The Edge Series - Part I: What is "Discretionary Authority Language?"
The lawyers in our firm are focused on helping people with disability policies and ERISA claims. We want to give you the edge in understanding your policy. Today, we want to help you understand what the term "discretionary authority" means in your disability policy.
Discretionary authority is legal language often found in group disability policies, such as those offered in the workplace. It refers to the fact that the insurance company has the right to determine the meaning of the policy and to interpret the facts provided to it as to whether the claimant is due to receive benefits.
The legal effect of this largely depends on whether federal law governs the claim or not. If state law governs, the clause means little. If ERISA or some other federal law governs the claim, then Courts find that the clause requires that deference is given to the decision of the insurance company. What does that mean?
That means if the insurance company is wrong, the decision nonetheless will still be upheld by the Court if there is some reasonable basis to that wrong decision. That sounds crazy, doesn't it? Even worse, it isn't fair.
If the insurance company can be wrong but still win in Court, then there is great incentive for them to deny claims.
They can almost always furnish some reasonable basis for any wrong decision, such as finding a mistake in the medical records or obtaining an opinion from its own physician that favors their opinion. This frustrates many people. Many states have outlawed discretionary clauses, but some states have not. This clause is one of the most unfair and unreasonable provisions in a policy.