Effective July 1, 2007, Hartford Life and the California Dept. of Insurance entered into a settlement regarding discretionary clauses. Under the terms of the settlement, Hartford Life agrees to stop using discretionary clauses in its long-term disability policies issued in California and substitute language specified in the agreement that describes how Hartford will determine eligibility for benefits.
The impact of this agreement extends far beyond Hartford Life because, under the terms of an agreement reached last year between a number of industry associations and the California Dept. of Insurance, the members of the associations agreed to abide by the outcome of the suit filed by Hartford Life against the California Dept. of Insurance when the Dept. attempted to force a number of insurers to stop using discretionary clauses.
Under case law related to the Employee Retirement Income Security Act of 1974, plans having discretionary clauses are only subject to judicial review to determine if the plan acted in an arbitrary and capricious manner. If a plan has no clause granting someone the discretion to interpret the terms of the plan, a court will substitute its own judgment for that of the plan administrator.