1-1 AN ACT
1-2 relating to the provision of defense counsel to insureds by
1-3 liability insurers; providing a civil penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Subtitle B, Title 2, Insurance Code, is amended
1-6 by adding Chapter 104 to read as follows:
1-7 CHAPTER 104. PROVISION OF DEFENSE COUNSEL BY LIABILITY INSURERS
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
Approved:
_______________________________
Date
_______________________________
Governor