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Bill Number: 3401 Ratification Number: 538 Act Number 482 Introducing Body: House Subject: Incontestability of individual life insurance policies and exceptions
(A482, R538, H3401)
AN ACT TO AMEND SECTION 38-63-220, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE INCONTESTABILITY OF INDIVIDUAL LIFE INSURANCE POLICIES AND EXCEPTIONS THERETO, SO AS TO PROVIDE FOR THE REQUIRED CONTENTS OF THESE POLICIES; TO AMEND ARTICLE 1, CHAPTER 63, TITLE 38, RELATING TO INDIVIDUAL LIFE INSURANCE POLICIES, BY ADDING SECTION 38-63-60 SO AS TO DEFINE WHAT CONSTITUTES "INDUSTRIAL LIFE INSURANCE" AND TO PROVIDE THAT NO POLICY OF LIFE INSURANCE DELIVERED OR ISSUED FOR DELIVERY IN SOUTH CAROLINA MAY USE INDUSTRIAL MORTALITY TABLES UNLESS THE POLICY IS AN INDUSTRIAL LIFE INSURANCE POLICY, AND BY ADDING SECTION 38-63-90 SO AS TO PROVIDE THAT A LIFE INSURER IS LIABLE FOR ATTORNEY FEES IF HE REFUSES TO PAY CERTAIN CLAIMS WITHOUT REASONABLE CAUSE OR IN BAD FAITH; TO AMEND ARTICLE 3, CHAPTER 63, TITLE 38, RELATING TO INDIVIDUAL LIFE INSURANCE, BY ADDING SECTION 38-63-225 SO AS TO REGULATE THE USE OF CERTAIN SUICIDE AND DEATH EXCLUSIONS AND RESTRICTIONS IN THESE POLICIES; TO AMEND ARTICLE 1, CHAPTER 65, TITLE 38, RELATING TO GROUP LIFE INSURANCE BY ADDING SECTION 38-65-120 SO AS TO PROVIDE THAT WHEN A GROUP LIFE INSURANCE POLICY PROVIDES FOR PAYMENT OF ITS PROCEEDS IN A LUMP SUM UPON THE DEATH OF AN INSURED AND THE INSURER FAILS TO PAY THE PROCEEDS WITHIN THIRTY DAYS OF SUBMISSION OF PROOF OF DEATH, THE PAYMENT MUST INCLUDE INTEREST AT THE LEGAL RATE OF INTEREST FROM THE DATE OF DEATH OF THAT INSURED UNTIL THE DATE THE CLAIM IS PAID; AND TO REPEAL SECTION 38-63-230 RELATING TO LIMITATIONS ON PROCEEDINGS TO CONTEST LIFE INSURANCE POLICIES.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Section 38-63-220, as added by Act 155 of 1987, is amended to read:
"Section 38-63-220. All individual life insurance policies must contain in substance the following:
(a) A brief and correct description of its benefits on the lower portion of its first page and an identifying form number on the lower left hand corner of its first page.
(b) A provision stating clearly, understandably, and conspicuously on the first page that the policyholder is permitted to return the policy within a period of not less than ten days of its delivery to the policyholder. If replacement of insurance is involved, the policyholder is permitted to return the policy within a period of not less than twenty days of its delivery to the policyholder. If the policy was solicited by a direct response insurer rather than through a licensed insurance agent, the provision must state that the policyholder is permitted to return the policy within a period of not less than thirty-one days. The entire premium paid by the policyholder must be returned immediately to the policyholder.
(c) A provision stating who is authorized by the insurer to waive, alter, or change any of the terms or conditions of the policy. It may also state that no agent has the power or authority to waive, change, or alter any of the terms or conditions of the policy.
