By: Wentworth S.B. No. 1365
A BILL TO BE ENTITLED
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) To provide for the actuarial soundness of a prepaid
2-17 legal services contract issued under this article, the State Board
2-18 of Insurance may require that prepaid legal services contracts have
2-19 rates that are adequate to reasonably provide the benefits under
2-20 the prepaid legal services contracts. This subsection does not
2-21 apply to a prepaid legal services contract that provides only
2-22 consultation and advice on simple legal matters, either alone or in
2-23 combination with a referral service, and that provides fee
2-24 discounts for other matters.
2-25 (g) The State Board of Insurance may not determine, fix,
2-26 prescribe, set, or promulgate maximum rates or maximum amounts of
2-27 premium to be charged for a prepaid legal services contract issued
3-1 under this chapter. Nothing in this Act shall be construed as
3-2 compelling the State Board of Insurance to establish standard or
3-3 absolute rates and the board is specifically authorized, in its
3-4 discretion, to approve different rates for different insurers for
3-5 the same risk or risks on the types of insurance covered by this
3-6 article. The board shall<; nor shall this article be construed as
3-7 to require the State Board of Insurance to establish a single or
3-8 uniform rate for each risk or risks or to compel all insurers to
3-9 adhere to such rates previously filed by other insurers; and the
3-10 board is empowered to approve such different rates for different
3-11 insurers, and is required to> approve such rates as filed by any
3-12 insurer unless it finds that such filing does not meet the
3-13 requirements of this article.
3-14 SECTION 2. Subsection (a), Section 23.01, Insurance Code, is
3-15 amended to read as follows:
3-16 (a) On application of any <Any> seven or more persons <on
3-17 application> to the secretary of state for a corporate charter
3-18 under the Texas Non-Profit Corporation Act a <as a nonmembership>
3-19 corporation may be incorporated for the sole purpose of
3-20 establishing, maintaining, and operating non-profit legal service
3-21 plans, whereby legal services may be provided by such corporation
3-22 through contracting attorneys as is hereinafter provided.
3-23 SECTION 3. Articles 23.10, 23.14, and 23.15, Insurance Code,
3-24 are amended to read as follows:
3-25 Art. 23.10. CORPORATIONS NON-PROFIT; FUNDS; INVESTMENTS.
3-26 The corporations complying with the requirements of this chapter
3-27 shall be governed and conducted as non-profit <nonmembership>
4-1 organizations for the purpose of contracting for and obtaining
4-2 legal services for their participants through contracting
4-3 attorneys, in consideration of the payment by the participants of a
4-4 definite sum to fund the payment of attorneys fees for the legal
4-5 services to be furnished by the contracting attorneys. Provided
4-6 further, that each such corporation shall have two funds, namely:
4-7 the claim fund and the expense fund. The claim fund shall be
4-8 composed of at least 70 <80> percent of the regular payments by
4-9 participants, and the application fees. The percentage amounts
4-10 above stated may be modified by the State Board of Insurance upon
4-11 showing that such is in the best interest of the then existing
4-12 persons receiving legal services under contract or that such is
4-13 necessary for the development of the corporation during its first
4-14 year of existence. The application fees shall be paid by
4-15 applicants prior to issuance of a benefit certificate, and shall
4-16 not apply as a part of the cost of receiving benefits under the
4-17 benefit certificate issued. Claim fund investments may include,
4-18 besides lawful money and demand deposits, only certificates of
4-19 deposits, share accounts, and time deposits in public banks and
4-20 savings and loan institutions whose deposits are insured by a
4-21 federal governmental agency, and obligations of a state or the
4-22 federal government; and the expense fund investments may include
4-23 only such as are legal investments for the capital, surplus, and
4-24 contingency funds of capital stock life insurance companies. The
4-25 net income from the investments shall accrue to the funds,
4-26 respectively, from which the investments were made. The claim fund
4-27 shall be disbursed only for the payment of valid claims, taxes on
5-1 income of such fund, security transfer costs, <and> refunds of fees
5-2 paid into such fund,<; and to the extent approved by the State
5-3 Board of Insurance,> cost of settling contested claims, expenses
5-4 directly incurred on or for preservation of investments of the
5-5 claim fund, and contracts authorized under Article 23.19 of this
5-6 code.
