Governor Schwarzenegger Vetos AB 1868 – Insurance Companies Benefit, the Public Suffers

Some things make no sense. Consider the following where a bill to protect California consumers passes the legislature by an overwhelming majority, has no adverse fiscal impact on the State whatsoever, yet get’s vetoed by the Governor with an explanation that cannot be justified….

FOR IMMEDIATE RELEASE Sept. 30, 2010
Contact: Chris Shultz, 916-319-2009 office, 916-601-2521 mobile
Dave Jones’ legislation to ban “discretionary clauses” in life and disability insurance policies vetoed by Governor
Veto maintains playing field tilted against consumers

SACRAMENTO – Today the Governor vetoed legislation by Assemblymember Dave Jones (D-Sacramento) to help injured workers get a fair hearing when fighting insurance companies in court.

Assembly Bill 1868 would have banned discretionary clauses in life and disability insurance policies, and leveled the playing field between insurance companies and consumers by ensuring that individuals who have been denied benefits by their insurance companies get a fair hearing in court.

“These discretionary clauses reserve authority to insurance companies to determine benefits and policy interpretation,” said Jones. “Prohibiting discretionary clauses would have leveled the playing field between insurance companies and consumers by simply ensuring that individuals who have been denied benefits by their insurance companies get a fair hearing in court. Once again, the Governor sides with insurance companies and against reform.”

Discretionary clauses reserve authority to insurance companies to determine benefits and policy interpretation. Inclusion of these clauses in insurance policies has the effect of lessening the intensity of judicial review in claims denial cases to an “abuse of discretion” standard, which is an insurmountable standard for consumers to meet.

Under current law, insurance company decisions to deny benefits are upheld as long as they are grounded in any reasonable basis, even when a judge is convinced the plaintiff is in fact disabled. This is in direct conflict with a basic principle of California law that contracts are interpreted against the drafter, and not against unsophisticated consumers who do not have the opportunity to bargain for favorable terms in their employer-provided insurance policies.

The State Senate approved the bill 23-12 and the bi-partisan vote in the Assembly was 64-11.

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