HBA-ATS H.B. 3344 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 3344
By: Dunnam
Insurance
4/9/1999
Introduced



BACKGROUND AND PURPOSE 

Insurers are under an obligation to provide a defense to third party claims
against their policyholders.  In many instances, a large number of property
and casualty insurers in Texas provide that defense, under a reservation of
rights, through the services of their attorneys.  This reservation of
rights may create a conflict of interest because counsel that is selected
by the insurer owes an allegiance to the insurer, and, if allowed to
control the insured's defense, may manipulate the defense of the case to
the benefit of the insurer and to the detriment of the insured.  In
situations in which a conflict of interest exists, an insurer is obligated
to provide, and pay for, independent counsel to defend its insured.
However, most policyholders are not aware of this obligation. 

H.B. 3344  requires the commissioner of insurance, in consultation with the
State Bar of Texas, to adopt rules to ensure the independence of counsel
provided to an insured under a casualty insurance policy.  Under this bill,
the rules must require notice to the insured of the insured's right to
independent counsel and specify circumstances in which, because of conflict
of interest or other relevant issues, an insurer is prohibited from
offering or providing to the insured the services of an attorney in the
employ of or under contract to the insurer. 

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 21.56B, Insurance Code) of this bill. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subchapter E, Chapter 21, Insurance Code, by adding
Article 21.56B, as follows: 

Art. 21.56B.  INDEPENDENCE OF COUNSEL.  (a) Requires the commissioner of
insurance (commissioner), in consultation with the State Bar of Texas, to
adopt rules to ensure the independence of counsel provided to an insured
under a casualty insurance policy (policy).  Provides that the rules must
require notice to the insured of the insured's right to independent counsel
and specify circumstances in which, because of conflict of interest or
other relevant issues, an insurer is prohibited from offering or providing
to the insured the services of an attorney in the employ of or under
contract to the insurer. 

(b) Prohibits an insurer that, under a policy, is obligated to defend an
insured under the policy, from offering or providing to the insured the
services of an attorney in the employ of or under contract to the insurer
unless the insurer complies with rules adopted by the commissioner. 

(c) Sets forth that this article applies to any insurer that issues a
policy of casualty insurance that is delivered, issued for delivery, or
renewed in this state, including a policy written by a county mutual
insurance company, Lloyd's plan company, surplus lines insurer, or a
reciprocal or interinsurance exchange. 

SECTION 2.  Effective date: September 1, 1999.

 SECTION 3.  Requires the commissioner to adopt the rules by December 15,
1999.  Makes application of this Act prospective for an insurance policy
that is delivered, issued for delivery, or renewed on or after January 1,
2000. 

SECTION 4.  Emergency clause.