S.B. No. 1365
                                        AN ACT
    1-1  relating to prepaid legal services contracts.
    1-2        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-3        SECTION 1.  Article 5.13-1, Insurance Code, is amended by
    1-4  amending Subsections (a), (b), and (f) and by adding Subsection (g)
    1-5  to read as follows:
    1-6        (a)  Every insurer governed by Subchapter B of Chapter 5 of
    1-7  the Insurance Code, as amended, and every life, health, and
    1-8  accident insurer governed by Chapter 3 of the Insurance Code, as
    1-9  amended, is authorized to issue prepaid legal services contracts.
   1-10  Every such insurer or rating organization authorized under Article
   1-11  5.16 of the Insurance Code shall file with the State Board of
   1-12  Insurance all rules and forms applicable to prepaid legal service
   1-13  contracts in a manner to be established by the State Board of
   1-14  Insurance.  <All rates, rating plans, and charges shall be
   1-15  established in accordance with actuarial principles for various
   1-16  categories of insureds.  Rates, rating plans, and charges shall not
   1-17  be excessive, inadequate, unfairly discriminatory, and the benefits
   1-18  shall be reasonable with respect to the rates charged.>
   1-19  Certification, by a qualified actuary, to the appropriateness of
   1-20  the charges, rates, or rating plans, based upon reasonable
   1-21  assumptions, shall  accompany the filing along with adequate
   1-22  supporting information.
   1-23        (b)  The State Board of Insurance shall, within a reasonable
   1-24  period, approve any form if the requirements of this section are
    2-1  met.  It shall be unlawful to issue such forms until approved or to
    2-2  use such schedules of charges, rates, or rating plans until filed
    2-3  <and approved>.  If the State Board of Insurance has good cause to
    2-4  believe such rates and rating plans do not comply with the
    2-5  standards of this article, it shall give notice in writing to every
    2-6  insurer or rating organization which filed such rates or rating
    2-7  plans, stating therein in what manner and to what extent such
    2-8  noncompliance is alleged to exist and specifying therein a
    2-9  reasonable time, not less than 30 days thereafter, in which such
   2-10  noncompliance may be corrected.  If the board has not acted on any
   2-11  form, rate, rating plan, or charges within 30 days after the filing
   2-12  of same, they shall be deemed approved.  The board may require the
   2-13  submission of whatever relevant information is deemed necessary in
   2-14  determining whether to approve or disapprove a filing made pursuant
   2-15  to this section.
   2-16        (f)  All legal services contracts and related promotional
   2-17  material issued pursuant to Chapter 23 and the issuance of legal
   2-18  services contracts pursuant to Article 5.13-1 shall be truthful and
   2-19  accurate and shall properly describe the coverage offered.  Such
   2-20  description should include, but not be limited to, a description of
   2-21  coverage offered as either an indemnity coverage or a contract that
   2-22  provides only consultation and advice on simple legal matters,
   2-23  either alone or in combination with a referral service, and that
   2-24  provides fee discounts for other matters.  To provide for the
   2-25  actuarial soundness of a prepaid legal services contract issued
   2-26  under this article, the State Board of Insurance may require that
   2-27  prepaid legal services contracts have rates that are adequate to
    3-1  reasonably provide the benefits under the prepaid legal services
    3-2  contracts.  This subsection does not apply to a prepaid legal
    3-3  services contract that provides  only consultation and advice on
    3-4  simple legal matters, either alone or in combination with a
    3-5  referral service, and that provides fee discounts for other
    3-6  matters.
    3-7        (g)  The State Board of Insurance may not determine, fix,
    3-8  prescribe, set, or promulgate maximum rates or maximum amounts of
    3-9  premium to be charged  for a prepaid legal services contract issued
   3-10  under this chapter.  Nothing in this Act shall be construed as
   3-11  compelling the State Board of Insurance to establish standard or
   3-12  absolute rates and the board is specifically authorized, in its
   3-13  discretion, to approve different rates for different insurers for
   3-14  the same risk or risks on the types of insurance covered by this
   3-15  article.  The board shall<; nor shall this  article be construed as
   3-16  to require the State Board of Insurance to establish a single or
   3-17  uniform rate for each risk or risks or to compel all insurers to
   3-18  adhere to such rates previously filed by other insurers; and the
   3-19  board is empowered to approve such different rates for different
   3-20  insurers, and is required to> approve such rates as filed by any
   3-21  insurer unless it finds that such filing does not meet the
   3-22  requirements of this article.
   3-23        SECTION 2.  Subsection (a), Section 23.01, Insurance Code, is
   3-24  amended to read as follows:
   3-25        (a)  On application of any <Any> seven or more persons <on
   3-26  application> to the secretary of state for a corporate charter
   3-27  under the Texas Non-Profit Corporation Act a <as a nonmembership>
    4-1  corporation may be incorporated for the sole purpose of
    4-2  establishing, maintaining, and operating non-profit legal service
    4-3  plans, whereby legal services may be provided by such corporation
    4-4  through contracting attorneys as is hereinafter provided.
    4-5        SECTION 3.  Articles 23.10, 23.14, and 23.15, Insurance Code,
    4-6  are amended to read as follows:
    4-7        Art. 23.10.  CORPORATIONS NON-PROFIT; FUNDS; INVESTMENTS.
