By Bernsen S.B. No. 1654
77R4971 AJA-F
A BILL TO BE ENTITLED
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 by
1-6 adding Chapter 104 to read as follows:
1-7 CHAPTER 104. PROVISION OF DEFENSE COUNSEL BY LIABILITY INSURERS
1-8 Sec. 104.001. DEFINITION. In this chapter:
1-9 (1) "Insurer" means any partnership, corporation,
1-10 association, or other group, however organized, that issues any
1-11 form of liability insurance, whether primary insurance coverage,
1-12 excess insurance coverage, or umbrella insurance coverage. The term
1-13 includes a Lloyd's plan insurer, reciprocal or interinsurance
1-14 exchange, county mutual insurance company, or farm mutual insurance
1-15 company.
1-16 (2) "Litigation-management guideline" means a rule or
1-17 guideline issued by an insurer to a defense counsel provided by the
1-18 insurer to an insured for the purpose of directing how the counsel:
1-19 (A) conducts the defense of the insured; or
1-20 (B) records and bills time for conducting the
1-21 defense of the insured.
1-22 Sec. 104.002. APPLICABILITY OF CHAPTER. This chapter applies
1-23 only to an insurer that issues a liability insurance policy:
1-24 (1) to or covering any resident of this state;
2-1 (2) covering liability incurred by an insured in this
2-2 state; or
2-3 (3) under which the insurer provides a defense to an
2-4 insured in a claim or action pending in this state.
2-5 Sec. 104.003. CERTAIN GUIDELINES PROHIBITED. (a) An insurer
2-6 may not require a defense counsel provided to an insured to follow
2-7 a litigation-management guideline that:
2-8 (1) interferes with:
2-9 (A) the counsel's duty of loyalty to the
2-10 insured;
2-11 (B) the counsel's duty to exercise independent
2-12 professional judgment; or
2-13 (C) the attorney-client relationship between the
2-14 counsel and the insured; or
2-15 (2) would result in a waiver of the attorney-client
2-16 privilege between the defense counsel and the insured.
2-17 (b) The types of litigation-management guidelines prohibited
2-18 by this section include guidelines that require a defense counsel
2-19 to obtain the insurer's approval before performing a routine task
2-20 related to conducting the defense of the insured, such as:
2-21 (1) determining what legal research the counsel will
2-22 conduct; or
2-23 (2) deciding whether to:
2-24 (A) hire an expert;
2-25 (B) take a deposition;
2-26 (C) investigate a claim made against an insured;
2-27 (D) videotape a deposition;
3-1 (E) file a motion, including a motion to dismiss
3-2 or a motion for summary judgment; or
3-3 (F) prepare a document or have a paralegal
3-4 prepare a document.
3-5 Sec. 104.004. FLAT FEE PROHIBITED. An insurer may not
3-6 require a defense counsel accept a flat fee for:
3-7 (1) defending an insured; or
3-8 (2) performing a task in connection with the defense
3-9 of an insured.
3-10 Sec. 104.005. CERTAIN CONTRACT PROVISIONS VOID. (a) A
3-11 provision in a contract between an insurer and a defense counsel or
3-12 between an insurer and an insured that violates Section 104.003 or
3-13 104.004 is void.
3-14 (b) A waiver by an insured of a provision of Section 104.003
3-15 or 104.004 is void.
3-16 Sec. 104.006. DAMAGES; INJUNCTIVE RELIEF. (a) A person may
3-17 bring an action against an insurer to:
3-18 (1) recover any actual damages proximately suffered by
3-19 an insured because of a violation of Section 104.003 or 104.004;
3-20 and
3-21 (2) obtain injunctive relief to prevent the threatened
3-22 or continued violation of Section 104.003 or 104.004.
3-23 (b) An insurer that, based on a litigation-management
3-24 guideline or flat fee agreement that violates this chapter, refuses
3-25 to pay all or part of a defense counsel's fee for the defense of an
3-26 insured is liable to the counsel for the reasonable value of any
3-27 unpaid legal services or expenses provided by the counsel in the
4-1 defense 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. 104.007. CIVIL PENALTY. An insurer who violates Section
4-6 104.003 or 104.004 is liable for a civil penalty not to exceed
4-7 $10,000 for each act of violation. At the commissioner's request,
4-8 the attorney general shall institute an action in a district court
4-9 in Travis County to recover a civil penalty under this section.
4-10 SECTION 2. This Act applies only to conduct that occurs on or
4-11 after the effective date of this Act. Conduct that occurred before
4-12 that date is governed by the law as it existed immediately before
4-13 the effective date of this Act, and that law is continued in effect
4-14 for that purpose.
4-15 SECTION 3. This Act takes effect September 1, 2001.