Principal’s Discretionary Clause Invalid in Washington State

A federal judge in Washington declined to enforce an “unreasonable and deceptive” contract clause that granted Principal Life Insurance Co. discretionary authority to deny benefits eligibility to participants and beneficiaries (Flaaen v. Principal Life Ins. Co., 2016 BL 428106, W.D. Wash., 3:15-cv-05899, 12/22/16).

“The national trend is to ban such clauses,” Judge Benjamin H. Settle said Dec. 22 in his decision granting partial summary judgment to a participant in a long-term disability plan whose benefits were denied by Principal. The Washington insurance commissioner has said that discretionary clauses are “prohibited because they unreasonably or ...