By: Ratliff S.B. No. 597
A BILL TO BE ENTITLED
AN ACT
1-1 relating to mandatory reinstatement of certain life insurance
1-2 policies in case of mental incapacity of an insured.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 3, Insurance Code, is amended by adding
1-5 Article 3.44d to read as follows:
1-6 Art. 3.44d. REINSTATEMENT OF CERTAIN POLICIES
1-7 Sec. 1. SCOPE OF ARTICLE. (a) This article applies to all
1-8 individual life insurance policies issued to residents of this
1-9 state that are subject to lapsing on and after the effective date
1-10 of this Act, issued by an insurer authorized to do business in this
1-11 state including stipulated premium companies and fraternal benefit
1-12 societies.
1-13 (b) This article does not apply to a life insurance policy
1-14 that provides nonforfeiture benefits in accordance with the
1-15 requirements of this code.
1-16 Sec. 2. REINSTATEMENT REQUIRED. (a) A policy shall be
1-17 entitled to reinstatement under this article if:
1-18 (1) it has been in effect continuously for at least
1-19 five years immediately preceding the lapse;
1-20 (2) it has been without default in the payment of
1-21 premiums during such period; and
1-22 (3) there is a subsequent unintentional default in
1-23 premium payments caused by mental incapacity of the insured.
1-24 (b) A policy shall be reinstated within one year from the
2-1 date of lapse if it is an eligible policy as described by this
2-2 section, on payment of arrears of premiums with interest. The rate
2-3 of interest may not exceed six percent per annum.
2-4 Sec. 3. MENTAL INCAPACITY. (a) For purposes of this
2-5 article, mental incapacity means lacking the ability, based on
2-6 reasonable medical judgment, to understand and appreciate the
2-7 nature and consequences of a decision regarding failure to pay a
2-8 premium when due and the ability to reach an informed decision in
2-9 the matter.
2-10 (b) Mental incapacity must be established by the clinical
2-11 diagnosis of a physician licensed in this state and qualified to
2-12 make the diagnosis.
2-13 Sec. 4. PROCEDURE FOR REINSTATEMENT. (a) A request for
2-14 reinstatement of coverage under this article and proof of mental
2-15 incapacity may be filed with the insurer by:
2-16 (1) the insured;
2-17 (2) the legal guardian of the insured;
2-18 (3) other legal representative of the insured; or
2-19 (4) the legal representative of the estate of the
2-20 insured.
2-21 (b) Proof of mental incapacity and an accompanying request
2-22 for reinstatement must be made not later than the first anniversary
2-23 date after the lapse of a policy eligible for reinstatement.
2-24 Sec. 5. EFFECT OF REINSTATEMENT. (a) After the
2-25 requirements of Section 4 have been satisfied, an insurer subject
2-26 to this article shall reinstate, without evidence of insurability,
2-27 coverage that has lapsed under the circumstances described by
3-1 Section 2.
3-2 (b) An insurer may require, as a condition of reinstatement,
3-3 payment of premiums plus interest owed for the period from the date
3-4 of initial lapse to the date of reinstatement.
3-5 (c) On reinstatement of the coverage, the original
3-6 contractual provisions apply as if coverage had been continuous and
3-7 without interruption.
3-8 Sec. 6. REDUCTION IN BENEFITS. An insurer shall pay the
3-9 amount of benefits owed under a policy that is eligible for
3-10 reinstatement under this article, reduced by the amount of premiums
3-11 and interest owed and unpaid on the date on which the benefits are
3-12 paid, if there is an uncontroverted claim for benefits that exceed
3-13 the amount of premiums and interest owed.
3-14 Sec. 7. EXCEPTION. An insurer is not required to reinstate
3-15 coverage or pay benefits under this article if the insured first
3-16 became mentally incapacitated after the expiration of an applicable
3-17 grace period contained in the policy.
3-18 Sec. 8. REQUIRED DISCLOSURE. Each licensed entity shall
3-19 disclose fully to each of its policyholders, contract holders, or
3-20 covered persons the requirements of this article following lapse of
3-21 each policy, contract, certificate, or other insurance coverage.
3-22 Such disclosure must be made in the form and manner prescribed by
3-23 the commissioner after notice and hearing.
3-24 SECTION 2. This Act takes effect September 1, 1995.
3-25 SECTION 3. The disclosure required by Section 8, Article
3-26 3.44d, Insurance Code, as added by this Act, shall be sent to
3-27 persons who are policyholders on the effective date of this Act
4-1 following lapse of the policy. A disclosure on a new policy issued
4-2 on or after the effective date of this Act may be made by including
4-3 the disclosure in the policy or endorsement thereto.
4-4 SECTION 4. The importance of this legislation and the
4-5 crowded condition of the calendars in both houses create an
4-6 emergency and an imperative public necessity that the
4-7 constitutional rule requiring bills to be read on three several
4-8 days in each house be suspended, and this rule is hereby suspended.