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Amend CSSB 279 by adding the following:
SECTION 1. Subtitle B, Title 5, Occupations Code, is
amended by adding Chapter 953 to read as follows:
CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL SERVICE
CONTRACT COMPANIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 953.001. DEFINITIONS. In this chapter:
(1) "Administrator" means the person responsible for
the administration of a legal service contract. The term includes a
person responsible for any filing required by this chapter.
(2) "Company" means a person who:
(A) is contractually obligated to a legal service
contract holder under the terms of a legal service contract;
(B) enters into a contract with a contracting
attorney to provide or obtain covered legal services for a legal
service contract holder; and
(C) operates as a for-profit legal service
contract company.
(3) "Contracting attorney" means an attorney who has
entered into a contract with a company to provide or obtain covered
legal services for a legal service contract holder.
(4) "Department" means the Texas Department of
Licensing and Regulation.
(5) "Executive director" means the executive director
of the Texas Department of Licensing and Regulation or the
executive director's designee.
(6) "Financial security" means a surety bond, a
certificate of deposit, or any other item approved by the executive
director.
(7) "Legal service contract" means an agreement:
(A) that is entered into for a separately stated
consideration; and
(B) under which the company obtains legal
services for a legal service contract holder through a contracting
attorney.
(8) "Legal service contract holder" means the person
who purchases or otherwise holds a legal service contract or who is
covered under a group legal service contract.
(9) "Person" means an individual or a partnership,
company, corporation, association, or other private group.
(10) "Sales representative" means a person who sells
or solicits legal service contracts to a person on behalf of a
company.
Sec. 953.002. EXEMPTIONS. This chapter does not apply to:
(1) a nonprofit legal services corporation under
Chapter 961, Insurance Code;
(2) an automobile club supplying services under
Chapter 722, Transportation Code;
(3) a prepaid legal services program under Chapter
951;
(4) a lawyer referral service under Chapter 952;
(5) a retainer contract between an attorney and a
client, and similar contracts made with a group of clients involved
in the same or closely related legal matters; or
(6) a contingency fee contract between an attorney and
a client.
Sec. 953.003. EXEMPTIONS FROM CERTAIN OTHER LAWS. The acts
of marketing, selling, offering for sale, issuing, making,
proposing to make, and administering a legal service contract that
is regulated by this chapter are exempt from the Insurance Code and
other laws of this state regulating the business of insurance.
Sec. 953.004. PREPAID LEGAL SERVICE CONTRACT
PROGRAMS. (a) An insurer who issues or renews prepaid legal
service contracts under Article 5.13-1, Insurance Code, shall
notify the commissioner of insurance in writing not later than the
60th day before transferring regulation of the insurer's legal
service contracts from the Texas Department of Insurance to the
Texas Department of Licensing and Regulation. An insurer that
complies with this section is exempt from the requirements of:
(1) Articles 21.49-2, 21.49-2A, 21.49-2B, 21.49-2D,
and 21.49-2E, Insurance Code; and
(2) Chapter 827, Insurance Code.
(b) The exemptions described by Subsection (a) begin on the
date the commissioner receives the notice under Subsection (a) and
apply until the insurer registers with the department as required
by Section 953.052.
Sec. 953.005. POWERS AND DUTIES OF EXECUTIVE DIRECTOR. (a)
The executive director may investigate a company, administrator,
sales representative, or other person as necessary to enforce this
chapter and protect legal service contract holders in this state.
(b) On request of the executive director, a company or sales
representative shall make the records relevant to the regulation of
legal service contracts in this state available to the executive
director as necessary to enable the executive director to
reasonably determine compliance with this chapter.
(c) After contacting the company that has contracted with
the contracting attorney, the executive director may refer a
complaint received by the department concerning the performance of
a contracting attorney to:
(1) the State Bar of Texas;
(2) the appropriate licensing agency of another
jurisdiction, if applicable; or
(3) any person designated by law to receive complaints
from the public concerning the performance of an attorney.
(d) The executive director may adopt rules as necessary to
implement this chapter.
[Sections 953.006-953.050 reserved for expansion]
SUBCHAPTER B. REGISTRATION REQUIREMENTS
Sec. 953.051. REGISTRATION REQUIRED. (a) A person may not
operate as a company or sales representative of legal service
contracts sold in this state unless the person is registered with
the department. A company's contract may only be sold by a sales
representative who is registered with the department.
(b) A person who collects commissions for the sale of legal
service contracts but who does not actively sell or solicit legal
service contracts is not required to register under this
subchapter.
