Texas 2015 - 84th Regular

Texas House Bill HB3090 Compare Versions

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1	1	84R10603 BEF-F
2	2	By: Miles H.B. No. 3090
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the regulation of for-profit legal service contract
8	8	companies, administrators, and sales representatives; providing an
9	9	administrative penalty; authorizing a fee; requiring an
10	10	occupational registration.
11	11	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
12	12	SECTION 1. Section 953.001, Occupations Code, is amended by
13	13	amending Subdivision (1) and adding Subdivision (1-a) to read as
14	14	follows:
15	15	(1) "Administrator" means the person, other than the
16	16	company or an employee of the company, who is responsible for the
17	17	third-party administration of a legal service contract. [The term
18	18	includes a person responsible for any filing required by this
19	19	chapter.]
20	20	(1-a) "Commission" means the Texas Commission of
21	21	Licensing and Regulation.
22	22	SECTION 2. The heading to Section 953.005, Occupations
23	23	Code, is amended to read as follows:
24	24	Sec. 953.005. POWERS AND DUTIES OF EXECUTIVE DIRECTOR AND
25	25	COMMISSION.
26	26	SECTION 3. Sections 953.005(b) and (d), Occupations Code,
27	27	are amended to read as follows:
28	28	(b) On request of the executive director, a company,
29	29	administrator, or sales representative shall make the records
30	30	relevant to the regulation of legal service contracts in this state
31	31	available to the executive director as necessary to enable the
32	32	executive director to reasonably determine compliance with this
33	33	chapter.
34	34	(d) The commission [executive director] may adopt rules as
35	35	necessary to implement this chapter.
36	36	SECTION 4. Section 953.051(a), Occupations Code, is amended
37	37	to read as follows:
38	38	(a) A person may not operate as a company, administrator,
39	39	or sales representative of legal service contracts sold in this
40	40	state unless the person is registered with the department. A
41	41	company's contract may only be sold by a sales representative who is
42	42	registered with the department.
43	43	SECTION 5. Sections 953.052(a) and (b), Occupations Code,
44	44	are amended to read as follows:
45	45	(a) An applicant for registration as a company,
46	46	administrator, or sales representative must submit an application
47	47	[to the department. The application must be] in the manner and on
48	48	the form prescribed by the department [executive director].
49	49	(b) An application for registration as a company must
50	50	include satisfactory evidence [satisfactory to the executive
51	51	director] of the company's compliance with the applicable financial
52	52	security requirements prescribed by Subchapter C.
53	53	SECTION 6. Sections 953.053, 953.055, 953.056, and 953.057,
54	54	Occupations Code, are amended to read as follows:
55	55	Sec. 953.053. FEES. (a) The commission by rule shall
56	56	establish reasonable and necessary fees in amounts sufficient to
57	57	cover the costs of administering this chapter.
58	58	(a-1) The executive director shall develop a tiered fee
59	59	schedule of annual registration fees under which a company's
60	60	registration fee is based on the number of legal service contracts
61	61	the company sold in this state during the preceding 12-month
62	62	period. [The executive director shall set the amounts of the fees
63	63	required by this subsection to cover the costs of administering
64	64	this chapter.]
65	65	(b) In addition to the annual registration fee required by
66	66	Subsection (a-1) [(a)], the department [executive director] shall
67	67	annually collect from each company a fee equal to the difference
68	68	between an amount equal to 1.7 percent of the amount a company
69	69	collects for legal service contracts sold by the company in this
70	70	state in the current year and the amount the company paid to the
71	71	state in franchise taxes in the same year. The commission by rule
72	72	[executive director] shall establish a schedule and procedure for
73	73	collecting this fee.
74	74	(c) Each registered company, administrator, and sales
75	75	representative shall pay the appropriate fees set by the commission
76	76	by rule [To be registered, a company must pay the appropriate fees
77	77	required by this section].
78	78	Sec. 953.055. ADDITIONAL REQUIREMENTS FOR SALES
79	79	REPRESENTATIVES. [(a)] The commission or executive director may
80	80	deny an application from a sales representative who:
81	81	(1) made a material misrepresentation or fraudulent
82	82	statement in the application;
83	83	(2) has had a license revoked under the Insurance
84	84	Code; or
85	85	(3) has had a license suspended or revoked under
86	86	Section 82.062, Government Code[; or
87	87	[(4) fails to pay the fee required under Subsection
88	88	(b).
