Maryland proposal would ban discretionary clauses in life, annuity and health contracts to strengthen consumer protections

House Bill 1069 would prohibit discretionary clauses in life insurance, annuities and health insurance policies. Discretionary clauses give insurers deference by asking courts to defer to an insurer’s interpretation of policy language when disputes arise.

Sponsor Delegate Cedric Warman framed the bill as a fairness measure, comparing discretionary clauses to rules written so one party decides how to interpret them. “This bill closes the loophole,” Warman said, adding that Maryland previously banned discretionary clauses for certain policies and that the proposal extends protection to other contract types.

David Lloyd, chief policy officer at Inseparable, testified that discretionary clauses have produced harmful outcomes in mental-health coverage disputes, citing the Wake v. United Behavioral Health litigation as an example where judge-ordered deference harmed enrollees. Jamie Sexton from the Maryland Insurance Administration said the agency supports the bill as a straightforward consumer-protection reform and noted that discretionary clauses remain permitted by law in some policy categories despite falling from common practice.

Supporters pointed to NAIC (National Association of Insurance Commissioners) model language and to more than 40 national organizations backing a prohibition on discretionary clauses. Proponents said the change would make contract disputes adjudicated on the contract language and facts rather than on insurers’ self-interpreted rules.

No vote was taken at the hearing. Sponsors and testifiers said the proposal codifies protections broadly adopted in practice and urged lawmakers to extend them uniformly to additional insurance products.

Why it matters: Eliminating discretionary clauses would reduce judicial deference to insurers in contract disputes and could make it easier for policyholders to challenge denials of benefits.

What comes next: The committee will consider the bill and any stakeholder input from life and annuity carriers before further action.