Sec. 953.052. APPLICATION FOR REGISTRATION. (a) An
applicant for registration must submit an application to the
department. The application must be in the form prescribed by the
executive director.
(b) An application for registration as a company must
include evidence satisfactory to the executive director of
compliance with the applicable financial security requirements
prescribed by Subchapter C.
(c) An application for registration as a sales
representative must include a list of the companies for which the
sales representative will sell or solicit legal service contracts.
Sec. 953.053. FEES. (a) The executive director shall
develop a tiered fee schedule of annual registration fees under
which a company's registration fee is based on the number of legal
service contracts the company sold in this state during the
preceding 12-month period. The executive director shall set the
amounts of the fees required by this subsection to cover the costs
of administering this chapter.
(b) In addition to the annual registration fee required by
Subsection (a), the executive director shall collect from each
company a fee equal to 1.7 percent of the annual price of each legal
service contract the company sells in this state. The executive
director shall establish a schedule and procedure for collecting
this fee.
(c) To be registered, a company must pay the appropriate
fees required by this section.
Sec. 953.054. INFORMATION CONCERNING NUMBER OF LEGAL
SERVICE CONTRACTS SOLD. Information concerning the number of
legal service contracts sold by a company that is submitted under
Section 953.053 is a trade secret to which Section 552.110,
Government Code, applies.
Sec. 953.055. ADDITIONAL REQUIREMENTS FOR SALES
REPRESENTATIVES. (a) The executive director may deny an
application from a sales representative who:
(1) made a material misrepresentation or fraudulent
statement in the application;
(2) has had a license revoked under the Insurance
Code;
(3) has had a license suspended or revoked under
Section 82.062, Government Code; or
(4) fails to pay the fee required under Subsection
(b).
(b) Each registered sales representative shall pay an
annual registration fee in the amount set by the executive director
to cover the costs of administering this chapter.
Sec. 953.056. MODIFICATION OF REGISTRATION
INFORMATION. The executive director may adopt rules regarding the
procedures and fees a company or sales representative must follow
and pay when requesting a modification to the company's or sales
representative's registration information that is on file with the
department.
Sec. 953.057. RENEWAL OF REGISTRATION. The executive
director shall adopt rules for the renewal of a company's or sales
representative's registration, including a rule that addresses
late renewals.
[Sections 953.058-953.100 reserved for expansion]
SUBCHAPTER C. FINANCIAL SECURITY REQUIREMENTS FOR
LEGAL SERVICE CONTRACT COMPANIES
Sec. 953.101. FINANCIAL SECURITY REQUIREMENTS. (a) To
ensure the faithful performance of a company's obligations to its
legal service contract holders, each company must deposit and
maintain a form of financial security with the executive director.
The financial security deposited with the director must maintain at
all times the following market values:
(1) a company generating $300,000 or less in annual
gross revenue in this state from the sale of legal service contracts
in the preceding year shall deposit at least $50,000 with the
executive director;
(2) a company generating more than $300,000 but less
than $750,000 in annual gross revenue in this state from the sale of
legal service contracts in the preceding year shall deposit at
least $75,000 with the executive director; and
(3) a company generating $750,000 or more in annual
gross revenue in this state from the sale of legal service contracts
in the preceding year shall deposit at least $100,000 with the
executive director.
(b) For purposes of Subsection (a), if a company that had no
gross revenue in this state from the sale of legal service contracts
in the preceding year previously generated revenue from the sale of
prepaid legal service contracts under Article 5.13-1, Insurance
Code, the company shall deposit an amount of financial security
based on the revenue generated from the sale of prepaid legal
service contracts under the Insurance Code in the preceding year.
(c) The department is responsible for the safeguarding of
financial security deposited with the executive director under this
section. Financial security is not subject to taxation and is to be
used exclusively to guarantee the company's performance of its
obligations to its legal service contract holders.
(d) The executive director may order an increase in the
amount of financial security required of a company under this
section if the executive director finds that there has been a
substantial change in the company, including an increase in the
amount of fees the company is charging consumers or an increase in
the company's annual gross revenue.
(e) Not later than the 30th day after the date the executive
director orders a financial security increase under Subsection (d),
the company may request a hearing on the issue. The executive
director shall hold a hearing not later than the 30th day after the
date a company requests a hearing.
(f) Failure of a company to meet the financial security
requirements in this section not later than the 30th day after the
date the executive director issues a final decision in the event of
a hearing or the 30th day after the date the period for submitting a
request for a hearing expires constitutes a ground for revocation
of the company's registration.
