1-1 By: Ratliff S.B. No. 597 1-2 (In the Senate - Filed February 16, 1995; February 16, 1995, 1-3 read first time and referred to Committee on Economic Development; 1-4 April 20, 1995, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 9, Nays 0; April 20, 1995, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 597 By: Harris 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to mandatory reinstatement of certain life insurance 1-11 policies in case of mental incapacity of an insured. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 SECTION 1. Chapter 3, Insurance Code, is amended by adding 1-14 Article 3.44d to read as follows: 1-15 Art. 3.44d. REINSTATEMENT OF CERTAIN POLICIES 1-16 Sec. 1. SCOPE OF ARTICLE. (a) This article applies to all 1-17 individual life insurance policies issued to residents of this 1-18 state that are subject to lapsing on and after the effective date 1-19 of this Act, issued by an insurer authorized to do business in this 1-20 state including stipulated premium companies and fraternal benefit 1-21 societies. 1-22 (b) This article does not apply to a life insurance policy 1-23 that provides nonforfeiture benefits in accordance with the 1-24 requirements of this code. 1-25 Sec. 2. REINSTATEMENT REQUIRED. (a) A policy shall be 1-26 entitled to reinstatement under this article if: 1-27 (1) it has been in effect continuously for at least 1-28 five years immediately preceding the lapse; 1-29 (2) it has been without default in the payment of 1-30 premiums during such period; and 1-31 (3) there is a subsequent unintentional default in 1-32 premium payments caused by mental incapacity of the insured. 1-33 (b) A policy shall be reinstated within one year from the 1-34 date of lapse if it is an eligible policy as described by this 1-35 section, on payment of arrears of premiums with interest. The rate 1-36 of interest may not exceed six percent per annum. 1-37 Sec. 3. MENTAL INCAPACITY. (a) For purposes of this 1-38 article, mental incapacity means lacking the ability, based on 1-39 reasonable medical judgment, to understand and appreciate the 1-40 nature and consequences of a decision regarding failure to pay a 1-41 premium when due and the ability to reach an informed decision in 1-42 the matter. 1-43 (b) Mental incapacity must be established by the clinical 1-44 diagnosis of a physician licensed in this state and qualified to 1-45 make the diagnosis. 1-46 Sec. 4. PROCEDURE FOR REINSTATEMENT. (a) A request for 1-47 reinstatement of coverage under this article and proof of mental 1-48 incapacity may be filed with the insurer by: 1-49 (1) the insured; 1-50 (2) the legal guardian of the insured; 1-51 (3) other legal representative of the insured; or 1-52 (4) the legal representative of the estate of the 1-53 insured. 1-54 (b) Proof of mental incapacity and an accompanying request 1-55 for reinstatement must be made not later than the first anniversary 1-56 date after the lapse of a policy eligible for reinstatement. 1-57 Sec. 5. EFFECT OF REINSTATEMENT. (a) After the 1-58 requirements of Section 4 have been satisfied, an insurer subject 1-59 to this article shall reinstate, without evidence of insurability, 1-60 coverage that has lapsed under the circumstances described by 1-61 Section 2. 1-62 (b) An insurer may require, as a condition of reinstatement, 1-63 payment of premiums plus interest owed for the period from the date 1-64 of initial lapse to the date of reinstatement. 1-65 (c) On reinstatement of the coverage, the original 1-66 contractual provisions apply as if coverage had been continuous and 1-67 without interruption. 1-68 Sec. 6. REDUCTION IN BENEFITS. An insurer shall pay the 2-1 amount of benefits owed under a policy that is eligible for 2-2 reinstatement under this article, reduced by the amount of premiums 2-3 and interest owed and unpaid on the date on which the benefits are 2-4 paid, if there is an uncontroverted claim for benefits that exceed 2-5 the amount of premiums and interest owed. 2-6 Sec. 7. EXCEPTION. An insurer is not required to reinstate 2-7 coverage or pay benefits under this article if the insured first 2-8 became mentally incapacitated after the expiration of an applicable 2-9 grace period contained in the policy. 2-10 Sec. 8. REQUIRED DISCLOSURE. Each licensed entity shall 2-11 disclose fully to each of its policyholders, contract holders, or 2-12 covered persons the requirements of this article following lapse of 2-13 each policy, contract, certificate, or other insurance coverage. 2-14 Such disclosure must be made in the form and manner prescribed by 2-15 the commissioner after notice and hearing. 2-16 SECTION 2. This Act takes effect September 1, 1995. 2-17 SECTION 3. The disclosure required by Section 8, Article 2-18 3.44d, Insurance Code, as added by this Act, shall be sent to 2-19 persons who are policyholders on the effective date of this Act 2-20 following lapse of the policy. A disclosure on a new policy issued 2-21 on or after the effective date of this Act may be made by including 2-22 the disclosure in the policy or endorsement thereto. 2-23 SECTION 4. The importance of this legislation and the 2-24 crowded condition of the calendars in both houses create an 2-25 emergency and an imperative public necessity that the 2-26 constitutional rule requiring bills to be read on three several 2-27 days in each house be suspended, and this rule is hereby suspended. 2-28 * * * * *