HB3960 - Relating to the effect of certain misrepresentations on certain insurance policies.

      By: Paul H.B. No. 3960       A BILL TO BE ENTITLED   AN ACT   relating to the effect of certain misrepresentations on certain   insurance policies.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  The heading to Chapter 705, Insurance Code, is   amended to read as follows:   CHAPTER 705.  MISREPRESENTATIONS BY POLICYHOLDERS OR APPLICANTS          SECTION 2.  Section 705.002, Insurance Code, is amended to   read as follows:          Sec. 705.002.  APPLICABILITY OF SUBCHAPTER.   (a)   Except as   provided by Sections [ Section ] 705.005 and 705.105 , this subchapter   applies to each insurance policy issued or contracted for in this   state.           (b)     To the extent of a conflict between this subchapter and   a life insurance policy governed under Subchapter C, Subchapter C   controls.          SECTION 3.  Subchapter A, Chapter 705, Insurance Code, is   amended by adding Section 705.0025 to read as follows:           Sec.   705.0025.     EFFECT OF CHAPTER ON COMMON LAW. To the   extent of a conflict between this chapter and common law on the   impact of a misrepresentation in an application for insurance, this   chapter controls.          SECTION 4.  Section 705.003(b), Insurance Code, is amended   to read as follows:          (b)  Subsection (a) does not apply if the trier of fact   determines  [ it is shown at trial that ] the misrepresentation:                (1)  was fraudulently made;                (2)  misrepresented a fact material to the question of   the insurer's liability under the policy; and                (3)  misled the insurer and caused the insurer to waive   or lose a valid defense to the policy.          SECTION 5.  Sections 705.004(a) and (b), Insurance Code, are   amended to read as follows:          (a)   Except as provided by Section 705.1045 for a   contestability provision in a life insurance policy, an [ An ]   insurance policy provision that states that false statements made   in the application for the policy or in the policy make the policy   void or voidable:                (1)  has no effect; and                (2)  is not a defense in a suit brought on the policy.          (b)  Subsection (a) does not apply if the trier of fact   determines  [ it is shown at trial that ] the matter misrepresented:                (1)  was material to the risk; or                (2)  contributed to the contingency or event on which   the policy became due and payable.          SECTION 6.  Section 705.051, Insurance Code, is amended to   read as follows:          Sec. 705.051.  IMMATERIAL MISREPRESENTATION IN LIFE,   ACCIDENT, OR HEALTH INSURANCE APPLICATION. A misrepresentation in   an application for a life, accident, or health insurance policy   does not defeat recovery under the policy and is not a basis for   rescission unless the misrepresentation:                (1)  is of a material fact; and                (2)  affects the risks assumed.          SECTION 7.  Sections 705.101, 705.102, and 705.104,   Insurance Code, are amended to read as follows:          Sec. 705.101.  DEFINITION. In this subchapter, "insurance   policy" means a contract or policy of life insurance.          Sec. 705.102.  APPLICABILITY OF SUBCHAPTER. This subchapter   applies to any life insurance policy issued or contracted for in   this state.          Sec. 705.104.  MISREPRESENTATION IN APPLICATION FOR LIFE   INSURANCE. A defense based on a misrepresentation in the   application for, or in obtaining, a life insurance policy on the   life of a person in or residing in this state is not valid or   enforceable in a suit brought on the policy on or after the second   anniversary of the date of issuance of the policy if premiums due on   the policy during the preceding two years have been paid to and   received by the insurer, unless:                (1)  the insurer has notified the insured or, if the   insured is deceased, each beneficiary of the insured of the   insurer's intention to rescind the policy because of the   misrepresentation; or                (2)   the trier of fact determines  [ it is shown at the   trial that ] the misrepresentation was:                      (A)  material to the risk; and                      (B)  intentionally made.          SECTION 8.  Subchapter C, Chapter 705, Insurance Code, is   amended by adding Section 705.1045 to read as follows:           Sec.   705.1045.     MISREPRESENTATIONS IN APPLICATIONS FOR LIFE   INSURANCE POLICIES IN EFFECT NOT MORE THAN TWO YEARS. (a)   In this   section, "misrepresentation" includes a false statement, omission,   or other error in an application for a life insurance policy that   materially impacts the insurer's decision to issue the policy to   the applicant.           (b)     An insurer may rescind or terminate a life insurance   policy before the second anniversary of the date of the issuance of   the policy based on a misrepresentation if:                   (1)  the misrepresentation:                       (A)  is material to the risk; and                         (B)  affects the risks assumed; and                 (2)  the premium paid by the insured is refunded.           (c)     Proof of fraud or intent is not required to terminate a   life insurance policy if the policy contains a contestability   provision allowing the insurer to contest a misrepresentation in   the application before the second anniversary of the date of the   issuance of the policy.           (d)     An insurer must provide notice of rescission or   termination not later than the 90th day after the date the insurer:                 (1)  discovered the misrepresentation; and                   (2)  provided notice of the misrepresentation to:                         (A)  the insured; or                       (B)     if the insured is deceased, the owners or   beneficiaries of the policy.          SECTION 9.  Section 705.105, Insurance Code, is amended to   read as follows:          Sec. 705.105.  APPLICABILITY OF OTHER LAW. Subchapter A   does not apply to a life insurance policy:                (1)  that contains a provision making the policy   incontestable by the insurer for a material misrepresentation in   the application for insurance before the second anniversary of the   date of the issuance of the policy [ after two years or less ]; and                (2)  on which premiums have been [ duly ] paid.          SECTION 10.  Chapter 705, Insurance Code, as amended by this   Act, applies only to an insurance policy delivered, issued for   delivery, or renewed on or after January 1, 2026.  An insurance   policy delivered, issued for delivery, or renewed before January 1,   2026, is governed by the law as it existed immediately before the   effective date of this Act, and that law is continued in effect for   that purpose.          SECTION 11.  This Act takes effect September 1, 2025.