Sec. 953.102. REPLACEMENT OR RENEWAL OF FINANCIAL
SECURITY. (a) If a company's financial security under Section
953.101 is issued or written for a specified term, not later than
the 90th day before the date the term expires, the company shall:
(1) replace the financial security; or
(2) notify the executive director of the company's
intention to renew the financial security.
(b) If, not later than the 60th day before the date the term
of a company's financial security expires, the executive director
does not receive satisfactory notification of a company's renewal
or replacement of the financial security, the executive director
may draw on the company's financial security to the extent
necessary to ensure that the company's obligations to its legal
service contract holders are met in accordance with this chapter.
Sec. 953.103. DURATION OF DEPOSIT OF FINANCIAL
SECURITY. The executive director shall maintain a company's
financial security deposit so long as the company continues to do
business in this state. When a company ceases to do business in
this state and furnishes the executive director with satisfactory
proof that the company has discharged or otherwise adequately met
all obligations to its legal service contract holders in this
state, the executive director shall release the deposited financial
security to the company.
Sec. 953.104. SUIT ON FINANCIAL SECURITY. (a) The state,
on behalf of a legal service contract holder injured because of a
company's violation of this chapter, may bring a suit for payment
from the company's financial security deposit held by the
executive director.
(b) The state is the only party that may bring suit for
payment from a company's financial security deposit held by the
executive director. This chapter does not create a private right of
action.
(c) The state may only seek damages for the cost of the legal
services the company failed to provide to a legal service contract
holder under the terms of the legal service contract.
(d) The court shall determine the amount the executive
director shall pay the consumer from the company's financial
security deposit held by the executive director.
Sec. 953.105. ADDITIONAL FINANCIAL SECURITY REQUIREMENTS.
(a) In addition to the financial security requirements
established by this subchapter, the executive director shall
annually review:
(1) the audited financial statements of a company; and
(2) a certified statement regarding the reserves of a
company. This certified statement shall be made by an actuary that
is a member in good standing of the American Academy of Actuaries.
(b) After reviewing the information required by paragraph
(a), the executive director may require the company to maintain
certain reserves in order to obtain or maintain its registration.
[Sections 953.106-953.150 reserved for expansion]
SUBCHAPTER D. PRACTICE BY LEGAL SERVICE
CONTRACT COMPANIES
Sec. 953.151. COMPANY REQUIREMENTS. (a) A company may not
sell, offer for sale, or issue a legal service contract in this
state unless the company gives the legal service contract holder:
(1) a receipt for, or other written evidence of, the
purchase of the contract; and
(2) a copy of the legal service contract.
(b) A company shall perform the services as stated in the
legal service contract.
Sec. 953.152. GROUP LEGAL SERVICE CONTRACTS. A company may
issue group legal service contracts. The company shall provide a
legal service contract holder who obtains a group contract with a
document that describes the company's services and complies with
the requirements of this chapter.
Sec. 953.153. CONTRACTING ATTORNEY REQUIREMENTS. A
contracting attorney must:
(1) be licensed in the jurisdiction in which the legal
services are performed;
(2) be in good standing with the entity that licenses
attorneys in that jurisdiction; and
(3) maintain professional liability and errors and
omissions insurance with minimum annual limits of $100,000 for each
occurrence and $300,000 in the aggregate.
Sec. 953.154. COMPANY INTERFERENCE WITH ATTORNEY'S DUTIES
PROHIBITED. A company may not interfere with the attorney-client
relationship or with the contracting attorney's independent
exercise of professional judgment.
Sec. 953.155. COMPANY RECORDS. (a) A company shall
maintain accurate accounts, books, and other records regarding
transactions regulated under this chapter. The company's records
must include:
(1) a copy of each unique form of legal service
contract filed with the executive director under Section 953.156;
(2) the name and address of each legal service
contract holder;
(3) a list of the sales representatives authorized by
the company to market, sell, or offer to sell the company's legal
service contracts;
(4) a copy of each contract entered into between the
company and a contracting attorney; and
(5) a list of complaints the company has received from
legal service contract holders, including the name of the sales
representative involved in the transaction leading to the
complaint.
(b) The records required by this section may be maintained
in an electronic medium or through other recordkeeping technology.
If a record is not in a hard copy, the company must be able to
reformat the record into a legible hard copy at the request of the
executive director.
(c) Except as provided by Subsection (d), a company shall
retain the records required by this section until at least the
second anniversary of the termination date of the specified period
of coverage under the legal service contract.
(d) A company that discontinues business in this state shall
retain its records until the company furnishes the executive
director with proof satisfactory to the executive director that the
company has discharged all obligations to legal service contract
holders in this state.
