SECTION 3.3057. Standards for Exceptions, Exclusions, and Reductions Provision

(a) An exception or exclusion is any provision in a policy whereby coverage for a specified hazard in entirely eliminated. It is a statement of a risk not assumed under the terms and provisions of the contract. Extensive listing of diseases to be excluded will not be acceptable unless the insurer can show that such are necessary and proper to the coverage provided.

(b) A reduction is a provision which takes away some portion, but not all of the coverage of the policy under certain specific conditions. Such relates to a risk assumed by the insurer but payment upon the occurrence of such loss is limited to some amount or period less than would be otherwise payable had such reduction clause not been used.

(c) Exceptions, exclusions, and reductions must be clearly expressed as a part of the benefit provision to which such applies or, if applicable to more than one benefit provision, must be set forth as a separate provision and appropriately captioned. Policies containing the specified exclusionary subjects appearing in Exhibit A will be acceptable; however, this may not preclude the consideration or approval of other exceptions or exclusions if such are deemed reasonable and appropriate to the risk undertaken and are approved by the commissioner. Exhibit A is adopted herein by reference. Copies of Exhibit A may be obtained by contacting the Texas Department of Insurance, Life and Health Division, Filings Intake, MC-LH-LHL, P.O. Box 12030, Austin, Texas 78711-2030, or by accessing the department's website at www.tdi.texas.gov/forms.

(d) The acceptable exclusions set forth in Exhibit A may not impair or limit the use of waivers to exclude, limit, or reduce coverage or benefits for named or specifically described pre-existing disease, physical condition, or extra hazardous activity. If waivers are required as a condition of issuance, renewal, or reinstatement, signed acceptance by the insured is required unless on initial issuance the full text of the waiver is contained either on the first page or specification page of the policy or unless notice of the waiver appears on the first page or specification page.

(e) If a policy contains a military service exclusion or a provision suspending coverage during military service, and if the premiums are either reduced or refunded for the period of such military service, such must be clearly stated in the policy.

(1) As to coverage that is not noncancellable, subject to limited renewability at option of the insured or subject to a limited guarantee of renewability:

(A) if the policy contains a "status" type of exclusion which excludes all coverages applicable to an insured person while in military service on full-time active duty, the policy must provide, upon receipt of written request, for refund of premiums as applicable to such person on a pro rata basis;

(B) if the policy contains a "causation" type exclusion (loss resulting from military service) while an insured person is on full-time active duty in the military, refund of premium is not required since the policy would be operative as to any other loss not resulting from military service causes;

(C) if a policy contains a provision for voluntary suspension of coverage during military service and an identifiable premium is charged for such coverage upon written request for suspension, a pro rata premium must be refunded.

(2) As to coverage that is noncancellable, subject to limited renewability at option of the insured or a limited guarantee of renewability:

(A) the policy may provide for refund of the entire premium for the period of military service or for a partial refund of the premium from the date the insurer receives notice and it may adjust any such refund for any change in reserves during the period of suspension;

(B) the policy may contain a military service exclusion or a provision for suspension of coverage upon entry into military service with the right of reinstatement upon termination of such service without evidence of insurability, if applied for within a specified period of not less than 60 days;

(C) the insurer may charge a partial premium during the period of suspension which will anticipate accumulation of reserves required by law or regulation and related cost factors.

Source Note: The provisions of this §3.3057 adopted to be effective January 26, 1977, 2 TexReg 159; amended to be effective December 7, 1983, 8 TexReg 4858; amended to be effective December 22, 1997, 22 TexReg 12503; amended to be effective May 11, 2022, 47 TexReg 2758