	

disability	insurance	policies	is	the	rule.		Ironically,	ERISA,	which	was	intended	to	

benefit	employees,	has	led	to	the	disparate	treatment.		The	primary	culprit	is	

discretionary	clauses	that	grant	an	insurance	company	or	administrator	the	

unrestricted	authority	to	determine	eligibility	for	benefits	and	to	interpret	terms	

and	provisions	of	the	policy,	contract	or	certificate.	

Discretionary	clauses	place	the	employee	at	a	disadvantage	in	any	

disagreement	over	the	meaning	of	the	insurance	contract,	usurp	the	role	of	the	

courts	in	deciding	a	matter	of	law,	that	is,	the	meaning	of	the	contract,	and	

exacerbate	the	insurer’s	inherent	conflict	of	interests	in	being	both	the	entity	that	

pays	and	decides	what	does	or	does	not	need	to	be	paid.		In	other	words,	the	

insurance	company	profits	increase	when	it	denies	and	terminates	claims.		As	noted	

by	the	Supreme	Court	in	Metlife	v.	Glenn,	554	U.S.	105,	128	S.Ct.	2343	(2008),	where	

an	insurer	both	determines	whether	an	employee	is	eligible	for	benefits	and	pays	

those	benefits	out	of	its	own	pocket,	there	is	a	conflict	of	interest.		This	conflict	

would	be	greatly	mitigated	by	prohibiting	discretionary	clauses.

Discretionary	clauses	are	unjust	and	contrary	State	laws	because	the	

deferential	standard	of	review	is	opposed	to	the	common	law	doctrine	that	

ambiguities	in	insurance	contracts	are	to	be	construed	in	favor	of	the	insured.		

Moreover,	discretionary	clauses	in	insurance	contracts	are	also	misleading	because	

policyholders	may	not	understand	from	reading	these	clauses	that	they	are	giving	

up	the	right	to	a	neutral,	merits-based	review	of	the	insurer’s	decisions	and	the	

meaning	of	the	policy,	and	that	the	insurer	as	a	practical	matter	could	proceed	with	

essentially	absolute	discretion	as	to	what	the	policy	means.

A	disability	or	health	insurance	policy	is	a	contract.		The	interpretation	of	a	

contract	is	a	matter	of	law	and	ordinarily	questions	of	law	are	for	the	judiciary	to	

decide.	In	a	court	action	on	a	contract,	such	as	when	an	insured	sues	an	insurer,	a	

court	looks	at	the	question	of	law	de	novo,	i.e.,	without	regard	for	how	the	contract	

might	have	been	initially	interpreted	by	the	insurer.		However,	when	a	discretionary	

clause	is	present,	it	largely	usurps	the	role	of	the	courts	because	they	are	required	to	

give	strong	deference	to	the	insurer’s	interpretation	of	the	contract	and	will	only	

overturn	the	insurer’s	view	if	the	court	finds	the	insurer’s	decision	was	arbitrary	

and	capricious.		This	leads	insurers	to	deny	and	terminate	claims	that	they	know	

should	be	approved.
Insurance	companies’	widespread	abuse	due	to	discretionary	clauses	

prompted	regulatory	authorities	to	take	action.		In	2002,	the	National	Association	of	

Insurance	Commissioners	(the	“NAIC”)	issued	a	model	act	entitled	“Prohibition	on	

the	Use	of	Discretionary	Clauses”	(the	“Model	Act”).		When	an	insurance	company	

issues	a	group	disability	policy,	a	discretionary	clause	grants	the	insurer	or	

administrator	the	authority	to	determine	eligibility	for	benefits	and	to	interpret	

terms	and	provisions	of	the	policy.		The	purpose	of	the	Model	Act	is	to	prohibit	

clauses	that	purport	to	reserve	discretion	to	the	insurer	to	interpret	the	terms	of	a	

disability	insurance	policy.

The	abuse	of	discretionary	authority	by	the	insurance	industry	became	so	

widespread	that	the	media	covered	the	issue.		On	October	13,	2002,	NBC	Dateline	

did	an	expose	called	“Benefit	of	the	Doubt”.[1]		The	story	described	how	Unum	

Provident,	the	largest	disability	insurance	provider,	had	systematically	manipulated	

and	created	evidence	in	order	to	create	excuses	to	deny	and	terminate	disability	

claims.		On	November	20,	2002,	CBS	60	Minutes	also	did	an	expose	on	Unum	called	

“Did	Insurer	Cheat	Disabled	Clients?”[2]			The	60	Minutes	piece	detailed	how	Unum	

forced	doctors	to	manufacture	evidence	as	a	means	to	deny	and	terminate	disability	

claims.

The	abuses	by	Unum	resulted	in	the	U.S.	Department	of	Labor	and	49	State	

Insurance	Departments	bringing	an	action	against	Unum	that	resulted	in	a	

regulatory	settlement	agreement.	Among	other	things,	Unum	was	forced	to	reassess	

hundreds	of	thousands	of	disability	claims	that	it	had	denied	or	terminated.		Since	

that	time,	a	blind	eye	has	been	turned	to	the	continued	abuses	by	insurers	of	group	

disability	policies	subject	to	ERISA.

In	what	is	already	a	contract	of	adhesion,	i.e.,	one	that	a	consumer	has	no	

choice	but	to	accept,	discretionary	clauses	skew	the	balance	of	power	even	further	

in	favor	of	the	insurer.		In	other	words,	the	subscriber	is	at	a	severe	disadvantage	in	

any	contest	over	questions	of	coverage,	eligibility	and	interpretations	and	

applications	of	the	provisions	of	the	contract	for	the	simple	reason	that	the	insurer	

included	a	discretionary	clause	in	the	contract.		However,	if	discretionary	clauses	

are	prohibited,	then	the	courts	apply	the	de	novo	standard	of	review,	and	are	free	to	

substitute	their	own	judgment	for	that	of	the	insurer.		If	a	matter	comes	to	court,	the	

consumer	faces	a	more	level	playing	field,	and	is	better	protected.

What	is	perhaps	most	affected	by	the	differing	standards	of	review	is	the	

mindset	of	the	insurers.		Under	the	“arbitrary	and	capricious”	standard	of	review,	

insurers	believe	that	they	can	refuse	to	pay	benefits	regardless	of	the	evidence	

employees	submit,	as	long	as	the	insurers	pay	their	doctors	to	manufacture	

contradictory	evidence.		Insurers	cannot	do	so	if	de	novo	standard	of	review	applies,	

where	a	court	determines	which	side’s	conflicting	evidence	is	better.		In	other	

words,	simply	requiring	a	level	playing	field	would	end	most	of	the	insurance	

industry’s	abuse	of	disabled	employees.		My	experience	has	shown	that	whenever	a	

court	rules	that	a	de	novo	standard	of	review	applies,	the	insurer	immediately	seeks	
to	settle	the	case,	which	is	a	tacit	admission	that	the	insurer	knew	its	decision	was	

wrong.

Conclusion:

The	proposed	regulations	should	be	implemented,	but	an	outright	ban	on	

discretionary	clauses	is	needed.

[1]	The	transcript	can	be	found	at:	

http://www.chattanoogan.com/2002/10/15/27804/Transcript-Of-Dateline-StoryOn-UnumProvident.aspx.

[2]	The	transcript	can	be	found	at:	http://www.cbsnews.com/2100-18560_162-

529376.html.