Sec. 953.156. FORM OF LEGAL SERVICE CONTRACT AND REQUIRED
DISCLOSURES. (a) A legal service contract must be filed with the
executive director before it is marketed, sold, offered for sale,
administered, or issued in this state. Any subsequent endorsement
or attachment to the contract must also be filed with the executive
director before the endorsement or attachment is delivered to legal
service contract holders.
(b) A legal service contract marketed, sold, offered for
sale, administered, or issued in this state must:
(1) be written, printed, or typed in clear,
understandable language that is easy to read;
(2) include the name and full address of the company;
(3) include the purchase price of the contract and the
terms under which the contract is sold;
(4) include the terms and restrictions governing
cancellation of the contract by the company or the legal service
contract holder;
(5) identify:
(A) any administrator, if the administrator is
not the company;
(B) the sales representative; and
(C) the name of the legal service contract
holder;
(6) include the amount of any deductible or copayment;
(7) specify the legal services and other benefits to
be provided under the contract, and any limitation, exception, or
exclusion;
(8) specify the legal services, if any, for which the
company will provide reimbursement and the amount of that
reimbursement;
(9) specify any restriction governing the
transferability of the contract or the assignment of benefits;
(10) include the duties of the legal service contract
holder;
(11) include the contact information for the
department, including the department's toll-free number and
electronic mail address, as well as a statement that the department
regulates the company and the company's sales representatives;
(12) explain the method to be used in resolving the
legal service contract holder's complaints and grievances;
(13) explain how legal services may be obtained under
the legal service contract;
(14) include a provision stating that no change in the
contract is valid until the change has been approved by an executive
officer of the company and unless the approval is endorsed or
attached to the contract;
(15) include any eligibility and effective date
requirements, including a definition of eligible dependents and the
effective date of their coverage;
(16) include the conditions under which coverage will
terminate;
(17) explain any subrogation arrangements;
(18) contain a payment provision that provides for a
grace period of at least 31 days;
(19) include conditions under which contract rates may
be modified; and
(20) include any other items required by the executive
director as determined by rule.
Sec. 953.157. TERMINATING A LEGAL SERVICE CONTRACT. A
legal service contract holder may terminate the legal service
contract if the legal service contract holder provides the company
with written notice of the legal service contract holder's
intention of terminating the contract not later than the seventh
day after the date the legal service contract holder receives the
contract.
Sec. 953.158. VOIDING A LEGAL SERVICE CONTRACT. (a) If a
legal service contract holder terminates a legal service contract
in accordance with Section 953.157 and the holder has not sought
legal services under the contract before the contract is
terminated, the contract is void.
(b) A legal service contract holder may void the legal
service contract at a later time as provided by the contract.
(c) If a legal service contract is voided, the company shall
refund to the legal service contract holder or credit to the account
of the legal service contract holder the full purchase price of the
contract. If the company does not pay the refund or credit the
legal service contract holder's account before the 46th day after
the date the contract is voided, the company is liable to the legal
service contract holder for a penalty each month an amount remains
outstanding. The monthly penalty may not exceed 10 percent of the
amount outstanding.
(d) The right to void a legal service contract is not
transferable.
Sec. 953.159. CANCELLING A LEGAL SERVICE CONTRACT. (a) A
company may cancel a legal service contract by mailing a written
notice of cancellation to the legal service contract holder at the
legal service contract holder's last known address according to the
records of the company. The company must mail the notice before the
fifth day preceding the effective date of the cancellation. The
notice must state the effective date of the cancellation and the
reason for the cancellation.
(b) The company is not required to provide prior notice of
cancellation if the legal service contract is cancelled because of:
(1) nonpayment of the consideration for the contract;
(2) a material misrepresentation by the legal service
contract holder to the company;
(3) a substantial breach of a duty by the legal service
contract holder; or
(4) cancellation of the contract by the legal service
contract holder.
Sec. 953.160. LIMITATIONS ON COMPANY NAME. (a) A company
may not use a name that:
(1) includes "insurance," "casualty," "surety," or
"mutual" or any other word descriptive of the insurance, casualty,
or surety business; or
(2) is deceptively similar to the name or description
of an insurance or surety corporation or to the name of any other
company.
(b) This section does not apply to a company that, before
September 1, 2003, included a word prohibited under this section in
its name. A company described by this subsection must include in
each legal service contract a statement substantially similar to
the following: "This agreement is not an insurance contract."
