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. 4-9 COMMITTEE AMENDMENT NO. 1 4-10 Amend SB 597 as follows: 4-11 On page 3, strike Section 8 and substitute the following: 4-12 Sec. 8. REQUIRED DISCLOSURE; ADOPTION OF RULES. (a) Each 4-13 licensed entity shall disclose fully to each of its policyholders, 4-14 contract holders or covered persons the requirements of this 4-15 article. 4-16 (b) The disclosure shall be forwarded to applicable 4-17 policyholders, contract holders or covered persons either: 4-18 (i) within 90 days following lapse of a policy 4-19 regulated by this Article 3.44d, or 4-20 (ii) within 90 days after the effective date of this 4-21 Act to each existing policyholder whose policy is regulated by this 4-22 Article 3.44d. Disclosure thereafter on policies issued after the 4-23 effective date of this Act may be made by including the disclosure 4-24 information in the policy or in an endorsement attached to the 4-25 policy. 4-26 (c) Notice will be deemed to be in compliance with this 4-27 article if mailed by first class mail to the last known address of 5-1 the policyholder or if contained in the policy form or as an 5-2 endorsement thereto. 5-3 (d) The commissioner of insurance shall adopt reasonable 5-4 rules to implement this article. Such disclosure must be made in 5-5 the form and manner prescribed by the commissioner after notice and 5-6 hearing. 5-7 Driver