By Dear H.B. No. 878
74R3729 DLF-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to prepaid legal services contracts.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Article 5.13-1, Insurance Code, is amended by
1-5 amending Subsections (a), (b), and (f) and adding Subsection (g) to
1-6 read as follows:
1-7 (a) Every insurer governed by Subchapter B of Chapter 5 of
1-8 the Insurance Code, as amended, and every life, health, and
1-9 accident insurer governed by Chapter 3 of the Insurance Code, as
1-10 amended, is authorized to issue prepaid legal services contracts.
1-11 Every such insurer or rating organization authorized under Article
1-12 5.16 of the Insurance Code shall file with the State Board of
1-13 Insurance all rules and forms applicable to prepaid legal service
1-14 contracts in a manner to be established by the State Board of
1-15 Insurance. <All rates, rating plans, and charges shall be
1-16 established in accordance with actuarial principles for various
1-17 categories of insureds. Rates, rating plans, and charges shall not
1-18 be excessive, inadequate, unfairly discriminatory, and the benefits
1-19 shall be reasonable with respect to the rates charged.>
1-20 Certification, by a qualified actuary, to the appropriateness of
1-21 the charges, rates, or rating plans, based upon reasonable
1-22 assumptions, shall accompany the filing along with adequate
1-23 supporting information.
1-24 (b) The State Board of Insurance shall, within a reasonable
2-1 period, approve any form if the requirements of this section are
2-2 met. It shall be unlawful to issue such forms until approved or to
2-3 use such schedules of charges, rates, or rating plans until filed
2-4 <and approved>. If the State Board of Insurance has good cause to
2-5 believe such rates and rating plans do not comply with the
2-6 standards of this article, it shall give notice in writing to every
2-7 insurer or rating organization which filed such rates or rating
2-8 plans, stating therein in what manner and to what extent such
2-9 noncompliance is alleged to exist and specifying therein a
2-10 reasonable time, not less than 30 days thereafter, in which such
2-11 noncompliance may be corrected. If the board has not acted on any
2-12 form, rate, rating plan, or charges within 30 days after the filing
2-13 of same, they shall be deemed approved. The board may require the
2-14 submission of whatever relevant information is deemed necessary in
2-15 determining whether to approve or disapprove a filing made pursuant
2-16 to this section.
2-17 (f) To provide for the actuarial soundness of a prepaid
2-18 legal services contract issued under this article, the State Board
2-19 of Insurance may require that prepaid legal services contracts have
2-20 rates that are adequate to reasonably provide the benefits under
2-21 the prepaid legal services contracts. This subsection does not
2-22 apply to a prepaid legal services contract that provides only
2-23 consultation and advice on simple legal matters, either alone or in
2-24 combination with a referral service, and that provides fee
2-25 discounts for other matters.
2-26 (g) The State Board of Insurance may not determine, fix,
2-27 prescribe, set, or promulgate maximum rates or maximum amounts of
3-1 premium to be charged for a prepaid legal services contract issued
3-2 under this chapter. Nothing in this Act shall be construed as
3-3 compelling the State Board of Insurance to establish standard or
3-4 absolute rates and the board is specifically authorized, in its
3-5 discretion, to approve different rates for different insurers for
3-6 the same risk or risks on the types of insurance covered by this
3-7 article. The board shall <; nor shall this article be construed
3-8 as to require the State Board of Insurance to establish a single or
3-9 uniform rate for each risk or risks or to compel all insurers to
3-10 adhere to such rates previously filed by other insurers; and the
3-11 board is empowered to approve such different rates for different
3-12 insurers, and is required to> approve such rates as filed by any
3-13 insurer unless it finds that such filing does not meet the
3-14 requirements of this article.
3-15 SECTION 2. Articles 23.10, 23.14, and 23.15, Insurance Code,
3-16 are amended to read as follows:
3-17 Art. 23.10. CORPORATIONS NON-PROFIT; FUNDS; INVESTMENTS.
