HBA-ATS H.B. 1533 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1533 By: Puente Insurance 2/25/1999 Introduced 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. 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 another person, including 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 REPRESENTATIVES 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 another person, including 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.