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.