89	89	[(b) Each registered sales representative shall pay an
90	90	annual registration fee in the amount set by the executive director
91	91	to cover the costs of administering this chapter].
92	92	Sec. 953.056. MODIFICATION OF REGISTRATION INFORMATION.
93	93	The commission [executive director] may adopt rules regarding the
94	94	procedures and fees a company, administrator, or sales
95	95	representative must follow and pay when requesting a modification
96	96	to the company's, administrator's, or sales representative's
97	97	registration information that is on file with the department.
98	98	Sec. 953.057. RENEWAL OF REGISTRATION. The commission
99	99	[executive director] shall adopt rules for the renewal of a
100	100	company's, administrator's, or sales representative's
101	101	registration, including a rule that addresses late renewals.
102	102	SECTION 7. Section 953.101, Occupations Code, is amended by
103	103	amending Subsections (a), (b), and (c) and adding Subsections
104	104	(b-1), (c-1), (c-2), (c-3), and (c-4) to read as follows:
105	105	(a) To ensure the faithful performance of a company's
106	106	obligations to its legal service contract holders under this
107	107	chapter and under the terms of its legal service contracts, each
108	108	company must deposit and maintain a form of financial security with
109	109	the executive director. The financial security deposited with the
110	110	director must maintain at all times the following market values:
111	111	(1) a company generating $300,000 or less in annual
112	112	gross revenue in this state from the sale of legal service contracts
113	113	in the preceding year shall deposit [at least] $50,000 with the
114	114	executive director;
115	115	(2) a company generating more than $300,000 but less
116	116	than $750,000 in annual gross revenue in this state from the sale of
117	117	legal service contracts in the preceding year shall deposit [at
118	118	least] $75,000 with the executive director; and
119	119	(3) a company generating $750,000 or more in annual
120	120	gross revenue in this state from the sale of legal service contracts
121	121	in the preceding year shall deposit [at least] $100,000 with the
122	122	executive director.
123	123	(b) For purposes of Subsection (a), if a company [that] had
124	124	no gross revenue in this state from the sale of legal service
125	125	contracts in the preceding year [previously generated revenue from
126	126	the sale of prepaid legal service contracts under Article 5.13-1,
127	127	Insurance Code], the company shall deposit $50,000 with the
128	128	executive director [an amount of financial security based on the
129	129	revenue generated from the sale of prepaid legal service contracts
130	130	under the Insurance Code in the preceding year].
131	131	(b-1) The acceptable forms of financial security under this
132	132	section are:
133	133	(1) a surety bond;
134	134	(2) a certificate of deposit;
135	135	(3) a cash deposit; or
136	136	(4) a letter of credit.
137	137	(c) The department is responsible for the safeguarding of
138	138	financial security deposited with the executive director under this
139	139	section. Financial security is not subject to taxation [and is to
140	140	be used exclusively to guarantee the company's performance of its
141	141	obligations to its legal service contract holders].
142	142	(c-1) At initial registration and at each renewal, a company
143	143	must submit for review by the department:
144	144	(1) the audited financial statements of a company; and
145	145	(2) if the company maintains reserves, a certified
146	146	statement describing the company's reserves.
147	147	(c-2) The statement described by Subsection (c-1)(2) must
148	148	be made by an actuary who is a member in good standing of the
149	149	American Academy of Actuaries.
150	150	(c-3) An applicant for initial registration that has not had
151	151	sufficient operating history to have audited financial statements
152	152	based on at least 12 months of operations must provide the
153	153	department with financial statements that have been reviewed by a
154	154	certified public accountant in order to meet the requirements under
155	155	Subsection (c-1)(1).
156	156	(c-4) The commission or the executive director may take
157	157	disciplinary action against a company, including imposing
158	158	administrative penalties and administrative sanctions, for failure
159	159	of a company to meet and maintain the financial security
160	160	requirements under this section or to submit the required financial
161	161	security documentation under this section.
162	162	SECTION 8. Sections 953.102, 953.104, and 953.152,
163	163	Occupations Code, are amended to read as follows:
164	164	Sec. 953.102. REPLACEMENT OR RENEWAL OF FINANCIAL SECURITY.
165	165	(a) If a company's financial security under Section 953.101 is
166	166	issued or written for a specified term, not later than the 60th
167	167	[90th] day before the date the term expires, the company shall:
168	168	(1) replace the financial security; or
169	169	(2) notify the executive director of the company's
170	170	intention to renew the financial security.