(d) A provision that the policy and any rider or supplemental benefits attached to the policy are incontestable as to the truth of the application for insurance and to the representations of the insured individual after they have been in force during the lifetime of the insured for a period of two years from their date of issue. Any rider or supplemental benefits subsequently attached to the policy are incontestable as to the truth of the application for the rider or supplemental benefits and to the representations of the insured individual after they have been in force during the lifetime of the insured for a period of two years from their date of issue. If an insurer institutes proceedings to vacate a policy on the ground of the falsity of the representations contained in the application for the policy, the proceedings must commence within the time permitted in this subsection (d).
(e) A provision that if it is found that the age or sex of the insured, or of any individual considered in determining the premium, has been misstated, any amount payable or benefit accruing under the policy is that as the premium would have purchased according to the correct age or sex.
(f) A provision that when a policy becomes a claim by the death of the insured, settlement must be made upon receipt of proof of death. When a policy provides for payment of its proceeds in a lump sum upon the death of the insured and the insurer fails to pay the proceeds within thirty days of submission of proof of death and all necessary claim papers needed in order to pay the claim properly, the payment must include interest at the legal rate of interest from the date of death of the insured until the date the claim is paid.
(g) A provision stating how the beneficiary is designated and how the beneficiary may be changed.
(h) A provision stating the amount of premium and the time and manner payable. If the death of the insured occurs during a period for which the premium has been paid, the insurer shall add to the policy proceeds a refund of any premium paid for any period beyond the date of death of the insured, provided such premium was not waived under any policy provision for waiver of premium.
(i) A provision that the insured is entitled to a grace period of not less than thirty-one days within which the payment of any premium after the first may be made. During the grace period, the policy continues in full force. If a claim arises under the policy during the grace period, the amount of any premium due or overdue may be deducted from any amount payable under the policy in settlement.
(j) A provision that the policy may be reinstated at any time within three years after the date of default in the payment of any premium, unless the policy has been surrendered for its cash value or unless the extended term insurance, if any, has expired, upon evidence of insurability satisfactory to the insurer and the payment of all overdue premiums and payment (or, within the limits permitted by the then cash value of the policy reinstatement) of any other indebtedness to the insurer upon the policy with interest as to both premiums and indebtedness at a rate not exceeding eight percent a year compounded annually. However, acceptance of all or any part of a premium more than thirty days in arrears by the agent or company without the policy in force without any lapse of coverage.
(k) A provision in participating policies that, beginning not later than the end of the third policy year, the insurer shall annually ascertain and apportion the divisible surplus, if any, that will accrue on the policy anniversary or other dividend date specified in the policy. Except as provided in this section, any dividend becoming payable is, at the option of the party entitled to elect the option, either payable in cash or applied to any one of the other dividend options as may be provided by the policy. If other dividend options are provided, the policy must further state which option is automatically effective if the party has not elected some other option. If a policy specifies a period within which the other option may be elected, this period must be not less than thirty days following the date on which the dividend is due and payable. If a participating policy provides that the benefit under any paid-up nonforfeiture provision is to be participating, it may provide that any divisible surplus becoming payable or apportioned while the insurance is in force under the nonforfeiture provision will be applied in the manner set forth in the policy.
(l) A provision that after three full years' premiums have been paid, and after the policy has a cash surrender value, and while no premium is in default beyond the grace period for payment, the insurer will loan on the execution of a proper note or loan agreement by the owner of the policy, or on proper assignment of the policy and on the sole security of the policy, at the option of the owner of the policy, an amount not exceeding the cash value of the policy at the end of the current policy year including any dividend additions to the policy. The company may deduct from the loan value or from the proceeds of the loan any existing indebtedness on or secured by the policy not already deducted in determining the cash value, including interest due or accrued, and any unpaid balance of the premium for the current policy year, and may collect interest in advance of the loan through the end of the current policy year. The policy must reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application for the loan. The policy may also provide that if interest on any indebtedness is not paid when due, it must then be added to the existing indebtedness and bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value of the policy, then the policy terminates, but not until at least thirty days' notice has been mailed by the insurer to the last known address of the insured or policy owner and to that of any assignee of record on file with the insurer. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party entitled to elect. No condition other than as provided in this subsection may be exacted as a prerequisite to any loan. This subsection does not apply to term insurance or to term insurance benefits provided by rider or supplemental policy provisions.
