84R10603 BEF-F

By: Miles H.B. No. 3090

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of for-profit legal service contract companies, administrators, and sales representatives; providing an administrative penalty; authorizing a fee; requiring an occupational registration.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 953.001, Occupations Code, is amended by amending Subdivision (1) and adding Subdivision (1-a) to read as follows:

(1) "Administrator" means the person, other than the company or an employee of the company, who is responsible for the third-party administration of a legal service contract. [The term includes a person responsible for any filing required by this chapter.]

(1-a) "Commission" means the Texas Commission of Licensing and Regulation.

SECTION 2. The heading to Section 953.005, Occupations Code, is amended to read as follows:

Sec. 953.005. POWERS AND DUTIES OF EXECUTIVE DIRECTOR AND COMMISSION.

SECTION 3. Sections 953.005(b) and (d), Occupations Code, are amended to read as follows:

(b) On request of the executive director, a company, administrator, 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.

(d) The commission [executive director] may adopt rules as necessary to implement this chapter.

SECTION 4. Section 953.051(a), Occupations Code, is amended to read as follows:

(a) A person may not operate as a company, administrator, 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.

SECTION 5. Sections 953.052(a) and (b), Occupations Code, are amended to read as follows:

(a) An applicant for registration as a company, administrator, or sales representative must submit an application [to the department. The application must be] in the manner and on the form prescribed by the department [executive director].

(b) An application for registration as a company must include satisfactory evidence [satisfactory to the executive director] of the company's compliance with the applicable financial security requirements prescribed by Subchapter C.

SECTION 6. Sections 953.053, 953.055, 953.056, and 953.057, Occupations Code, are amended to read as follows:

Sec. 953.053. FEES. (a) The commission by rule shall establish reasonable and necessary fees in amounts sufficient to cover the costs of administering this chapter.

(a-1) 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-1) [(a)], the department [executive director] shall annually collect from each company a fee equal to the difference between an amount equal to 1.7 percent of the amount a company collects for legal service contracts sold by the company in this state in the current year and the amount the company paid to the state in franchise taxes in the same year. The commission by rule [executive director] shall establish a schedule and procedure for collecting this fee.

(c) Each registered company, administrator, and sales representative shall pay the appropriate fees set by the commission by rule [To be registered, a company must pay the appropriate fees required by this section].

Sec. 953.055. ADDITIONAL REQUIREMENTS FOR SALES REPRESENTATIVES. [(a)] The commission or 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; or

(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 commission [executive director] may adopt rules regarding the procedures and fees a company, administrator, or sales representative must follow and pay when requesting a modification to the company's, administrator's, or sales representative's registration information that is on file with the department.

Sec. 953.057. RENEWAL OF REGISTRATION. The commission [executive director] shall adopt rules for the renewal of a company's, administrator's, or sales representative's registration, including a rule that addresses late renewals.

SECTION 7. Section 953.101, Occupations Code, is amended by amending Subsections (a), (b), and (c) and adding Subsections (b-1), (c-1), (c-2), (c-3), and (c-4) to read as follows:

(a) To ensure the faithful performance of a company's obligations to its legal service contract holders under this chapter and under the terms of its legal service contracts, 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 $50,000 with the executive director [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].

(b-1) The acceptable forms of financial security under this section are:

(1) a surety bond;

(2) a certificate of deposit;

(3) a cash deposit; or

(4) a letter of credit.

(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].

(c-1) At initial registration and at each renewal, a company must submit for review by the department:

(1) the audited financial statements of a company; and

(2) if the company maintains reserves, a certified statement describing the company's reserves.

(c-2) The statement described by Subsection (c-1)(2) must be made by an actuary who is a member in good standing of the American Academy of Actuaries.

(c-3) An applicant for initial registration that has not had sufficient operating history to have audited financial statements based on at least 12 months of operations must provide the department with financial statements that have been reviewed by a certified public accountant in order to meet the requirements under Subsection (c-1)(1).

(c-4) The commission or the executive director may take disciplinary action against a company, including imposing administrative penalties and administrative sanctions, for failure of a company to meet and maintain the financial security requirements under this section or to submit the required financial security documentation under this section.

SECTION 8. Sections 953.102, 953.104, and 953.152, Occupations Code, are amended to read as follows:

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 60th [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 30th [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 hold in trust an amount [the extent] necessary to ensure [that] the company's obligations to its legal service contract holders are met as provided by Section 953.101(a) [in accordance with this chapter].

(c) Not later than the 30th day after the date the executive director is notified that the company's financial security has been renewed or replaced, the executive director shall return any financial security that was drawn on under Subsection (b).

Sec. 953.104. CLAIMS ON [SUIT ON] FINANCIAL SECURITY; DISTRIBUTION OF FINANCIAL SECURITY FUNDS. (a) The department [state], on behalf of a legal service contract holder [injured because of a company's violation of this chapter], may file a claim against [bring a suit for payment from] the company's financial security deposit held by the executive director for failure of the company to meet its obligations as provided by Section 953.101(a).

(b) The department [state] is the only person [party] that may file a claim against a [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 executive director [court] shall determine the amount to be paid to the legal service contract holder [the executive director shall pay the consumer] from the company's financial security deposit held by the executive director.