171	171	(b) If, not later than the 30th [60th] day before the date
172	172	the term of a company's financial security expires, the executive
173	173	director does not receive satisfactory notification of a company's
174	174	renewal or replacement of the financial security, the executive
175	175	director may draw on the company's financial security to hold in
176	176	trust an amount [the extent] necessary to ensure [that] the
177	177	company's obligations to its legal service contract holders are met
178	178	as provided by Section 953.101(a) [in accordance with this
179	179	chapter].
180	180	(c) Not later than the 30th day after the date the executive
181	181	director is notified that the company's financial security has been
182	182	renewed or replaced, the executive director shall return any
183	183	financial security that was drawn on under Subsection (b).
184	184	Sec. 953.104. CLAIMS ON [SUIT ON] FINANCIAL SECURITY;
185	185	DISTRIBUTION OF FINANCIAL SECURITY FUNDS. (a) The department
186	186	[state], on behalf of a legal service contract holder [injured
187	187	because of a company's violation of this chapter], may file a claim
188	188	against [bring a suit for payment from] the company's financial
189	189	security deposit held by the executive director for failure of the
190	190	company to meet its obligations as provided by Section 953.101(a).
191	191	(b) The department [state] is the only person [party] that
192	192	may file a claim against a [bring suit for payment from a] company's
193	193	financial security deposit held by the executive director. This
194	194	chapter does not create a private right of action.
195	195	(c) [The state may only seek damages for the cost of the
196	196	legal services the company failed to provide to a legal service
197	197	contract holder under the terms of the legal service contract.
198	198	[(d)] The executive director [court] shall determine the
199	199	amount to be paid to the legal service contract holder [the
200	200	executive director shall pay the consumer] from the company's
201	201	financial security deposit held by the executive director.
202	202	(d) In the event of a company's bankruptcy or a similar
203	203	event affecting the company's ability to faithfully perform its
204	204	obligations to its legal service contract holders, the executive
205	205	director may distribute any funds held in trust as financial
206	206	security for the company under this section to eligible legal
207	207	service contract holders as payment for eligible claims. The
208	208	executive director shall distribute the funds in an equitable and
209	209	cost-effective manner as determined by the executive director.
210	210	Sec. 953.152. GROUP LEGAL SERVICE CONTRACTS. (a) For
211	211	purposes of this section, "group legal service contract" means a
212	212	legal service contract that is entered into by an employer or
213	213	association on behalf of its employees or association members that
214	214	choose to purchase the service.
215	215	(b) A company may issue group legal service contracts.
216	216	(c) The company shall provide a legal service contract
217	217	holder who obtains a group legal service contract with a document
218	218	that describes the company's services and complies with the
219	219	requirements of this chapter.
220	220	(d) A company that issues group legal service contracts is
221	221	subject to the requirements of this chapter for issuance of legal
222	222	service contracts.
223	223	SECTION 9. Sections 953.155(a) and (b), Occupations Code,
224	224	are amended to read as follows:
225	225	(a) A company shall maintain accurate accounts, books, and
226	226	other records regarding transactions regulated under this chapter.
227	227	The company's records must include:
228	228	(1) a copy of each unique form of legal service
229	229	contract filed with the executive director under Section 953.156;
230	230	(2) the name and address of each legal service
231	231	contract holder;
232	232	(3) the name and address of each administrator, if
233	233	applicable;
234	234	(4) the names and department registration numbers [a
235	235	list] of the sales representatives authorized by the company to
236	236	market, sell, or offer to sell the company's legal service
237	237	contracts;
238	238	(5) [(4)] a copy of each contract entered into between
239	239	the company and a contracting attorney; and
240	240	(6) [(5)] a list of complaints the company has
241	241	received from legal service contract holders, including the name of
242	242	the sales representative involved in the transaction leading to the
243	243	complaint.
244	244	(b) The records required by this section may be maintained
245	245	in an electronic medium or through other recordkeeping technology.
246	246	[If a record is not in a hard copy, the company must be able to
247	247	reformat the record into a legible hard copy at the request of the
248	248	executive director.]
