HBA-DMH C.S.H.B. 1433 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1433 By: Dunnam Insurance 4/26/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Under current law, an insured party's attorney can be compelled to submit detailed billing statements to a third-party auditor. This may constitute a violation of attorney-client privilege that could lead to the revelation of client confidences and make confidential materials discoverable. C.S.H.B. 1433 prohibits an insurer from disclosing defense counsel fee statements to certain persons. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of insurance in SECTION 1 (Section 103.008, Insurance Code) of this bill. ANALYSIS C.S.H.B. 1433 amends the Insurance Code to prohibit an insurer from disclosing defense counsel fee statements regarding services provided for an insured to any person, other than the insured, who is not an employee of the insurer and from requiring defense counsel to disclose the defense counsel's fee statements to any person who is not an employee of the insurer. The bill authorizes an insurer to disclose defense counsel's fee statements to a person who is not an employee of the insurer for the purpose of reviewing the fee statements in connection with a lawsuit over payment of the fees and provides that such a disclosure does not, in itself, waive any attorney-client privilege. The bill prohibits an insurer from submitting to a third-party auditor, or requiring the insured's attorney to submit to the auditor, a billing statement that specifies in detail the services performed by the attorney for the insured. The bill authorizes an insurer to submit such information to the auditor with the prior written consent of the insured, obligated after full disclosure to the insured. The bill provides that a provision in a contract entered into between an insurer and defense counsel or between an insurer and an insured that requires or permits disclosure of the defense counsel's fee statements to a person who is not an employee of the insurer is against public policy and is void and unenforceable and that a waiver by an insured of such disclosure requirements is against public policy and is void and unenforceable. The bill specifies the conditions under which a person is authorized to bring an action against an insurer. The bill requires a court to award reasonable and necessary attorney's fees to a person who recovers damages or obtains injunctive relief. The bill provides that an insurer who violates the audit or disclosure requirements is liable for a civil penalty not to exceed $10,000 for each act of violation. At the request of the commissioner of insurance (commissioner), the bill requires the attorney general to institute an action in a district court in Travis County to recover a civil penalty. The bill requires the commissioner, in consultation with the State Bar of Texas, to adopt rules to implement provisions relating to the disclosure of fee statements. The bill provides that these provisions apply only to certain insurers that issue liability insurance policies or are obligated under a casualty insurance policy. EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1433 differs from the original bill by defining "insurer" and modifying the applicability of fee disclosure requirements. The substitute includes additional requirements for the disclosure of fee statements, and provides for waiver of disclosure, injunctive relief, and civil penalties. The substitute modifies the rulemaking authority of the commissioner of insurance by removing the provision that the rules must specify the disclosure that is required to be made to the insured.