HBA-TBM S.B. 1653 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1653 By: Bernsen Insurance 5/8/2001 Engrossed BACKGROUND AND PURPOSE Currently, Texas insurance consumers are entitled to ethical representation if they find themselves sued in a civil case. In an effort to help ensure such ethical representation, the State Bar of Texas Professional Ethics Committee has recently published Ethics Opinions 532 and 533. While speaking to different issues, both opinions stress the fact that the lawyer's only client is the insured and the lawyer must at all times protect the interests of the insured if those interests would be compromised by the insurer's instructions. Ethics Opinion 532 states that a lawyer's invoice or fee statement describing legal services rendered by the lawyer constitutes confidential information. Without first obtaining the informed consent of the insured, a lawyer cannot, at the request of the insurance company paying the fees for the representation, provide fee statements to a third party auditor describing legal services rendered by the lawyer for the insured. Senate Bill 1653 prohibits a statement of fees for legal services rendered to an insured and paid for by an insurer from being released to a third party auditor without the informed consent of the insured. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS Senate Bill 1653 amends the Insurance Code to provide that any insurer that issues a liability insurance policy to or covering any resident of this state, covering liability incurred by an insured in this state, or under which the insurer provides a defense to an insured in a claim or action pending in this state is prohibited 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. The bill prohibits an insurer from requiring defense counsel to disclose the defense counsel's fee statements to any person who is not an employee of the insurer. To the extent otherwise permitted by law, 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. Disclosure under this provision does not in itself waive any attorney-client privilege. 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. A waiver by an insured of the prohibitions against disclosure of a defense council fee statement is against public policy and is void and unenforceable. The bill authorizes an insured to bring an action against an insurer to recover any actual damages proximately suffered by the insured because of a violation of the disclosure provisions and to obtain injunctive relief to prevent the threatened or continued violation of the provisions. 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 sets forth a civil penalty for a violation of the disclosure prohibitions. At the request of the commissioner of insurance, the bill requires the attorney general to file and prosecute a civil action in a district court in Travis County to recover a civil penalty. EFFECTIVE DATE September 1, 2001.