SRC-CTC S.B. 1654 77(R)   BILL ANALYSIS


Senate Research Center   S.B. 1654
77R4971 AJA-FBy: Bernsen
Business & Commerce
4/18/2001
As Filed


DIGEST AND PURPOSE 

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 which interfere
with the lawyer's exercise of independent professional judgement.  As
proposed, S.B. 1654 codifies the ideas stressed in Ethics Opinion 533 to
prohibit guidelines from being imposed by an insurer on lawyers defending
the insured. 

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a
state officer, institution, or agency. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Title 2B, Insurance Code, by adding Chapter 104, as
follows: 

CHAPTER 104.  PROVISION OF DEFENSE COUNSEL BY LIABILITY INSURERS

 Sec. 104.001.  DEFINITION.  Defines "insurer" and "litigation-management
guideline." 

Sec. 104.002.  APPLICABILITY OF CHAPTER.  Provides that this chapter
applies only to an insurer that issues certain liability insurance
policies. 

Sec. 104.003.  CERTAIN GUIDELINES PROHIBITED.  Prohibits an insurer from
requiring a defense counsel provided to an insured to follow certain
litigation-management guidelines. Sets forth the types of
litigation-management guidelines included in the prohibition of this
section. 

Sec. 104.004.  FLAT FEE PROHIBITED.  Prohibits an insurer from requiring a
defense counsel to accept a flat fee for certain services. 

Sec. 104.005.  CERTAIN CONTRACT PROVISIONS VOID.  Provides that a provision
in a contract between an insurer and a defense counsel or between an
insurer and an insurer that violates Section 104.003 or 104.004 is void.
Provides that a waiver of a provision of Section 104.003 or 104.004 by an
insured is void. 

Sec. 104.006.  DAMAGES; INJUNCTIVE RELIEF.  Authorizes a person to bring an
action against an insurer for certain purposes.  Provides that an insurer
that, based on a litigationmanagement guideline or flat fee agreement that
violates this chapter, refuses to pay all or part of a defense counsel's
fee for the defense of an insured is liable to the counsel for the
reasonable value of any unpaid legal services or expenses provided by the
counsel in the defense of the insured.  Requires a court to award
reasonable and necessary attorney's fees to  a person who recovers damages
or obtains injunctive relief under this section.   

Sec. 104.007.  CIVIL PENALTY.  Provides that an insurer who violates
Section 104.003 or 104.004 is liable for a civil penalty not to exceed
$10,000 for each act of violation.  Requires the attorney general, at the
commissioner of insurance's request, to institute an action in a district
court in Travis County to recover a civil penalty under this section. 

SECTION 2.  Makes application of this Act prospective.

SECTION 3.  Effective date: September 1, 2001.