SECTION 3.5106. Prohibited Provisions and Practices

(a) The policy or certificate of insurance shall not contain provisions which would encourage misrepresentation or are unjust, unfair, inequitable, misleading, deceptive, or contrary to law or to the public policy of this state. A policy, certificate of insurance, notice of proposed insurance, application for insurance, endorsement, and rider filed with the commissioner shall be presumed to be unjust, unfair, inequitable, misleading, deceptive, or to encourage misrepresentation unless:

(1) printed material is in 10-point type;

(2) each policy or certificate of insurance contains provisions substantially as follows.

(A) Grace period. A grace period of 31 days shall be granted to the policyholder or premium payor for the payment of each premium falling due after the first premium. During the grace period, the coverage shall continue in force unless the policyholder or premium payor shall have given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. If the insured shall die during the grace period, the overdue premium may be deducted in any settlement made under the policy.

(B) Entire contract. The policy and any application shall constitute the entire contract between the parties. (This requirement is an optional provision for certificates of insurance.)

(C) Representations by insureds. In the absence of fraud, all statements made by the policyholders or the persons insured shall be deemed representations and not warranties.

(D) Incontestability.

(i) For individual coverage, the policy shall be incontestable after it has been in force during the lifetime of the insured for two years from its date, except for nonpayment of premium. No material misstatement made by the applicant in the application for the policy shall be used to contest the validity of the policy, during the contestable period, unless the misstatement is contained in a written statement signed by the applicant, and a copy of the statement is furnished to the applicant or to his beneficiary. Companies may elect to provide an additional statement to clarify that fraudulent misstatements regarding credit disability coverage may be contested without regard to the two-year time limitation.

(ii) For group coverage, the validity of the policy shall not be contested by the insurer, except for nonpayment of premiums, after it has been in force for two years from its date of issue. No statement made by any person insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person's lifetime and unless it is contained in a written instrument signed by him, a copy of which instrument has been furnished to such person or to his beneficiary. Companies may elect to provide an additional statement to clarify that fraudulent misstatements regarding credit disability which are made by the persons insured under the policy coverage may be contested without regard to the two-year time limitation.

(E) Misstatement of age. If the age of the debtor has been misstated, and according to the correct age the debtor would not have been eligible for insurance coverage, the company shall specify the method of adjustment to be used. If coverage is inadvertently issued to a debtor who correctly stated his age and his age exceeds the eligibility age, the insurer has the right, within 90 days of the effective date of coverage, to terminate the coverage and refund the full charge for insurance, provided such termination is accomplished and the appropriate refund is made prior to the incurred date of a claim; otherwise, the coverage remains in full force.

(F) Death benefit claims. When a policy shall become a claim by the death of the insured, settlement shall be made upon receipt of or not later than two months after receipt of due proof of death and the right of the claimant to the proceeds.

(G) Notice of disability claims. Written notice of a claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon as is reasonably possible.

(H) Disability claim forms. The insurer will furnish to the person making claim, or to the policyholder for delivery to such person, such forms as are usually furnished by it for filing proof of loss. If such forms are not furnished before the expiration of 15 days after the insurer receives notice of any claim under the policy, the person making such claim shall be deemed to have complied with the requirements of the policy as to proof of loss upon submitting, within the time fixed in the policy for filing proof of loss, written proof of the occurrence, character, and extent of the loss for which claim is made.

(I) Proofs of loss (disability). Written proof of loss must be furnished to the insurer within 90 days after the commencement of the period for which the insurer is liable. Subsequent written proofs of the continuation of such disability must be furnished to the insurer at such intervals as the insurer may reasonably require. Failure to furnish proof within such time shall not invalidate or reduce any claim if it was not reasonably possible to furnish proof within such time, provided proof is furnished as soon as reasonably possible; but in no event, except in the absence of legal capacity of the claimant, later than one year from the time proof is otherwise required.

(J) Disability claim payments. Benefits payable under the policy for any loss other than loss for which the policy provides any periodic payment will be paid upon receipt of due written proof of such loss. Subject to due written proof of loss, all accrued benefits payable for loss for which the policy provides periodic payment shall be paid _____ (insert period for payment as provided in the policy) during the continuance of the period for which the insurer is liable, and any balance remaining unpaid at the termination of such period shall be paid after receipt of due written proof.

(K) Physical examinations and autopsy. The insurer, at its own expense, shall have the right and opportunity to examine the person of the insured when and as often as it may reasonably require during the pendency of a claim hereunder and to make an autopsy in case of death where it is not forbidden by law.

(L) Legal action. Policy provisions related to legal action must comply with the statutes applicable to the policy.

(b) No provisions in an individual policy or group certificate of insurance pertaining to underwriting rules, conditions of eligibility or issuance, or maximum amounts or terms of insurance may, except as provided in subsection (a)(2)(D) or (E) of this section, be used as the basis for termination or reduction of coverage or the denial of claims.

(1) If the policy or certificate of insurance contains limitations on the maximum amount or term of insurance, the form shall state that if coverage is issued in excess of those limits, the insurer has the right, within 90 days of the effective date of coverage, to reduce the excess coverage and refund the charge for the excess insurance, provided such adjustment is accomplished and the refund is made prior to the incurred date of a claim; otherwise, the coverage remains in force as originally issued.

(2) A policy or certificate of insurance issued in connection with open-end transactions may contain provisions limiting the maximum amount of insurance which may become effective thereunder, and may contain provisions for automatic termination of coverage upon the attainment of a specific age.

(c) No credit accident and health insurance policy or certificate may contain a provision which allows an elimination period or waiting period of less than 14 days before disability coverage shall become payable.

Source Note: The provisions of this §3.5106 adopted to be effective October 1, 1980, 5 TexReg 2772; amended to be effective June 30, 1992, 17 TexReg 4345.