CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL SERVICE CONTRACT COMPANIES

OCCUPATIONS CODE

TITLE 5. REGULATION OF FINANCIAL AND LEGAL SERVICES

SUBTITLE B. LEGAL SERVICES

CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL SERVICE CONTRACT

COMPANIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 953.001. DEFINITIONS. In this chapter:

(1) "Administrator" means the person responsible for the

administration of a legal service contract. The term includes a

person responsible for any filing required by this chapter.

(2) "Company" means a person who:

(A) is contractually obligated to a legal service contract

holder under the terms of a legal service contract;

(B) enters into a contract with a contracting attorney to

provide or obtain covered legal services for a legal service

contract holder; and

(C) operates as a for-profit legal service contract company.

(3) "Contracting attorney" means an attorney who has entered

into a contract with a company to provide or obtain covered legal

services for a legal service contract holder.

(4) "Department" means the Texas Department of Licensing and

Regulation.

(5) "Executive director" means the executive director of the

Texas Department of Licensing and Regulation or the executive

director's designee.

(6) "Financial security" means a surety bond, a certificate of

deposit, or any other item approved by the executive director.

(7) "Legal service contract" means an agreement:

(A) that is entered into for a separately stated consideration;

and

(B) under which the company obtains legal services for a legal

service contract holder through a contracting attorney.

(8) "Legal service contract holder" means the person who

purchases or otherwise holds a legal service contract or who is

covered under a group legal service contract.

(9) "Person" means an individual or a partnership, company,

corporation, association, or other private group.

(10) "Sales representative" means a person who sells or solicits

legal service contracts to a person on behalf of a company.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.002. EXEMPTIONS. This chapter does not apply to:

(1) a nonprofit legal services corporation under Chapter 961,

Insurance Code;

(2) an automobile club supplying services under Chapter 722,

Transportation Code;

(3) a prepaid legal services program under Chapter 951;

(4) a lawyer referral service under Chapter 952;

(5) a retainer contract between an attorney and a client, and

similar contracts made with a group of clients involved in the

same or closely related legal matters; or

(6) a contingency fee contract between an attorney and a client.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.003. EXEMPTIONS FROM CERTAIN OTHER LAWS. The acts of

marketing, selling, offering for sale, issuing, making, proposing

to make, and administering a legal service contract that is

regulated by this chapter are exempt from the Insurance Code and

other laws of this state regulating the business of insurance.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.004. PREPAID LEGAL SERVICE CONTRACT PROGRAMS. (a) An

insurer who issues or renews prepaid legal service contracts

under Article 5.13-1, Insurance Code, shall notify the

commissioner of insurance in writing not later than the 60th day

before transferring regulation of the insurer's legal service

contracts from the Texas Department of Insurance to the Texas

Department of Licensing and Regulation. An insurer that complies

with this section is exempt from the requirements of:

(1) Articles 21.49-2, 21.49-2A, 21.49-2B, 21.49-2D, and

21.49-2E, Insurance Code; and

(2) Chapter 827, Insurance Code.

(a) An insurer who issues or renews prepaid legal service

contracts under Article 5.13-1, Insurance Code, shall notify the

commissioner of insurance in writing not later than the 60th day

before transferring regulation of the insurer's legal service

contracts from the Texas Department of Insurance to the Texas

Department of Licensing and Regulation. An insurer that complies

with this section is exempt from the requirements of Chapters 551

and 827, Insurance Code.

(b) The exemptions described by Subsection (a) begin on the date

the commissioner receives the notice under Subsection (a) and

apply until the insurer registers with the department as required

by Section 953.052.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

728, Sec. 11.149, eff. September 1, 2005.

Sec. 953.005. POWERS AND DUTIES OF EXECUTIVE DIRECTOR. (a) The

executive director may investigate a company, administrator,

sales representative, or other person as necessary to enforce

this chapter and protect legal service contract holders in this

state.

(b) On request of the executive director, a company 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.

(c) After contacting the company that has contracted with the

contracting attorney, the executive director may refer a

complaint received by the department concerning the performance

of a contracting attorney to:

(1) the State Bar of Texas;

(2) the appropriate licensing agency of another jurisdiction, if

applicable; or

(3) any person designated by law to receive complaints from the

public concerning the performance of an attorney.

(d) The executive director may adopt rules as necessary to

implement this chapter.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER B. REGISTRATION REQUIREMENTS

Sec. 953.051. REGISTRATION REQUIRED. (a) A person may not

operate as a company 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.

(b) A person who collects commissions for the sale of legal

service contracts but who does not actively sell or solicit legal

service contracts is not required to register under this

subchapter.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.052. APPLICATION FOR REGISTRATION. (a) An applicant

for registration must submit an application to the department.

