C'mon, NY, Just Do It Already

 We finally have the behemoth of the New York State Department of Insurance moving and, in the right direction.

But, don’t start the celebration too early. Once before, we had the New York Department ‘gung ho’ to “level the playing field” only to have it fall asleep while trying to come up with an actual regulation to protect disabled claimants against the hated ‘discretionary clause’ which unfairly sinks so many disability claimants.

The New York Department has proposed a new regulation No. 184 to try to level the playing field between ERISA disability income claimants and their insurance companies. Presently insurance companies decide whether ERISA disability income claims are compensable, then have to pay the claims if they are. So, take a guess at which way the insurers lean in deciding a claim.

In 2005, the New Jersey Law Journal published an op-ed piece by this writer that called on the State of New Jersey to do something about the discretionary clause in policies written in that state. That piece ultimately resulted in regulations NJAC 11:4-58-1-4 that were approved and became the law of New Jersey on January 1, 2008. From that point on, New Jersey citizens received the evenhanded ERISA claim protection they deserved.

About 20 of the 50 states have already banned the use of the discretionary clause as of this date.

In 2006, the New York Department of Insurance also decried the unfairness of the discretionary clause in ERISA disability income insurance policies (Circular Letter 8) and vowed to do something about it. The New York Department, although requesting comments and proposing a regulation (Circular Letter 14), unexpectedly withdrew the proposal without comment in 2006. From that time on, there hasn’t been a peep from the Department about such a regulation until this latest proposal.

Not that there were not calls during this period for a discretionary ban to be enacted. We take great pride in being somewhat of a catalyst in this discretionary clause regulation battle in both states. See my 2009 op-ed in the New York Law Journal.

There was no satisfactory response from the Insurance Department until the proposed latest regulation which, if approved, will become law in the state. Should it become law, no longer will New York residents be at the mercy of insurance company’s holding all of the cards when deciding whether or not to pay a disability income claim.

Without an approved regulation, we had always felt no court could legally recognize the state’s declared antipathy to the discretionary clause, no matter how vehemently the clause was denounced.

And, wouldn’t you know, it happened in one of our cases, Barnes v. American International, 681 F. Supp. 2d (S.D.N.Y. 2010). See excerpt. Fortunately, there were other factors in the case which overcame the disadvantages of the discretionary clause and our client prevailed and received her benefits.

However, if the facts weren’t overwhelmingly in our client’s favor in that case, another New Yorker would have been deprived of equal rights because of the discretionary clause..

We applaud the New York State Department of Insurance for finally getting around to proposing a pertinent regulation which will protect its citizens and do away with the advantage ERISA law gives disability income insurers.

But, based upon recent history, we are going to hold our breath until New York actually formally approves the regulation for its citizens and makes it law.

For too long New York State has been just “talking the talk” on banning the discretionary clause.  It’s high time for New York State to “walk the walk”.