5-7 Art. 23.14. SUPERVISION. (a) Every corporation complying
5-8 with the requirements of this chapter shall, before accepting
5-9 applications for participation in said non-profit legal service
5-10 plan, have sufficient money in its expense fund to cover initial
5-11 operations and shall submit to the State Board of Insurance a plan
5-12 of operation together with a rate schedule of its charges to
5-13 participants and a schedule and projections of costs of legal
5-14 services to be contracted for on behalf of the participants; which
5-15 plan<, rate schedule,> and the sufficiency of expense fund shall
5-16 first be approved by the State Board of Insurance as adequate,
5-17 fair, and reasonable <and not excessive> before such corporation
5-18 shall engage in business. The State Board of Insurance shall have
5-19 continuing control over the plan of operation of such corporation
5-20 <and its rate schedule of charges to participants>. No change in
5-21 such plan <or rate schedule> shall be effectuated without its first
5-22 being filed and approved by the State Board of Insurance.
5-23 (b) The State Board of Insurance may not determine, fix,
5-24 prescribe, set, or promulgate maximum rates or maximum amounts of
5-25 premium to be charged for a non-profit legal services plan under
5-26 this chapter.
5-27 Art. 23.15. DUTIES OF CONTRACTING ATTORNEYS; ADEQUATE
6-1 FINANCIAL STANDING <APPROVAL OF RATES>. <The State Board of
6-2 Insurance shall likewise approve the ratio of benefits to be paid
6-3 to anticipated revenues from the rate schedule proposed to be used
6-4 if such be found to be actuarially sound. No prepaid legal
6-5 services contract or benefit certificate thereunder shall be issued
6-6 by corporations complying with this chapter without such finding.>
6-7 The contracting attorneys shall guarantee to the participants the
6-8 services stated under the benefit certificates and shall agree to
6-9 perform such services which they agree to render to the
6-10 participants under the benefit certificates without there being any
6-11 liability for the cost thereof to the participants beyond the
6-12 funds of such corporation held for their benefit in accordance with
6-13 the plan of operation of the corporation. Such corporations may
6-14 issue prepaid legal service contracts without such guarantees and
6-15 providing for indemnity for costs of attorney services where the
6-16 attorney is not a contracting attorney under such rules and
6-17 regulations as may be approved by the State Board of Insurance
6-18 provided that the State Board of Insurance be satisfied that the
6-19 plan of operation, financial standing and experience of the
6-20 corporation (including but not limited to a proper amount of free
6-21 surplus) is adequate to assure the performance of such contracts.
6-22 SECTION 4. This Act takes effect September 1, 1995, and
6-23 applies only to a prepaid legal services contract or a contract or
6-24 benefit certificate under a nonprofit legal services plan that is
6-25 delivered, issued for delivery, or renewed on or after January 1,
6-26 1996. A contract or benefit certificate that is delivered, issued
6-27 for delivery, or renewed before January 1, 1996, is governed by the
7-1 law as it existed immediately before the effective date of this
7-2 Act, and that law is continued in effect for that purpose.
7-3 SECTION 5. The importance of this legislation and the
7-4 crowded condition of the calendars in both houses create an
7-5 emergency and an imperative public necessity that the
7-6 constitutional rule requiring bills to be read on three several
7-7 days in each house be suspended, and this rule is hereby suspended.
7-8 COMMITTEE AMENDMENT NO. 1
7-9 This would be amendment 1 for Prepaid legal bill.
7-10 Section 2. Insert Section 23.6 before 23.10.
7-11 New 23.6 (f)
7-12 All legal service contracts and related promotional material
7-13 issued pursuant to Chapter 23, and the issuance of legal service
7-14 contracts, pursuant to the Insurance Code, Article 5.13-1, shall be
7-15 truthful and accurate and shall properly describe the coverage
7-16 offered. Such description should include, but not be limited to, a
7-17 description of coverage offered as either an indemnity coverage or
7-18 a contract that provides only consultation and advice on simple
7-19 legal matters, either alone or in combination with a referral
7-20 service, and that provides fee discounts for other matters.
7-21 Averitt