3-18 The corporations complying with the requirements of this chapter
3-19 shall be governed and conducted as non-profit nonmembership
3-20 organizations for the purpose of contracting for and obtaining
3-21 legal services for their participants through contracting
3-22 attorneys, in consideration of the payment by the participants of a
3-23 definite sum to fund the payment of attorneys fees for the legal
3-24 services to be furnished by the contracting attorneys. Provided
3-25 further, that each such corporation shall have two funds, namely:
3-26 the claim fund and the expense fund. The claim fund shall be
3-27 composed of at least 70 <80> percent of the regular payments by
4-1 participants, and the application fees. The percentage amounts
4-2 above stated may be modified by the State Board of Insurance upon
4-3 showing that such is in the best interest of the then existing
4-4 persons receiving legal services under contract or that such is
4-5 necessary for the development of the corporation during its first
4-6 year of existence. The application fees shall be paid by
4-7 applicants prior to issuance of a benefit certificate, and shall
4-8 not apply as a part of the cost of receiving benefits under the
4-9 benefit certificate issued. Claim fund investments may include,
4-10 besides lawful money and demand deposits, only certificates of
4-11 deposits, share accounts, and time deposits in public banks and
4-12 savings and loan institutions whose deposits are insured by a
4-13 federal governmental agency, and obligations of a state or the
4-14 federal government; and the expense fund investments may include
4-15 only such as are legal investments for the capital, surplus, and
4-16 contingency funds of capital stock life insurance companies. The
4-17 net income from the investments shall accrue to the funds,
4-18 respectively, from which the investments were made. The claim fund
4-19 shall be disbursed only for the payment of valid claims, taxes on
4-20 income of such fund, security transfer costs, <and> refunds of fees
4-21 paid into such fund,<; and to the extent approved by the State
4-22 Board of Insurance,> cost of settling contested claims, expenses
4-23 directly incurred on or for preservation of investments of the
4-24 claim fund, and contracts authorized under Article 23.19 of this
4-25 code.
4-26 Art. 23.14. SUPERVISION. (a) Every corporation complying
4-27 with the requirements of this chapter shall, before accepting
5-1 applications for participation in said non-profit legal service
5-2 plan, have sufficient money in its expense fund to cover initial
5-3 operations and shall submit to the State Board of Insurance a plan
5-4 of operation together with a rate schedule of its charges to
5-5 participants and a schedule and projections of costs of legal
5-6 services to be contracted for on behalf of the participants; which
5-7 plan<, rate schedule,> and the sufficiency of expense fund shall
5-8 first be approved by the State Board of Insurance as adequate,
5-9 fair, and reasonable <and not excessive> before such corporation
5-10 shall engage in business. The State Board of Insurance shall have
5-11 continuing control over the plan of operation of such corporation
5-12 <and its rate schedule of charges to participants>. No change in
5-13 such plan <or rate schedule> shall be effectuated without its first
5-14 being filed and approved by the State Board of Insurance.
5-15 (b) The State Board of Insurance may not determine, fix,
5-16 prescribe, set, or promulgate maximum rates or maximum amounts of
5-17 premium to be charged for a non-profit legal services plan under
5-18 this chapter.
5-19 Art. 23.15. DUTIES OF CONTRACTING ATTORNEYS; ADEQUATE
5-20 FINANCIAL STANDING <APPROVAL OF RATES>. <The State Board of
5-21 Insurance shall likewise approve the ratio of benefits to be paid
5-22 to anticipated revenues from the rate schedule proposed to be used
5-23 if such be found to be actuarially sound. No prepaid legal
5-24 services contract or benefit certificate thereunder shall be issued
5-25 by corporations complying with this chapter without such finding.>
5-26 The contracting attorneys shall guarantee to the participants the
5-27 services stated under the benefit certificates and shall agree to
6-1 perform such services which they agree to render to the
6-2 participants under the benefit certificates without there being any
6-3 liability for the cost thereof to the participants beyond the
6-4 funds of such corporation held for their benefit in accordance with
6-5 the plan of operation of the corporation. Such corporations may
6-6 issue prepaid legal service contracts without such guarantees and
6-7 providing for indemnity for costs of attorney services where the
6-8 attorney is not a contracting attorney under such rules and
6-9 regulations as may be approved by the State Board of Insurance
6-10 provided that the State Board of Insurance be satisfied that the
6-11 plan of operation, financial standing and experience of the
6-12 corporation (including but not limited to a proper amount of free
6-13 surplus) is adequate to assure the performance of such contracts.
6-14 SECTION 3. This Act takes effect September 1, 1995, and
6-15 applies only to a prepaid legal services contract or a contract or
6-16 benefit certificate under a nonprofit legal services plan that is
6-17 delivered, issued for delivery, or renewed on or after January 1,
6-18 1996. A contract or benefit certificate that is delivered, issued
6-19 for delivery, or renewed before January 1, 1996, is governed by the
6-20 law as it existed immediately before the effective date of this
6-21 Act, and that law is continued in effect for that purpose.
6-22 SECTION 4. The importance of this legislation and the
6-23 crowded condition of the calendars in both houses create an
6-24 emergency and an imperative public necessity that the
6-25 constitutional rule requiring bills to be read on three several
6-26 days in each house be suspended, and this rule is hereby suspended.