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.
 1-5           SECTION 1. Subtitle B, Title 2, Insurance Code, is amended by
 1-6     adding Chapter 104 to read as follows:
 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.