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).