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.