Amend SB 1654 by striking all below the enacting clause and
substituting the following:
      SECTION 1.  Subtitle B, Title 2, Insurance Code, is amended
by adding Chapter 104 to read as follows:
 CHAPTER 104.  PROVISION OF DEFENSE COUNSEL BY LIABILITY INSURERS
      Sec. 104.001.  DEFINITIONS. In this chapter:
            (1)  "Defense counsel" means an attorney or law firm
retained or engaged by an insurer for the purpose of representing
an insured under an insurance policy.
            (2)  "Insurer" means any partnership, corporation,
association, or other group, however organized, that issues any
form of liability insurance, whether primary insurance coverage,
excess insurance coverage, or umbrella insurance coverage. The term
includes a Lloyd's plan, reciprocal or interinsurance exchange,
county mutual insurance company, or farm mutual insurance company.
            (3)  "Litigation-management guideline" means a rule or
guideline issued by an insurer to a defense counsel provided by the
insurer to an insured for the purpose of directing how the counsel
conducts the representation of the insured or records and bills
time for conducting the representation of the insured.  The term
does not include a request by the insurer for the defense counsel
to provide information regarding the date of an activity, the
individual responsible for an activity, the amount of time expended
on an activity, or a reasonable and brief description of an
activity.
      Sec. 104.002.  APPLICABILITY OF CHAPTER. This chapter applies
only to an insurer that issues a liability insurance policy:
            (1)  to or covering any resident of this state;
            (2)  covering liability incurred by an insured in this
state; or
            (3)  under which the insurer provides legal
representation to an insured in a claim or action pending in this
state.
      Sec. 104.003.  CERTAIN GUIDELINES PROHIBITED. (a)  An insurer
may not submit to a defense counsel a litigation-management
guideline that requires or suggests that a defense counsel perform
an activity that:
            (1)  interferes with:
                  (A)  the counsel's duty of loyalty to the
insured;
                  (B)  the counsel's duty to exercise independent
professional judgment; or
                  (C)  the attorney-client relationship between the
counsel and the insured; or
            (2)  would result in a waiver of any privilege of the
insured.
      (b)  The types of litigation-management guidelines prohibited
by this section include guidelines that require or suggest that a
defense counsel should or must obtain the insurer's approval before
performing a task or incurring an expense to represent and protect
the insured.
      (c)  This section does not prohibit an insurer from disputing
the reasonableness or necessity of attorney's fees or expenses
after receiving a fee invoice submitted by a defense counsel.
      Sec. 104.004.  CERTAIN CONTRACT PROVISIONS VOID. (a)  A
provision in a contract between an insurer and a defense counsel or
between an insurer and an insured that violates Section 104.003 is
void.
      (b)  A waiver by an insured of a provision of Section 104.003
is void.
      (c)  If a contract provision is void because the provision
violates Section 104.003, the remaining provisions of the contract
are valid and enforceable to the extent permitted by other law.
      Sec. 104.005.  DAMAGES; INJUNCTIVE RELIEF. (a)  An insured
may bring an action against an insurer to:
            (1)  recover any actual damages proximately suffered by
the insured because of a violation of Section 104.003; and
            (2)  obtain injunctive relief to prevent the threatened
or continued violation of Section 104.003.
      (b)  An insurer that, based on a litigation-management
guideline that violates this chapter, refuses to pay all or part of
a defense counsel's fee or expenses for the representation of an
insured is liable to the counsel and the insured for the reasonable
value of any unpaid legal services or expenses provided by the
counsel in the representation of the insured.
      (c)  A court shall award reasonable and necessary attorney's
fees to a person who recovers damages or obtains injunctive relief
under this section.
      Sec. 104.006.  CIVIL PENALTY. (a)  An insurer who violates
Section 104.003 is liable for a civil penalty.  A civil penalty
assessed under this section may not exceed:
            (1)  $5,000 for the first or second act of violation;
or
            (2)  $10,000 for the third and each subsequent act of
violation.
      (b)  At the commissioner's request, the attorney general
shall file and prosecute a civil suit in a district court in Travis
County to recover a civil penalty under this section.
      SECTION 2.  This Act applies only to conduct that occurs on
or after the effective date of this Act.  Conduct that occurred
before that date is governed by the law as it existed immediately
before the effective date of this Act, and that law is continued in
effect for that purpose.
      SECTION 3.  This Act takes effect September 1, 2001.