The application must be in the form prescribed by the executive

director.

(b) An application for registration as a company must include

evidence satisfactory to the executive director of compliance

with the applicable financial security requirements prescribed by

Subchapter C.

(c) An application for registration as a sales representative

must include a list of the companies for which the sales

representative will sell or solicit legal service contracts.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.053. FEES. (a) 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), the 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 executive director shall

establish a schedule and procedure for collecting this fee.

(c) To be registered, a company must pay the appropriate fees

required by this section.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.054. INFORMATION CONCERNING NUMBER OF LEGAL SERVICE

CONTRACTS SOLD. Information concerning the number of legal

service contracts sold by a company that is submitted under

Section 953.053 is a trade secret to which Section 552.110,

Government Code, applies.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.055. ADDITIONAL REQUIREMENTS FOR SALES REPRESENTATIVES.

(a) The 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;

(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.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.056. MODIFICATION OF REGISTRATION INFORMATION. The

executive director may adopt rules regarding the procedures and

fees a company or sales representative must follow and pay when

requesting a modification to the company's or sales

representative's registration information that is on file with

the department.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.057. RENEWAL OF REGISTRATION. The executive director

shall adopt rules for the renewal of a company's or sales

representative's registration, including a rule that addresses

late renewals.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER C. FINANCIAL SECURITY REQUIREMENTS FOR LEGAL SERVICE

CONTRACT COMPANIES

Sec. 953.101. FINANCIAL SECURITY REQUIREMENTS. (a) To ensure

the faithful performance of a company's obligations to its legal

service contract holders, 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 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.

(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.

(d) The executive director may order an increase in the amount

of financial security required of a company under this section if

the executive director finds that there has been a substantial

change in the company, including an increase in the amount of

fees the company is charging consumers or an increase in the

company's annual gross revenue.

(e) Not later than the 30th day after the date the executive

director orders a financial security increase under Subsection

(d), the company may request a hearing on the issue. The

executive director shall hold a hearing not later than the 30th

day after the date a company requests a hearing.

(f) Failure of a company to meet the financial security

requirements in this section not later than the 30th day after

the date the executive director issues a final decision in the

event of a hearing or the 30th day after the date the period for

submitting a request for a hearing expires constitutes a ground

for revocation of the company's registration.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

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 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 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 the extent

necessary to ensure that the company's obligations to its legal

service contract holders are met in accordance with this chapter.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.103. DURATION OF DEPOSIT OF FINANCIAL SECURITY. The

executive director shall maintain a company's financial security

deposit so long as the company continues to do business in this

state. When a company ceases to do business in this state and

furnishes the executive director with satisfactory proof that the

company has discharged or otherwise adequately met all

obligations to its legal service contract holders in this state,

the executive director shall release the deposited financial

security to the company.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.104. SUIT ON FINANCIAL SECURITY. (a) The state, on

behalf of a legal service contract holder injured because of a

company's violation of this chapter, may bring a suit for payment

from the company's financial security deposit held by the

executive director.

(b) The state is the only party that may 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 court shall determine the amount the executive director

shall pay the consumer from the company's financial security

deposit held by the executive director.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.105. ADDITIONAL FINANCIAL SECURITY REQUIREMENTS. (a)

The executive director shall annually review:

(1) the audited financial statements of a company; and

(2) a certified statement describing the company's reserves, if

any.

(b) The statement described by Subsection (a)(2) must be made by

an actuary who is a member in good standing of the American

Academy of Actuaries.

(c) After reviewing the information described by Subsection (a),

the executive director may require a company to maintain certain

reserves in order for the company to obtain or maintain the

company's registration.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER D. PRACTICE BY LEGAL SERVICE CONTRACT COMPANIES

Sec. 953.151. COMPANY REQUIREMENTS. (a) A company may not

sell, offer for sale, or issue a legal service contract in this

state unless the company gives the legal service contract holder:

(1) a receipt for, or other written evidence of, the purchase of

the contract; and

(2) a copy of the legal service contract.

(b) A company shall perform the services as stated in the legal

service contract.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.152. GROUP LEGAL SERVICE CONTRACTS. A company may

issue group legal service contracts. The company shall provide a

legal service contract holder who obtains a group contract with a

document that describes the company's services and complies with

the requirements of this chapter.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.153. CONTRACTING ATTORNEY REQUIREMENTS. A contracting

attorney must:

(1) be licensed in the jurisdiction in which the legal services

are performed;

(2) be in good standing with the entity that licenses attorneys

in that jurisdiction; and

(3) maintain professional liability and errors and omissions

insurance with minimum annual limits of $100,000 for each

occurrence and $300,000 in the aggregate.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.154. COMPANY INTERFERENCE WITH ATTORNEY'S DUTIES

PROHIBITED. A company may not interfere with the attorney-client

relationship or with the contracting attorney's independent

exercise of professional judgment.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.155. COMPANY RECORDS. (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) a list of the sales representatives authorized by the

company to market, sell, or offer to sell the company's legal

service contracts;

(4) a copy of each contract entered into between the company and

a contracting attorney; and

(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.