249	249	SECTION 10. Section 953.156, Occupations Code, is amended
250	250	to read as follows:
251	251	Sec. 953.156. FORM OF LEGAL SERVICE CONTRACT AND REQUIRED
252	252	DISCLOSURES. (a) A legal service contract must be filed with the
253	253	department [executive director] before it is marketed, sold,
254	254	offered for sale, administered, or issued in this state. Any
255	255	subsequent endorsement or attachment to the contract must also be
256	256	filed with the department [executive director] before the
257	257	endorsement or attachment is delivered to legal service contract
258	258	holders.
259	259	(b) A legal service contract marketed, sold, offered for
260	260	sale, administered, or issued in this state must:
261	261	(1) be written, printed, or typed in clear,
262	262	understandable language that is easy to read;
263	263	(2) include the name and full address of the company;
264	264	(3) include the purchase price of the contract and the
265	265	terms under which the contract is sold;
266	266	(4) include the terms and restrictions governing
267	267	cancellation of the contract by the company or the legal service
268	268	contract holder;
269	269	(5) identify:
270	270	(A) any administrator, if the administrator is
271	271	not the company;
272	272	(B) the sales representative; and
273	273	(C) the name of the legal service contract
274	274	holder;
275	275	(6) include the amount of any deductible or copayment;
276	276	(7) specify the legal services and other benefits to
277	277	be provided under the contract, and any limitation, exception, or
278	278	exclusion;
279	279	(8) specify the legal services, if any, for which the
280	280	company will provide reimbursement and the amount of that
281	281	reimbursement;
282	282	(9) specify any restriction governing the
283	283	transferability of the contract or the assignment of benefits;
284	284	(10) include the duties of the legal service contract
285	285	holder;
286	286	(11) include the contact information for the
287	287	department, including the department's toll-free telephone number
288	288	and electronic mail address, as well as a statement that the
289	289	department regulates the company, the administrator, and the
290	290	company's sales representatives;
291	291	(12) explain the method to be used in resolving the
292	292	legal service contract holder's complaints and grievances;
293	293	(13) explain how legal services may be obtained under
294	294	the legal service contract;
295	295	(14) include a provision stating that no change in the
296	296	contract is valid until the change has been approved by an executive
297	297	officer of the company and unless the approval is endorsed or
298	298	attached to the contract;
299	299	(15) include any eligibility and effective date
300	300	requirements, including a definition of eligible dependents and the
301	301	effective date of their coverage;
302	302	(16) include the conditions under which coverage will
303	303	terminate;
304	304	(17) explain any subrogation arrangements;
305	305	(18) contain a payment provision that provides for a
306	306	grace period of at least 31 days;
307	307	(19) include conditions under which contract rates may
308	308	be modified; and
309	309	(20) include any other items required by the
310	310	commission [executive director as determined] by rule.
311	311	SECTION 11. Subchapter D, Chapter 953, Occupations Code, is
312	312	amended by adding Section 953.1581 to read as follows:
313	313	Sec. 953.1581. CANCELING A LEGAL SERVICE CONTRACT BY A
314	314	CONTRACT HOLDER. (a) A legal service contract holder may cancel the
315	315	legal service contract if the legal service contract holder
316	316	provides the company with written notice of the legal service
317	317	contract holder's intent to cancel the contract not later than the
318	318	seventh day after the date the legal service contract holder
319	319	receives the contract.
320	320	(b) If a legal service contract holder cancels a legal
321	321	service contract in accordance with Subsection (a) and the holder
322	322	has not sought legal services under the contract before the date the
323	323	contract is canceled, the company shall refund to the legal service
324	324	contract holder or credit to the account of the legal service
325	325	contract holder the full purchase price of the contract.
326	326	(c) A legal service contract holder may cancel the legal
327	327	service contract after the time prescribed by Subsection (a) as
328	328	provided by the contract.
329	329	(d) A company must pay the refund or credit the legal
330	330	service contract holder's account before the 46th day after the
331	331	date the contract is canceled. If the company fails to make the
332	332	refund or credit by that date, the company is liable to the legal
333	333	service contract holder for a penalty each month an amount remains
334	334	outstanding. The penalty shall be an amount equal to 10 percent of
335	335	the amount outstanding. The penalty is in addition to the amount of
336	336	the refund owed to the legal service contract holder.
337	337	(e) The right to cancel a legal service contract is not
338	338	transferable.
339	339	SECTION 12. The heading to Section 953.159, Occupations
340	340	Code, is amended to read as follows:
341	341	Sec. 953.159. CANCELING A LEGAL SERVICE CONTRACT BY A
342	342	COMPANY.
