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 * * * * *