2009 Texas Code
OCCUPATIONS CODE
TITLE 5. REGULATION OF FINANCIAL AND LEGAL SERVICES
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.
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