343	343	SECTION 13. Sections 953.161, 953.162, 953.201, and
344	344	953.202, Occupations Code, are amended to read as follows:
345	345	Sec. 953.161. MISLEADING STATEMENTS PROHIBITED. A company,
346	346	an administrator, a sales representative, or a representative of a
347	347	sales representative may not, in the company's contracts or
348	348	marketing:
349	349	(1) make, permit, or cause to be made any false or
350	350	misleading statement; or
351	351	(2) deliberately omit a material statement if the
352	352	omission would be considered misleading.
353	353	Sec. 953.162. APPOINTMENT AND RESPONSIBILITIES OF
354	354	ADMINISTRATOR. (a) A company may appoint an administrator
355	355	registered under this chapter [or designate a person] to be
356	356	responsible for:
357	357	(1) all or any part of the administration or sale of
358	358	legal service contracts; and
359	359	(2) compliance with this chapter, except Section
360	360	953.101.
361	361	(b) The appointment of an administrator under this section
362	362	does not affect a company's responsibility to comply with this
363	363	chapter. [The executive director may adopt rules regarding the
364	364	registration of an administrator with the department.]
365	365	Sec. 953.201. DISCIPLINARY ACTION. On a finding that a
366	366	ground for disciplinary action exists under this chapter, the
367	367	commission or executive director may impose an administrative
368	368	sanction, including any administrative penalty, as provided by
369	369	Chapter 51.
370	370	Sec. 953.202. [EMERGENCY] CEASE AND DESIST ORDER. [(a)]
371	371	The executive director may issue a [an emergency] cease and desist
372	372	order to enforce this chapter if the executive director determines
373	373	that the action is necessary to prevent a violation of this chapter,
374	374	a rule adopted under this chapter, or an order issued by the
375	375	commission or executive director [an emergency exists requiring
376	376	immediate action to protect the public].
377	377	[(b) The executive director may issue the emergency cease
378	378	and desist order without notice and hearing if the executive
379	379	director determines that an immediate issuance is necessary under
380	380	the circumstances.
381	381	[(c) The executive director shall set the time and place for
382	382	a hearing to affirm, modify, or set aside an emergency cease and
383	383	desist order that was issued without a hearing.]
384	384	SECTION 14. Section 953.203(a), Occupations Code, is
385	385	amended to read as follows:
386	386	(a) The executive director may institute an action against a
387	387	company, administrator, or sales representative for injunctive
388	388	relief under Section 51.352 to restrain a violation or a threatened
389	389	violation of this chapter or an order issued or rule adopted under
390	390	this chapter.
391	391	SECTION 15. Section 953.204, Occupations Code, is amended
392	392	to read as follows:
393	393	Sec. 953.204. ADMINISTRATIVE PROCEDURE. Subchapters F and
394	394	G, Chapter 51, [Sections 51.310, 51.353, and 51.354] apply to a
395	395	disciplinary action taken under this chapter.
396	396	SECTION 16. (a) The following provisions of the Occupations
397	397	Code are repealed:
398	398	(1) Section 953.001(6);
399	399	(2) Section 953.004;
400	400	(3) Sections 953.101(d), (e), and (f);
401	401	(4) Section 953.105; and
402	402	(5) Section 953.205.
403	403	(b) Effective January 1, 2016, the following provisions of
404	404	the Occupations Code are repealed:
405	405	(1) Section 953.157; and
406	406	(2) Section 953.158.
407	407	SECTION 17. (a) The Texas Commission of Licensing and
408	408	Regulation shall adopt rules implementing the changes in law made
409	409	by this Act to Chapter 953, Occupations Code, not later than January
410	410	1, 2016.
411	411	(b) Section 953.1581, Occupations Code, as added by this
412	412	Act, applies only to a legal service contract sold on or after
413	413	January 1, 2016. A legal service contract sold before that date is
414	414	governed by the law in effect on the date the contract was sold, and
415	415	the former law is continued in effect for that purpose.
416	416	(c) Notwithstanding Subsection (b) of this section, a legal
417	417	service contract sold before January 1, 2016, may not be extended or
418	418	renewed at the end of the legal service contract term unless the
419	419	contract complies with Section 953.1581, Occupations Code, as added
420	420	by this Act.
421	421	SECTION 18. This Act takes effect September 1, 2015.