1-1     By:  Bernsen                                          S.B. No. 1654
 1-2           (In the Senate - Filed March 9, 2001; March 14, 2001, read
 1-3     first time and referred to Committee on Business and Commerce;
 1-4     April 24, 2001, reported favorably by the following vote:  Yeas 4,
 1-5     Nays 1; April 24, 2001, sent to printer.)
 1-6                            A BILL TO BE ENTITLED
 1-7                                   AN ACT
 1-8     relating to the provision of defense counsel to insureds by
 1-9     liability insurers; providing a civil penalty.
1-11           SECTION 1.  Subtitle B, Title 2, Insurance Code, is amended
1-12     by adding Chapter 104 to read as follows:
1-14           Sec. 104.001.  DEFINITION.  In this chapter:
1-15                 (1)  "Insurer" means any partnership, corporation,
1-16     association, or other group, however organized, that issues any
1-17     form of liability insurance, whether primary insurance coverage,
1-18     excess insurance coverage, or umbrella insurance coverage.  The
1-19     term includes a Lloyd's plan insurer, reciprocal or interinsurance
1-20     exchange, county mutual insurance company, or farm mutual insurance
1-21     company.
1-22                 (2)  "Litigation-management guideline" means a rule or
1-23     guideline issued by an insurer to a defense counsel provided by the
1-24     insurer to an insured for the purpose of directing how the counsel:
1-25                       (A)  conducts the defense of the insured; or
1-26                       (B)  records and bills time for conducting the
1-27     defense of the insured.
1-28           Sec. 104.002.  APPLICABILITY OF CHAPTER.  This chapter
1-29     applies only to an insurer that issues a liability insurance
1-30     policy:
1-31                 (1)  to or covering any resident of this state;
1-32                 (2)  covering liability incurred by an insured in this
1-33     state; or
1-34                 (3)  under which the insurer provides a defense to an
1-35     insured in a claim or action pending in this state.
1-36           Sec. 104.003.  CERTAIN GUIDELINES PROHIBITED.  (a)  An
1-37     insurer may not require a defense counsel provided to an insured to
1-38     follow a litigation-management guideline that:
1-39                 (1)  interferes with:
1-40                       (A)  the counsel's duty of loyalty to the
1-41     insured;
1-42                       (B)  the counsel's duty to exercise independent
1-43     professional judgment; or
1-44                       (C)  the attorney-client relationship between the
1-45     counsel and the insured; or
1-46                 (2)  would result in a waiver of the attorney-client
1-47     privilege between the defense counsel and the insured.
1-48           (b)  The types of litigation-management guidelines prohibited
1-49     by this section include guidelines that require a defense counsel
1-50     to obtain the insurer's approval before performing a routine task
1-51     related to conducting the defense of the insured, such as:
1-52                 (1)  determining what legal research the counsel will
1-53     conduct; or
1-54                 (2)  deciding whether to:
1-55                       (A)  hire an expert;
1-56                       (B)  take a deposition;
1-57                       (C)  investigate a claim made against an insured;
1-58                       (D)  videotape a deposition;
1-59                       (E)  file a motion, including a motion to dismiss
1-60     or a motion for summary judgment; or
1-61                       (F)  prepare a document or have a paralegal
1-62     prepare a document.
1-63           Sec. 104.004.  FLAT FEE PROHIBITED.  An insurer may not
1-64     require a defense counsel accept a flat fee for:
 2-1                 (1)  defending an insured; or
 2-2                 (2)  performing a task in connection with the defense
 2-3     of an insured.
 2-4           Sec. 104.005.  CERTAIN CONTRACT PROVISIONS VOID.  (a)  A
 2-5     provision in a contract between an insurer and a defense counsel or
 2-6     between an insurer and an insured that violates Section 104.003 or
 2-7     104.004 is void.
 2-8           (b)  A waiver by an insured of a provision of Section 104.003
 2-9     or 104.004 is void.
2-10           Sec. 104.006.  DAMAGES; INJUNCTIVE RELIEF.  (a)  A person may
2-11     bring an action against an insurer to:
2-12                 (1)  recover any actual damages proximately suffered by
2-13     an insured because of a violation of Section 104.003 or 104.004;
2-14     and
2-15                 (2)  obtain injunctive relief to prevent the threatened
2-16     or continued violation of Section 104.003 or 104.004.
2-17           (b)  An insurer that, based on a litigation-management
2-18     guideline or flat fee agreement that violates this chapter, refuses
2-19     to pay all or part of a defense counsel's fee for the defense of an
2-20     insured is liable to the counsel for the reasonable value of any
2-21     unpaid legal services or expenses provided by the counsel in the
2-22     defense of the insured.
2-23           (c)  A court shall award reasonable and necessary attorney's
2-24     fees to a person who recovers damages or obtains injunctive relief
2-25     under this section.
2-26           Sec. 104.007.  CIVIL PENALTY.  An insurer who violates
2-27     Section 104.003 or 104.004 is liable for a civil penalty not to
2-28     exceed  $10,000 for each act of violation.  At the commissioner's
2-29     request, the attorney general shall institute an action in a
2-30     district court in Travis County to recover a civil penalty under
2-31     this section.
2-32           SECTION 2.  This Act applies only to conduct that occurs on
2-33     or after the effective date of this Act.  Conduct that occurred
2-34     before that date is governed by the law as it existed immediately
2-35     before the effective date of this Act, and that law is continued in
2-36     effect for that purpose.
2-37           SECTION 3.  This Act takes effect September 1, 2001.
2-38                                  * * * * *