The Office of Financial and Insurance Regulation (OFIR) has issued rules prohibiting three types of nonconforming clauses found in insurance policies. Through consumer complaints, OFIR discovered that many policyholders were being harmed by these nonconforming clauses.

The rules prohibit insurers from inserting clauses into insurance policies that: 1) Exclude policyholders from disability coverage if they are denied social security benefits; 2) Include a blank endorsement that would allow the insurance company to unilaterally alter the terms a policy after it was in effect; 3) Require policyholders to travel out of their home county to arbitrate a disputed claim.

“Prohibiting these nonconforming clauses protect Michigan consumers by preventing insurance companies from sneaking clauses into their policies that unfairly burden Michigan consumers,” OFIR Commissioner Ken Ross said.

Beginning August 1, 2010, insurers were prohibited from using these nonconforming clauses in any new or revised insurance policy. By September 1, 2010, insurance companies must submit to OFIR a list of forms in use in Michigan that contain one or more of these nonconforming clauses, or a letter certifying that the company has no forms currently in effect containing any the clauses.

The complete definitions of these prohibited nonconforming clauses found in the rules are:

A definition of disability in a disability income policy that is more inclusive than the definition of disability used in social security act disability proceedings if the more inclusive definition ceases to apply when or if the policyholder is denied social security disability benefits.

A blank endorsement in connection with a personal insurance policy.

An arbitration provision that requires the insured to travel to a location outside the county of the insured's residence, unless the insured consents to another location after the arbitral dispute occurs.