(c) Except as provided by Subsection (d), a company shall retain

the records required by this section until at least the second

anniversary of the termination date of the specified period of

coverage under the legal service contract.

(d) A company that discontinues business in this state shall

retain its records until the company furnishes the executive

director with proof satisfactory to the executive director that

the company has discharged all obligations to legal service

contract holders in this state.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.156. FORM OF LEGAL SERVICE CONTRACT AND REQUIRED

DISCLOSURES. (a) A legal service contract must be filed with

the 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 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 number and electronic mail

address, as well as a statement that the department regulates the

company 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 executive director

as determined by rule.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.157. TERMINATING A LEGAL SERVICE CONTRACT. A legal

service contract holder may terminate the legal service contract

if the legal service contract holder provides the company with

written notice of the legal service contract holder's intention

of terminating the contract not later than the seventh day after

the date the legal service contract holder receives the contract.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.158. VOIDING A LEGAL SERVICE CONTRACT. (a) If a legal

service contract holder terminates a legal service contract in

accordance with Section 953.157 and the holder has not sought

legal services under the contract before the contract is

terminated, the contract is void.

(b) A legal service contract holder may void the legal service

contract at a later time as provided by the contract.

(c) If a legal service contract is voided, 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. If the company does not pay the refund or

credit the legal service contract holder's account before the

46th day after the date the contract is voided, the company is

liable to the legal service contract holder for a penalty each

month an amount remains outstanding. The monthly penalty may not

exceed 10 percent of the amount outstanding.

(d) The right to void a legal service contract is not

transferable.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.159. CANCELING A LEGAL SERVICE CONTRACT. (a) A

company may cancel a legal service contract by mailing a written

notice of cancellation to the legal service contract holder at

the legal service contract holder's last known address according

to the records of the company. The company must mail the notice

before the fifth day preceding the effective date of the

cancellation. The notice must state the effective date of the

cancellation and the reason for the cancellation.

(b) The company is not required to provide prior notice of

cancellation if the legal service contract is canceled because

of:

(1) nonpayment of the consideration for the contract;

(2) a material misrepresentation by the legal service contract

holder to the company;

(3) a substantial breach of a duty by the legal service contract

holder; or

(4) cancellation of the contract by the legal service contract

holder.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.160. LIMITATIONS ON COMPANY NAME. (a) A company may

not use a name that:

(1) includes "insurance," "casualty," "surety," or "mutual" or

any other word descriptive of the insurance, casualty, or surety

business; or

(2) is deceptively similar to the name or description of an

insurance or surety corporation or to the name of any other

company.

(b) This section does not apply to a company that, before

September 1, 2003, included a word prohibited under this section

in its name. A company described by this subsection must include

in each legal service contract a statement substantially similar

to the following: "This agreement is not an insurance contract."

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.161. MISLEADING STATEMENTS PROHIBITED. A company, 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.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.162. APPOINTMENT AND RESPONSIBILITIES OF ADMINISTRATOR.

(a) A company may appoint an administrator 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.

(b) The executive director may adopt rules regarding the

registration of an administrator with the department.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

SUBCHAPTER E. DISCIPLINARY ACTION

Sec. 953.201. DISCIPLINARY ACTION. On a finding that a ground

for disciplinary action exists under this chapter, the executive

director may impose an administrative sanction, including any

administrative penalty, as provided by Chapter 51.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.202. EMERGENCY CEASE AND DESIST ORDER. (a) The

executive director may issue an emergency cease and desist order

to enforce this chapter if the executive director determines that

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.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.203. INJUNCTIVE RELIEF; CIVIL PENALTY. (a) The

executive director may institute an action against a company 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.

(b) In addition to the injunctive relief provided by Subsection

(a), the executive director may institute an action for a civil

penalty as provided by Section 51.352.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.204. ADMINISTRATIVE PROCEDURE. Sections 51.310,

51.353, and 51.354 apply to a disciplinary action taken under

this chapter.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.205. APPEAL. A person affected by a ruling, order,

decision, or other action of the executive director or department

may appeal by filing a petition in a district court in Travis

County.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.