BILL ANALYSIS
S.B. 597
By: Ratliff (Driver)
05-10-95
Committee Report (Amended)
BACKGROUND
Currently, there are no protections in Texas law for an
elderly person who fails to maintain premium payments on life or
health insurance policies due to a loss of mental capacity.
PURPOSE
S.B. 597 provides for the mandatory reinstatement of certain
life insurance policies in case of mental incapacity of an insured.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does grant
additional rulemaking authority to the Insurance Commissioner under
SECTION 1 of the bill by amending Chapter 3, Insurance Code by
Adding Article 3.44d, Sec. 8 (d).
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 3, Insurance Code, by adding Article
3.44d, as follows:
Art. 3.44d. REINSTATEMENT OF CERTAIN POLICIES
Sec. 1. SCOPE OF ARTICLE. (a) Provides that this article
applies to all individual life insurance policies issued to
residents of this state that are subject to lapsing on and
after the effective date of this Act issued by an insurer
authorized to do business in this state including stipulated
premium companies and fraternal benefit societies.
(b) Provides that this article does not apply to a life
insurance policy that provides nonforfeiture benefits in
accordance with the requirements of this code.
Sec. 2. REINSTATEMENT REQUIRED. (a) Requires a policy to be
entitled to reinstatement under this article if it:
(1) has been in effect continuously for at least five
years immediately preceding the lapse;
(2) has been without default in the payment of premiums
during such period; and
(3) there is a subsequent unintentional default in premium
payments caused by a mental incapacity of the insured.
(b) Requires a policy to be reinstated within one year from
the date of lapse if it is an eligible policy as described
by this section, on payment of arrears of premiums with
interest. Prohibits the rate of interest from exceeding six
percent per annum.
Sec. 3. MENTAL INCAPACITY. (a) Provides that for purposes of
this article, mental incapacity means lacking the ability,
based upon reasonable medical judgment, to understand and
appreciate the nature and consequences of a decision regarding
failure to pay a premium when due and the ability to reach an
informed decision in the matter.
(b) Requires a mental incapacity to be established by the
clinical diagnosis of a physician licensed in this state and
qualified to make the diagnosis.
Sec. 4. PROCEDURE FOR REINSTATEMENT. (a) Authorizes a request
for reinstatement of coverage under this article and proof of
mental incapacity to be filed with the insurer by certain
persons.
(b) Requires the proof of mental incapacity and accompanying
request for reinstatement to be made no later than the first
anniversary date after lapse of a policy eligible for
reinstatement.
Sec. 5. EFFECT OF REINSTATEMENT. (a) Requires an insurer
subject to this article, after the requirements of Section 4
of this article have been satisfied, to reinstate, without
evidence of insurability, coverage that has lapsed under the
circumstances described by Section 2.
(b) Authorizes an insurer to require, as a condition of
reinstatement, payment of premiums plus interest owed for
the period from the date of initial lapse to the date of
reinstatement.
(c) Provides that on reinstatement of the coverage, the
original contractual provisions apply as if coverage had
been continuous and without interruption.
Sec. 6. REDUCTION IN BENEFITS. Requires an insurer to pay the
amount of benefits owed under a policy that is eligible for
reinstatement under this article, reduced by the amount of
premiums and interest owed and unpaid on the date on which the
benefits are paid, if there is an uncontroverted claim for
benefits that exceed the amount of premiums and interest owed.
Sec. 7. EXCEPTION. Provides that an insurer is not required to
reinstate coverage or pay benefits under this article if the
insured first became mentally incapacitated after the
expiration of an applicable grace period contained in the
policy.
Sec. 8. REQUIRED DISCLOSURE. Requires each licensed entity to
disclose fully to each of its policyholders, contract holders,
or covered persons the requirements of this article following
lapse of each policy, contract, certificate or other insurance
coverage. Requires such disclosure to be made in the form and
manner prescribed by the commissioner after notice and
hearing. Delegates rulemaking authority to the Insurance
Commissioner.
SECTION 2. Effective date: September 1, 1995.
SECTION 3. Requires the disclosure required by Section 8 of Article
3.44d, Insurance Code, as added by this Act, to be sent to persons
who are policyholders on the effective date of this Act following
lapse of a policy. Authorizes a disclosure on a new policy issued
on or after the effective date of this Act to be made by including
the disclosure in the policy or endorsement thereto.
SECTION 4. Emergency clause.
EXPLANATION OF AMENDMENTS
The amendment to S.B. 597 substitutes a new Sec. 8 by
requiring a licensed entity to fully disclose to each of its
policyholders, contract holders, or covered persons the
requirements of Article 3.44d, Insurance Code. The disclosure
shall be within 90 days following the lapse of the policy or within
90 days of the effective date of this Act. Policies issued after
the effective date of this Act may include the disclosure
information or an endorsement may be attached to the policy. The
amendment provides a compliance clause and delegates rulemaking
authority to the Insurance Commissioner.
SUMMARY OF COMMITTEE ACTION
In accordance with House rules, S.B. 597 was heard in a public
hearing on May 10, 1995. The Chair laid out S.B. 597 and an
amendment by Representative Driver. The Chair recognized
Representative to explain the bill and amendment. Representative
Driver moved the Committee adopt the amendment to S.B. 597. The
Chair heard no objections and the amendment was adopted.
The Chair recognized Representative Averitt who moved the
Committee report S.B. 597 as amended to the full House with the
recommendation that it do pass, be printed, and be sent to the
Committee on Local and Consent. The motion prevailed by the
following vote: AYES: (7); NAYES: (0); PNV: (0); ABSENT (2).