By Dunnam                                             H.B. No. 3563
         77R4974 DLF-F                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to the unauthorized practice of law by liability insurers.
 1-3           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-4           SECTION 1. Chapter 81, Government Code, is amended by adding
 1-5     Subchapter I to read as follows:
 1-6      SUBCHAPTER I. UNAUTHORIZED PRACTICE OF LAW BY LIABILITY INSURERS
 1-7           Sec. 81.151.  DEFINITION. In this subchapter, "insurer" means
 1-8     any partnership, corporation, association, or other group, however
 1-9     organized, that issues any form of liability insurance, whether
1-10     primary insurance coverage, excess insurance coverage, or umbrella
1-11     insurance coverage. The term includes a Lloyd's plan insurer,
1-12     reciprocal or interinsurance exchange, county mutual insurance
1-13     company, or farm mutual insurance company.
1-14           Sec. 81.152.  APPLICABILITY. This subchapter applies only to
1-15     an insurer that issues a liability insurance policy:
1-16                 (1)  to or covering any resident of this state;
1-17                 (2)  covering liability incurred by an insured in this
1-18     state; or
1-19                 (3)  under which the insurer provides a defense to an
1-20     insured in a claim or action pending in this state.
1-21           Sec. 81.153.  UNAUTHORIZED PRACTICE OF LAW. (a)  In providing
1-22     a defense for an insured against a claim or action under a
1-23     liability insurance policy, an insurer may not use, or require an
1-24     insured to use, an attorney who is:
 2-1                 (1)  an employee of an insurer; or
 2-2                 (2)  an employee, owner, partner, or shareholder of a
 2-3     law firm that works solely for the insurer or solely for a group of
 2-4     affiliated insurers.
 2-5           (b)  An insurer who violates this section commits an act that
 2-6     constitutes the practice of law for purposes of Section 81.101.
 2-7           Sec. 81.154.  DAMAGES; INJUNCTIVE RELIEF. (a)  A person may
 2-8     bring an action against an insurer to:
 2-9                 (1)  recover any actual damages proximately suffered by
2-10     an insured because of a violation of Section 81.153; and
2-11                 (2)  obtain injunctive relief to prevent the threatened
2-12     or continued violation of Section 81.153.
2-13           (b)  A court shall award reasonable and necessary attorney's
2-14     fees to a person who recovers damages or obtains injunctive relief
2-15     under this section.
2-16           Sec. 81.155.  DISQUALIFICATION. A court, on its own motion or
2-17     on the motion of any party, shall disqualify an attorney who is
2-18     representing an insured before that court in violation of Section
2-19     81.153.
2-20           SECTION 2. (a)  Except as provided by Subsection (b) of this
2-21     section, this Act applies only to the use of an attorney to defend
2-22     a claim or action on or after the effective date of this Act.
2-23           (b)  Notwithstanding Subchapter I, Chapter 81, Government
2-24     Code, as added by this Act, in a claim asserted or action commenced
2-25     before the effective date of this Act, an attorney representing the
2-26     insured on the effective date of this Act may continue to represent
2-27     an insured until December 31, 2001. Not later than December 31,
 3-1     2001, an attorney continuing to represent an insured under this
 3-2     subsection shall take appropriate steps to withdraw from
 3-3     representation and the insurer shall provide an attorney to the
 3-4     insured in accordance with Subchapter I, Chapter 81, Government
 3-5     Code, as added by this Act.
 3-6           SECTION 3. This Act takes effect September 1, 2001.