    4-8  The corporations complying with the requirements of this  chapter
    4-9  shall be governed and conducted as non-profit <nonmembership>
   4-10  organizations for the purpose of contracting for and obtaining
   4-11  legal services for their participants through contracting
   4-12  attorneys, in consideration of the payment by the participants of a
   4-13  definite sum to fund the payment of attorneys fees for the legal
   4-14  services to be furnished by the contracting attorneys.  Provided
   4-15  further, that each such corporation shall have two funds, namely:
   4-16  the claim fund and the expense fund.  The claim fund shall be
   4-17  composed of at least  70 <80> percent of the regular payments by
   4-18  participants, and the application fees.  The percentage amounts
   4-19  above stated may be modified by the State Board of Insurance upon
   4-20  showing that such is in the best interest of the then existing
   4-21  persons receiving legal services under contract or that such is
   4-22  necessary for the development of the corporation during its first
   4-23  year of existence.  The application fees shall be paid by
   4-24  applicants prior to issuance of a benefit certificate, and shall
   4-25  not apply as a part of the cost of receiving benefits under the
   4-26  benefit certificate issued.  Claim fund investments may include,
   4-27  besides lawful money and demand deposits, only certificates of
    5-1  deposits, share accounts, and time deposits in public banks and
    5-2  savings and loan institutions whose deposits are insured by a
    5-3  federal governmental agency, and obligations of a state or the
    5-4  federal government; and the expense fund investments may include
    5-5  only such as are legal investments for the capital, surplus, and
    5-6  contingency funds of capital stock life insurance companies.  The
    5-7  net income from the investments shall  accrue to the funds,
    5-8  respectively, from which the investments were made.  The claim fund
    5-9  shall be disbursed only for the payment of valid claims, taxes on
   5-10  income of such fund, security transfer costs, <and> refunds of fees
   5-11  paid into such fund,<; and to the extent approved by the State
   5-12  Board of Insurance,> cost of settling contested claims, expenses
   5-13  directly incurred on or for preservation of investments of the
   5-14  claim fund, and contracts authorized under Article 23.19 of this
   5-15  code.
   5-16        Art. 23.14.  SUPERVISION.  (a)  Every corporation complying
   5-17  with the requirements of this chapter shall, before accepting
   5-18  applications  for participation in said non-profit legal service
   5-19  plan, have sufficient money in its expense fund to cover initial
   5-20  operations and shall submit to the State Board of Insurance a plan
   5-21  of operation together with a rate schedule of its charges to
   5-22  participants and a schedule and projections of costs of legal
   5-23  services to be contracted for on behalf of the participants; which
   5-24  plan<, rate schedule,> and the sufficiency of expense fund shall
   5-25  first be approved by the State Board of Insurance  as adequate,
   5-26  fair, and reasonable <and not excessive> before such corporation
   5-27  shall engage in business.  The  State Board of Insurance shall have
    6-1  continuing control over the plan of operation of such corporation
    6-2  <and its rate schedule of charges to participants>.  No change in
    6-3  such plan <or rate schedule> shall be effectuated without its first
    6-4  being filed and approved by the State Board of Insurance.
    6-5        (b)  The State Board of Insurance may not determine, fix,
    6-6  prescribe, set, or promulgate maximum rates or maximum amounts of
    6-7  premium to be charged for a non-profit legal services plan under
    6-8  this chapter.
    6-9        Art. 23.15.  DUTIES OF CONTRACTING ATTORNEYS; ADEQUATE
   6-10  FINANCIAL STANDING <APPROVAL OF RATES>.  <The State Board of
   6-11  Insurance shall likewise approve the ratio of benefits to be paid
   6-12  to anticipated  revenues from the rate schedule proposed to be used
   6-13  if such be found to be actuarially sound.  No prepaid legal
   6-14  services contract or benefit certificate thereunder shall be issued
   6-15  by corporations complying with this chapter without such finding.>
   6-16  The contracting attorneys shall guarantee to the participants the
   6-17  services stated under the benefit certificates and shall agree to
   6-18  perform such services which they agree to render to the
   6-19  participants under the benefit certificates without there being any
   6-20  liability for  the cost thereof to  the participants beyond the
   6-21  funds of such corporation held for their benefit in accordance with
   6-22  the plan of operation of the corporation.  Such corporations may
   6-23  issue prepaid legal service contracts without such guarantees and
   6-24  providing for indemnity for costs of attorney services where the
   6-25  attorney is not  a contracting attorney under such rules and
   6-26  regulations as may be approved by the State Board of Insurance
   6-27  provided that the State Board of Insurance be satisfied that the
    7-1  plan of operation, financial standing and experience of the
    7-2  corporation (including but not limited to a proper amount of free
    7-3  surplus) is adequate to assure the performance of such contracts.
    7-4        SECTION 4.  This Act takes effect September 1, 1995, and
    7-5  applies only to a prepaid legal services contract or a contract or
    7-6  benefit certificate under a nonprofit legal services plan that is
    7-7  delivered, issued for delivery, or renewed on or after January 1,
    7-8  1996.  A contract or benefit certificate that is delivered, issued
    7-9  for delivery, or renewed before January 1, 1996, is governed by the
   7-10  law as it existed immediately before the effective date of this
   7-11  Act, and that law is continued in effect for that purpose.
   7-12        SECTION 5.  The importance of this legislation and the
   7-13  crowded condition of the calendars in both houses create an
   7-14  emergency and an imperative public necessity that the
   7-15  constitutional rule requiring bills to be read on three several
   7-16  days in each house be suspended, and this rule is hereby suspended.