Find the right lawyer now

Insurance Policy Discretionary Clause

Find a Local Employment Lawyer near You

What Is an Insurance Policy Discretionary Clause?

When an insurance contract has a discretionary clause, the insurance company retains the right to interpret any unclear terms in the contract, including whether the policyholder is eligible for a payout in certain circumstances.

A discretionary clause gives the insurance company a lot of leeway to deny a benefits claim. If the policyholder goes to court, the discretionary clause in the insurance contract will likely stall and complicate the resolution of the legal claims.

Bans on Discretionary Clauses

Many states prohibit discretionary clauses because they give too much power to the insurance company. As of this article, about half the states ban use of discretionary clauses.

However, many insurance companies still place discretionary clauses in their insurance contracts. They may be just using a form contract meant for all states. The insurance company may also be hoping to enforce the clause before going to court (where it will like be invalidated).

Conflicts with Federal Law

When there is a conflict between state law and federal law, federal law preempts state law. For example, the Employee Retirement Income Security Act (ERISA) is a federal law that governs retirement benefits, including health and disability benefits. Under ERISA, discretionary clauses may still be valid. So, if there is a discretionary clause in an insurance policy that falls under ERISA, a discretionary clause may be upheld under the federal law, even when it is illegal under state law.

Should I Get an Attorney?

A qualified pensions and benefits lawyer can review your insurance agreement for any discretionary clauses. If a discretionary clause is not valid, an attorney will help you receive the compensation you deserve from your insurance policy.

Photo of page author Rachel Wenzel

, LegalMatch Legal Writer

Last Modified: 12-23-2013 03:55 PM PST

Law Library Disclaimer
  • No fee to present your case
  • Choose from lawyers in your area
  • A 100% confidential service
What is LegalMatch?

We've helped more than 4 million clients find the right lawyer – for free. Present your case online in minutes. LegalMatch matches you to pre-screened lawyers in your city or county based on the specifics of your case. Within 24 hours experienced local lawyers review it and evaluate if you have a solid case. If so, attorneys respond with an offer to represent you that includes a full attorney profile with details on their fee structure, background, and ratings by other LegalMatch users so you can decide if they're the right lawyer for you.