1-1                                   AN ACT
 1-2     relating to the provision of defense counsel to insureds by
 1-3     liability insurers; providing a civil penalty.
 1-5           SECTION 1.  Subtitle B, Title 2, Insurance Code, is amended
 1-6     by adding Chapter 104 to read as follows:
 1-8           Sec. 104.001.  DEFINITIONS.  In this chapter:
 1-9                 (1)  "Defense counsel" means an attorney or law firm
1-10     retained or engaged by an insurer for the purpose of representing
1-11     an insured under an insurance policy.
1-12                 (2)  "Insurer" means any partnership, corporation,
1-13     association, or other group, however organized, that issues any
1-14     form of liability insurance, whether primary insurance coverage,
1-15     excess insurance coverage, or umbrella insurance coverage.  The
1-16     term includes a Lloyd's plan, reciprocal or interinsurance
1-17     exchange, county mutual insurance company, or farm mutual insurance
1-18     company.
1-19                 (3)  "Litigation-management guideline" means a rule or
1-20     guideline issued by an insurer to a defense counsel provided by the
1-21     insurer to an insured for the purpose of directing how the counsel
1-22     conducts the representation of the insured or records and bills
1-23     time for conducting the representation of the insured.  The term
1-24     does not include a request by the insurer for the defense counsel
1-25     to provide information regarding the date of an activity, the
 2-1     individual responsible for an activity, the amount of time expended
 2-2     on an activity, or a reasonable and brief description of an
 2-3     activity.
 2-4           Sec. 104.002.  APPLICABILITY OF CHAPTER.  This chapter
 2-5     applies only to an insurer that issues a liability insurance
 2-6     policy:
 2-7                 (1)  to or covering any resident of this state;
 2-8                 (2)  covering liability incurred by an insured in this
 2-9     state; or
2-10                 (3)  under which the insurer provides legal
2-11     representation to an insured in a claim or action pending in this
2-12     state.
2-13           Sec. 104.003.  CERTAIN GUIDELINES PROHIBITED.  (a)  An
2-14     insurer may not submit to a defense counsel a litigation-management
2-15     guideline that requires or suggests that a defense counsel perform
2-16     an activity that:
2-17                 (1)  interferes with:
2-18                       (A)  the counsel's duty of loyalty to the
2-19     insured;
2-20                       (B)  the counsel's duty to exercise independent
2-21     professional judgment; or
2-22                       (C)  the attorney-client relationship between the
2-23     counsel and the insured; or
2-24                 (2)  would result in a waiver of any privilege of the
2-25     insured.
2-26           (b)  The types of litigation-management guidelines prohibited
 3-1     by this section include guidelines that require a defense counsel
 3-2     to obtain the insurer's approval before performing a task or
 3-3     incurring an expense to represent and protect the insured.
 3-4           (c)  This section does not prohibit an insurer from disputing
 3-5     the reasonableness or necessity of attorney's fees or expenses
 3-6     after receiving a fee invoice submitted by a defense counsel.
 3-7           Sec. 104.004.  CERTAIN CONTRACT PROVISIONS VOID.  (a)  A
 3-8     provision in a contract between an insurer and a defense counsel or
 3-9     between an insurer and an insured that violates Section 104.003 is
3-10     void.
3-11           (b)  A waiver by an insured of a provision of Section 104.003
3-12     is void.
3-13           (c)  If a contract provision is void because the provision
3-14     violates Section 104.003, the remaining provisions of the contract
3-15     are valid and enforceable to the extent permitted by other law.
3-16           Sec. 104.005.  DAMAGES; INJUNCTIVE RELIEF.  (a)  An insured
3-17     may bring an action against an insurer to:
3-18                 (1)  recover any actual damages proximately suffered by
3-19     the insured because of a violation of Section 104.003; and
3-20                 (2)  obtain injunctive relief to prevent the threatened
3-21     or continued violation of Section 104.003.
3-22           (b)  An insurer that, based on a litigation-management
3-23     guideline that violates this chapter, refuses to pay all or part of
3-24     a defense counsel's fee or expenses for the representation of an
3-25     insured is liable to the counsel and the insured for the reasonable
3-26     value of any unpaid legal services or expenses provided by the
 4-1     counsel in the representation of the insured.
 4-2           (c)  A court shall award reasonable and necessary attorney's
 4-3     fees to a person who recovers damages or obtains injunctive relief
 4-4     under this section.
 4-5           Sec. 104.006.  CIVIL PENALTY.  (a)  An insurer who violates
 4-6     Section 104.003 is liable for a civil penalty.  A civil penalty
 4-7     assessed under this section may not exceed:
 4-8                 (1)  $5,000 for the first or second act of violation;
 4-9     or
4-10                 (2)  $10,000 for the third and each subsequent act of
4-11     violation.
4-12           (b)  At the commissioner's request, the attorney general may
4-13     file and prosecute a civil suit in a district court in Travis
4-14     County to recover a civil penalty under this section.
4-15           SECTION 2.  This Act applies only to conduct that occurs on
4-16     or after the effective date of this Act.  Conduct that occurred
4-17     before that date is governed by the law as it existed immediately
4-18     before the effective date of this Act, and that law is continued in
4-19     effect for that purpose.
4-20           SECTION 3.  This Act takes effect September 1, 2001.
         _______________________________     _______________________________
             President of the Senate              Speaker of the House
               I hereby certify that S.B. No. 1654 passed the Senate on
         May 1, 2001, by a viva-voce vote; and that the Senate concurred in
         House amendments on May 26, 2001, by a viva-voce vote.
                                                 Secretary of the Senate
               I hereby certify that S.B. No. 1654 passed the House, with
         amendments, on May 23, 2001, by a non-record vote.
                                                Chief Clerk of the House