(m) A provision that is in accordance with Sections 38-63-240 to 38-63-280.
(n) A provision that is in accordance with Article 5 of Chapter 63 of Title 38, Standard Nonforfeiture Law for Life Insurance.
The Commissioner may approve policies with provisions which vary from the provisions required in this section if the provisions are more favorable to the insured or if the provisions are not applicable because of the nature of the product."
Industrial life insurance
SECTION 2. Article 1, Chapter 63 of Title 38 of the 1976 Code is amended by adding:
"Section 38-63-60. Industrial life insurance is that form of life insurance provided by an individual contract under which premiums are payable weekly or monthly and having the words 'INDUSTRIAL POLICY' printed in bold print upon the face of the policy as part of the title. No policy of life insurance delivered or issued for delivery in South Carolina may use Industrial Mortality tables unless the policy is an industrial life insurance policy."
Suicide and death exclusions
SECTION 3. Article 3, Chapter 63 of Title 38 of the 1976 Code is amended by adding:
"Section 38-63-225. (A) If an individual life insurance policy contains a suicide provision, it may not limit payment of benefits for a period more than two years from the date of issue of the policy and it must provide for at least the return of premiums paid on the policy.
(B) An individual life insurance policy or rider to such a policy delivered or issued for delivery in this State may exclude or restrict liability in the event of death occurring while the insured is a resident in a specified foreign country or countries, but except as provided in subsection (A) may not contain any provision excluding or restricting liability in the event of death caused in a certain specified manner, except as a result of:
(1) death as a result of war, declared, or undeclared, or any act or hazard of such a war;
(2) death as a result of operating, riding, or descending from an aircraft unless the insured is a passenger and the aircraft is operated commercially to transport passengers for hire or by a private business to transport personnel or guests;
(3) death as a result of hazardous occupations or hazardous sports specified in the policy or rider.
If death is caused in a manner excluded in the policy or rider, the policy must provide for at least the return of premiums paid on the policy less any indebtedness to the insurer on the policy.
(C) If an individual life insurance policy or rider contains any exclusions or restrictions of liability as allowed in subsection (B), the policy or rider must have a prominent stamp of notice of these exclusions or restrictions on the face of it and the insurer is required to have a separate form acknowledging the exclusions of liability signed by the owner of the policy."
SECTION 4. Section 38-63-230 of the 1976 Code is repealed.
Attorney fees authorized
SECTION 5. Article 1, Chapter 63, Title 38 of the 1976 Code is amended by adding:
"Section 38-63-90. When a life insurer refuses to pay a claim on a life insurance policy within thirty days after a demand has been made by the beneficiary of the policy or contract and a finding on suit of the contract made by the trial judge that the refusal was without reasonable cause or in bad faith, the insurer is liable to pay the beneficiary, in addition to any sum or any amount otherwise recoverable, all reasonable attorneys' fees for the prosecution of the case. The amount of reasonable attorneys' fees must be determined by the trial judge and the amount added to the judgment. If attorney's fees are allowed and, on appeal to the Supreme Court by the defendant, the judgment is affirmed, the Supreme Court shall allow to the respondent an additional sum as the Court adjudged reasonable as attorneys' fees of the respondent on the appeal."
SECTION 6. Article 1, Chapter 65, Title 38 of the 1976 Code is amended by adding:
"Section 38-65-120. When a group life insurance policy provides for payment of its proceeds in a lump sum upon the death of an insured and the insurer fails to pay the proceeds within thirty days of submission of proof of death, the payment must include interest at the legal rate of interest from the date of death of that insured until the date the claim is paid."
SECTION 7. This act takes effect January 1, 1989.