(d) In the event of a company's bankruptcy or a similar event affecting the company's ability to faithfully perform its obligations to its legal service contract holders, the executive director may distribute any funds held in trust as financial security for the company under this section to eligible legal service contract holders as payment for eligible claims. The executive director shall distribute the funds in an equitable and cost-effective manner as determined by the executive director.

Sec. 953.152. GROUP LEGAL SERVICE CONTRACTS. (a) For purposes of this section, "group legal service contract" means a legal service contract that is entered into by an employer or association on behalf of its employees or association members that choose to purchase the service.

(b) A company may issue group legal service contracts.

(c) The company shall provide a legal service contract holder who obtains a group legal service contract with a document that describes the company's services and complies with the requirements of this chapter.

(d) A company that issues group legal service contracts is subject to the requirements of this chapter for issuance of legal service contracts.

SECTION 9. Sections 953.155(a) and (b), Occupations Code, are amended to read as follows:

(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) the name and address of each administrator, if applicable;

(4) the names and department registration numbers [a list] of the sales representatives authorized by the company to market, sell, or offer to sell the company's legal service contracts;

(5) [(4)] a copy of each contract entered into between the company and a contracting attorney; and

(6) [(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.]

SECTION 10. Section 953.156, Occupations Code, is amended to read as follows:

Sec. 953.156. FORM OF LEGAL SERVICE CONTRACT AND REQUIRED DISCLOSURES. (a) A legal service contract must be filed with the department [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 department [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 telephone number and electronic mail address, as well as a statement that the department regulates the company, the administrator, 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 commission [executive director as determined] by rule.

SECTION 11. Subchapter D, Chapter 953, Occupations Code, is amended by adding Section 953.1581 to read as follows:

Sec. 953.1581. CANCELING A LEGAL SERVICE CONTRACT BY A CONTRACT HOLDER. (a) A legal service contract holder may cancel the legal service contract if the legal service contract holder provides the company with written notice of the legal service contract holder's intent to cancel the contract not later than the seventh day after the date the legal service contract holder receives the contract.

(b) If a legal service contract holder cancels a legal service contract in accordance with Subsection (a) and the holder has not sought legal services under the contract before the date the contract is canceled, 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.

(c) A legal service contract holder may cancel the legal service contract after the time prescribed by Subsection (a) as provided by the contract.

(d) A company must pay the refund or credit the legal service contract holder's account before the 46th day after the date the contract is canceled. If the company fails to make the refund or credit by that date, the company is liable to the legal service contract holder for a penalty each month an amount remains outstanding. The penalty shall be an amount equal to 10 percent of the amount outstanding. The penalty is in addition to the amount of the refund owed to the legal service contract holder.

(e) The right to cancel a legal service contract is not transferable.

SECTION 12. The heading to Section 953.159, Occupations Code, is amended to read as follows:

Sec. 953.159. CANCELING A LEGAL SERVICE CONTRACT BY A COMPANY.

SECTION 13. Sections 953.161, 953.162, 953.201, and 953.202, Occupations Code, are amended to read as follows:

Sec. 953.161. MISLEADING STATEMENTS PROHIBITED. A company, an administrator, 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 registered under this chapter [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, except Section 953.101.

(b) The appointment of an administrator under this section does not affect a company's responsibility to comply with this chapter. [The executive director may adopt rules regarding the registration of an administrator with the department.]

Sec. 953.201. DISCIPLINARY ACTION. On a finding that a ground for disciplinary action exists under this chapter, the commission or 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 a [an emergency] cease and desist order to enforce this chapter if the executive director determines that the action is necessary to prevent a violation of this chapter, a rule adopted under this chapter, or an order issued by the commission or executive director [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.]

SECTION 14. Section 953.203(a), Occupations Code, is amended to read as follows:

(a) The executive director may institute an action against a company, administrator, 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.

SECTION 15. Section 953.204, Occupations Code, is amended to read as follows:

Sec. 953.204. ADMINISTRATIVE PROCEDURE. Subchapters F and G, Chapter 51, [Sections 51.310, 51.353, and 51.354] apply to a disciplinary action taken under this chapter.

SECTION 16. (a) The following provisions of the Occupations Code are repealed:

(1) Section 953.001(6);

(2) Section 953.004;

(3) Sections 953.101(d), (e), and (f);

(4) Section 953.105; and

(5) Section 953.205.

(b) Effective January 1, 2016, the following provisions of the Occupations Code are repealed:

(1) Section 953.157; and

(2) Section 953.158.

SECTION 17. (a) The Texas Commission of Licensing and Regulation shall adopt rules implementing the changes in law made by this Act to Chapter 953, Occupations Code, not later than January 1, 2016.

(b) Section 953.1581, Occupations Code, as added by this Act, applies only to a legal service contract sold on or after January 1, 2016. A legal service contract sold before that date is governed by the law in effect on the date the contract was sold, and the former law is continued in effect for that purpose.

(c) Notwithstanding Subsection (b) of this section, a legal service contract sold before January 1, 2016, may not be extended or renewed at the end of the legal service contract term unless the contract complies with Section 953.1581, Occupations Code, as added by this Act.

SECTION 18. This Act takes effect September 1, 2015.