Office of House Bill AnalysisS.B. 1654
By: Bernsen
Civil Practices


Currently, certain insurance companies are placing restrictions on how
retained defense counsel can conduct the defense of the insured. The State
Bar of Texas Professional Ethics Committee recently 
published Ethics Opinion 533 stressing that the lawyer's only client is the
insured and that it is impermissible under the Texas Rules of Professional
Conduct for a lawyer to agree with an insurance company to restrictions
that interfere with the lawyer's exercise of independent professional
judgment. Senate Bill 1654 prohibits certain litigation-management
guidelines from being imposed by an insurer on lawyers defending the


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. 


Senate Bill 1654 amends the Insurance Code to prohibit an insurer from
submitting to a defense counsel a litigation-management guideline that
requires or suggests that a defense counsel perform an activity that
interferes with the counsel's duty of loyalty to the insured, the counsel's
duty to exercise independent professional judgment, or the attorney-client
relationship between the counsel and the insured, or would result in a
waiver of any privilege of the insured. The bill provides that the types of
litigation-management guidelines prohibited 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. The bill provides that a provision in a contract
between an insurer and a defense counsel or between an insurer and an
insured that violates the prohibition of certain litigation-management
guidelines is void. The bill provides that a waiver by an insured of a
provision of certain litigation-management guidelines is void.  

The bill authorizes an insured to bring an action against an insurer to
recover any actual damages proximately suffered by an insured and to obtain
injunctive relief to prevent the threatened or continued violation of the
prohibition of certain litigation-management guidelines. The bill provides
that an insurer that, based on a litigation-management guideline that
violates the defense of an insured, 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. The bill provides that an insurer who violates the prohibition of
certain litigation-management guidelines is liable for a civil penalty that
may not exceed $5,000 for the first or second act of violation, or $10,000
for the third and each subsequent act of violation. The bill requires the
attorney general to file and prosecute a civil suit in a district court in
Travis County to recover a civil penalty, at the commissioner of
insurance's request. 


September 1, 2001.