HBA-ATS C.S.H.B. 1533 76(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 1533
By: Puente
Insurance
4/8/1999
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Some automobile insurers routinely mail materials to people they do not
insure who are involved in accidents with their customers.  These materials
have included a medical and employment record release form, a letter known
as a "service pledge" or "customer service pledge," and a document titled
"Do I need an attorney?"  Depending on whether the pledge is a "service
pledge" or "customer service pledge," the insurance companies promise
quality service or pledge to consider the injured party as a customer,
respectively.  The document titled "Do I need an attorney?" informs
potential third-party claimants (claimants) that they are not required to
hire a lawyer, that hiring a lawyer can delay the settlement process, and
that lawyers pocket a healthy proportion of the settlement as their fee. 

The practice of distributing these materials has generated controversy.
Consumer groups argue that the materials mislead potential claimants by
implying that accident victims are considered policyholders and will be
treated as such, thus dissuading victims from seeking independent advice
about what course of action to take.  Insurance companies respond by
arguing that the materials are given to potential claimants to help them
make an informed choice about how to proceed with their claims. 

Three states, Connecticut, New York, and Virginia, have investigated and
responded to this practice. The Connecticut Legislature enacted legislation
prohibiting insurance companies from sending letters that advise claimants
not to hire an attorney.  The Attorney General of the State of New York
ordered changes to the language of the pledges.  In West Virginia, the bar
association concluded that documents discouraging claimants from hiring an
attorney constituted an unlawful practice of law and ordered the insurance
companies to stop distributing these documents.  Currently, the Texas
Department of Insurance is investigating this practice. 

C.S.H.B. 1533 prohibits an insurer and any other legal entity engaged in
the business of insurance from discouraging a third-party claimant, either
by a written or verbal communication, from obtaining the services of an
attorney to pursue a claim against the insured made by the claimant.  In
addition, this bill provides that an insurer and any other legal entity
engaged in the business of insurance commits an unfair and deceptive act or
practice in the business of insurance if they violate the prohibition
against discouraging a claimant from hiring an attorney. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the commissioner of insurance in
SECTION 1 (Article 21.21C, Insurance Code) of this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subchapter B, Chapter 21, Insurance Code, by adding
Article 21.21C, as follows: 

Art. 21.21C.  UNFAIR PRACTICES RELATING TO USE OF ATTORNEYS FOR CERTAIN
CLAIMS.  (a) Defines "claimant" to mean an individual or entity known or
believed to have a claim against an insured for damage to or destruction of
property, bodily injury, or wrongful death.  Defines a "person" to mean any
individual, corporation,  association, partnership, reciprocal exchange,
inter-insurer, Lloyds insurer, fraternal benefit society, and any other
legal entity engaged in the business of insurance, including agents,
brokers, adjusters and life insurance counselors. 

(b) Prohibits a person from discouraging a claimant, either by a written or
verbal communication, from obtaining the services of an attorney to pursue
a claim against the insured made by the claimant. 

(c) Provides that a person commits an unfair and deceptive act or practice
in the business of insurance if the person violates Subsection (b).
Provides that a person is subject to each penalty and other sanction
provided by Article 21.21 (Unfair Competition and Unfair Practices) for a
violation of Subsection (b). 

(d) Authorizes the commissioner of insurance to adopt rules to implement
this article. 

SECTION 2.  Effective date: September 1, 1999.
            Makes application of this Act prospective for a written or oral
communication made            on or after January 1, 2000. 

SECTION 3.  Emergency clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 1533 modifies the original bill in SECTION 1 by changing the title
of proposed Article 21.21C, Chapter 21, Insurance Code, from "Unfair
Practices Relating to Use of Representatives for Certain Claims" to "Unfair
Practices Relating to Use of Attorneys for Certain Claims." 

The substitute modifies the original in proposed Subsection (b), Article
21.21C, by prohibiting a person from discouraging a claimant, either by a
written or verbal communication, from obtaining the services of an
attorney, rather than another person, including an attorney, to pursue a
claim against the insured made by the claimant.