May 11, 2002
That's our Lege

Apparently, in 1999, the Texas Legislature passed a law making COLIs legal in the state. Problem is, that wasn't what the bill was meant to do.

And with the [Sen. Florence] Shapiro [R, Plano] bill, a company automatically has an "insurable interest" when an employee gives his consent to the coverage. The rule took effect Jan. 1, 2000, on new or renewing insurance policies.

But that's not what the House sponsor, Rep. Brian McCall, R-Plano, intended the bill to do, said his aide, who asked not to be identified. McCall had no intention of making corporate-owned life insurance legal if it wasn't already legal, the aide insisted.

The aide said McCall was concerned that a company could take out a policy on an employee's life without his knowledge.

The bill was a way to empower employees, the aide said, adding McCall wanted to avoid the situation in other states that permit employers to take out the insurance without employees' consent.

McCall, currently a candidate for the speaker of the House, is an insurance and investment consultant. Until he sold his insurance agencies, he was the president and CEO of McCall Insurance Agency and A.M. Scott Agency in Plano.

Rep. Craig Eiland, D-Galveston, vice chairman of the House Committee on Insurance, said he had no idea Shapiro's bill would allow companies to buy policies on the lives of their low-level employees.

Eiland said he thought the bill would expand the definition of who's a "key man" to include top-level employees below the rank of CEO. For example, a law firm might like to insure a partner who brings in a lot of business because the firm could stand to lose if the partner died, said Eiland.

But janitors and laborers?

"No one envisioned it would be used in this manner," he said, adding that he can't imagine McCall envisioned it either.

Another concern: The law doesn't specify what level of consent is required, said Ana Smith-Daley, Texas Department of Insurance's deputy commissioner of life and health. And nothing in the law prevents a company from requiring an employee or applicant to consent to the insurance as a condition of employment.

I'm not going to revisit the question of whether COLIs are a good thing or not. Go read More than Zero (here and here) for what COLIs are supposed to be about. I just want to mention that it's a tad bit unsettling to see laws get enacted without anyone really knowing what effect they're going to have.

Ours is a Legislature that meets every other year for a limited period of time. Many members of the state House have full-time jobs outside of politics. There's a lot to be said for this, but the main downside is that a whole lot of laws get passed without proper scrutiny or debate. It usually happens at the end of sessions, when many votes are taken all at once to beat the clock, but it can apparently happen any time.

It will be interesting to see if the Lege manages to pass the bill they thought they were passing this time around. I wonder if Sen. Shapiro, who wasn't reached for comment on this article, is as upset about all this as everyone else. It could be entertaining if this is what she had intended all along.

Posted by Charles Kuffner on May 11, 2002 to The great state of Texas