Sec. 953.161. MISLEADING STATEMENTS PROHIBITED. A
company, a sales representative, or a representative of a sales
representative may not, in the company's contracts or marketing:
(1) make, permit, or cause to be made any false or
misleading statement; or
(2) deliberately omit a material statement if the
omission would be considered misleading.
Sec. 953.162. APPOINTMENT AND RESPONSIBILITIES OF
ADMINISTRATOR. (a) A company may appoint an administrator or
designate a person to be responsible for:
(1) all or any part of the administration or sale of
legal service contracts; and
(2) compliance with this chapter.
(b) The executive director may adopt rules regarding the
registration of an administrator with the department.
[Sections 953.163-953.200 reserved for expansion]
SUBCHAPTER E. DISCIPLINARY ACTION
Sec. 953.201. DISCIPLINARY ACTION. On a finding that a
ground for disciplinary action exists under this chapter, the
executive director may impose an administrative sanction,
including any administrative penalty, as provided by Chapter 51.
Sec. 953.202. EMERGENCY CEASE AND DESIST ORDER. (a) The
executive director may issue an emergency cease and desist order to
enforce this chapter if the executive director determines that an
emergency exists requiring immediate action to protect the public.
(b) The executive director may issue the emergency cease and
desist order without notice and hearing if the executive director
determines that an immediate issuance is necessary under the
circumstances.
(c) The executive director shall set the time and place for
a hearing to affirm, modify, or set aside an emergency cease and
desist order that was issued without a hearing.
Sec. 953.203. INJUNCTIVE RELIEF; CIVIL PENALTY. (a) The
executive director may institute an action against a company or
sales representative for injunctive relief under Section 51.352 to
restrain a violation or a threatened violation of this chapter or an
order issued or rule adopted under this chapter.
(b) In addition to the injunctive relief provided by
Subsection (a), the executive director may institute an action for
a civil penalty as provided by Section 51.352.
Sec. 953.204. ADMINISTRATIVE PROCEDURE. Sections 51.310,
51.353, and 51.354 apply to a disciplinary action taken under this
chapter.
Sec. 953.205. APPEAL. A person affected by a ruling,
order, decision, or other action of the executive director or
department may appeal by filing a petition in a district court in
Travis County.
SECTION 2. Article 5.13-1, Insurance Code, is amended by
adding Subsection (h) to read as follows:
(h) An insurer may not issue or renew a prepaid legal
service contract under this article after March 1, 2004.
SECTION 3. Subsection (b), Section 951.003, Occupations
Code, is amended to read as follows:
(b) A law pertaining to legal service contracts under
Chapter 953 or insurance does not apply to a program under this
chapter.
SECTION 4. (a) Chapter 953, Occupations Code, as added by
this Act, applies only to:
(1) a legal service contract entered into on or after
March 1, 2004; or
(2) a legal service contract entered into before
March 1, 2004, that meets the requirements of Subsection (c) of
this section.
(b) A person regulated under Chapter 953, Occupations Code,
as added by this Act, is not required to comply with that chapter
until March 1, 2004, but may implement the requirements of that
chapter before March 1, 2004. The failure of a legal service
contract company or other person to comply with Chapter 953,
Occupations Code, as added by this Act, or otherwise to administer a
legal service contract plan in the manner required by that chapter
before March 1, 2004, is not admissible in any court, arbitration,
or alternative dispute resolution proceeding and may not otherwise
be used to prove that the action of any person or the affected legal
service contract was unlawful or otherwise improper.
(c) The Texas Department of Licensing and Regulation and the
Texas Department of Insurance may enter into a memorandum of
understanding for a transition plan to transfer the regulation of
legal service contracts from the Texas Department of Insurance to
the Texas Department of Licensing and Regulation. The transition
plan at a minimum shall:
(1) allow persons licensed under Chapter 21, Insurance
Code, who have not registered with the Texas Department of
Licensing and Regulation to continue to sell legal service
contracts regulated by the Texas Department of Licensing and
Regulation until March 1, 2004; and
(2) allow a prepaid legal service contract issued
subject to Article 5.13-1, Insurance Code, to be maintained by the
legal service contract holder if:
(A) the insurer that issued the contract or a
related entity is registered with the Texas Department of Licensing
and Regulation under Chapter 953, Occupations Code, as added by
this Act, not later than March 1, 2004;
(B) the legal service contract complies with the
requirements established by Chapter 953, Occupations Code, as added
by this Act, for a legal service contract; and
(C) any addition or deletion to the contract made
by a legal service contract company registered with the Texas
Department of Licensing and Regulation is approved by the company
and the approval is endorsed or attached to the contract.