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.