AN ACT Relating to prepaid legal service plans; adding a new chapter to Title 48 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. PURPOSE. Prepaid legal service plans are designed to make access to an attorney more affordable and thus facilitate the protection and preservation of individual legal rights. This chapter provides a mechanism for approving and regulating the operation of certain activities and entities in the state and overseeing the quality and marketing of prepaid legal service plans that involve payment of a fee in return for certain legal services. This chapter is intended to place authority with the insurance commissioner for the regulation of entities and their representatives responsible for operation of such plans, while leaving the regulation of the practice of law to the state supreme court. Except as specifically provided in this chapter, such prepaid legal service plans shall not be subject to the other provisions of this title.

NEW SECTION. Sec. 2. DEFINITIONS. Unless the context clearly requires otherwise the definitions in this section apply throughout this chapter.

(1) "Prepaid legal service organization" or "organization" means any person who issues, provides, sells, or offers to sell a legal service plan.

(2) "Prepaid legal service plan" or "plan" means an arrangement that undertakes to provide specified legal services or reimbursement for legal expenses in consideration of a specified payment for an interval of time. It does not include a policy of insurance, or coverage thereunder incidental to other insurance coverage, issued by an insurer that has a certificate of authority authorizing it to do business in this state if such policy is issued under the general laws in this title pertaining to insurance.

(3) "Member" means a person who is eligible to receive legal services or reimbursement for legal expenses under a prepaid legal service plan.

(4) "Membership agreement" means the written contract or agreement entered into on behalf of or between a member or a group of members and the prepaid legal service organization providing for the receipt of legal services or reimbursement of legal expenses by the member.

(5) "Person" means any person, partnership, company, corporation, or other legal entity.

(6) "Provider agreement" means a written contract or agreement between a prepaid legal service organization and a providing attorney for the rendering of legal services to a plan member.

(7) "Providing attorney" means an attorney licensed and in good standing in this state who provides legal services pursuant to a provider agreement.

(8) "Sales or marketing representative" means a person who promotes, markets, or solicits members for or on behalf of a plan.

(9) "Prepaid legal service plan reimbursement insurance policy" or "reimbursement insurance policy" means a policy that provides coverage for all obligations and liabilities incurred by a prepaid legal service organization under the terms of its membership agreements.

NEW SECTION. Sec. 3. EXCLUSIONS. This chapter does not apply to the following arrangements:

(1) Retainer contracts made by an attorney or firm of attorneys with a specific individual or group of individuals, with the fees based on estimates of the nature and amount of services that will be provided to the specific clients, and similar contracts made by an attorney or firm of attorneys with a group of clients involved in the same or closely related legal matters, such as class actions;

(2) Any two-party agreement providing for the delivery of specified legal services in return for a specified payment including an administrative fee, whereby an arrangement is made between an attorney or firm of attorneys and a group of individuals who are all members of the same bona fide nonprofit membership organization or group of individuals who are all employed by the same employer when the primary purpose of the membership organization or employer is other than the providing of legal services. Such groups of individuals may be but are not limited to members of churches, labor unions, trade groups, credit unions, or associations.

(3) Referral of clients to an attorney by a nonprofit lawyer referral service or public corporation such as a state or local bar association;

(4) Employee welfare benefit plans to the extent that state regulation is preempted by federal law;

(5) Legal assistance plans financed primarily by public funds, interest on lawyers' trust accounts (IOLTA) funds, or other public service funds; or

(6) Legal services provided by unions or employee associations to their members in matters relating to employment or occupation.

NEW SECTION. Sec. 4. SCOPE OF REGULATION‑-CERTIFICATE OF REGISTRATION. (1) A prepaid legal service plan shall not be issued, sold, or offered for sale in this state unless the prepaid legal service organization issuing, selling, or offering the plan is insured under a prepaid legal service plan reimbursement insurance policy issued by an insurer authorized to do business in this state and unless the organization holds a valid certificate of registration issued by the commissioner.

(2) Application for such certificate of registration shall be made to the commissioner on a form prescribed by the commissioner, shall be effective for one year from the date of issue, and shall be accompanied by a filing fee and such other information as the commissioner may reasonably require. A certificate of registration may be renewed for successive annual periods by notifying the commissioner of such intent and by paying an annual renewal fee. The application and renewal fees, and any other fees reasonably necessary for the administration of this chapter, including fees associated with the licensing of representatives under section 8 of this act, shall be reasonable in amount as determined by rule by the commissioner, deposited in the insurance commissioner's regulatory account in the state treasury, and shall be used to pay the costs, including overhead, of administering this chapter.

(3) The commissioner may adopt reasonable rules to establish the grounds for the denial, suspension, or revocation of a certificate of registration using substantially the grounds set forth in RCW 48.05.140 applicable to insurers.

NEW SECTION. Sec. 5. MINIMUM REQUIREMENTS. (1) No prepaid legal service organization may operate in this state or issue, provide, sell, or offer to sell a plan unless the organization enters into a provider agreement with the providing attorney or attorneys.

(2) No prepaid legal service organization may operate in this state or issue, provide, sell, or offer to sell a plan without entering into a membership agreement with or with someone on behalf of each member.

(3) Each membership agreement shall contain at least the following:

(a) A listing and clear description of the legal services promised or for which expenses are to be reimbursed and a clear explanation of the limits of the services;

(b) The copayments, deductibles, or fees, if any, which the member is required to pay;

(c) The name and address of the principal place of business of the legal service organization offering the plan and the names and location of any individuals having a ten percent or greater ownership interest in the organization;

(d) If the plan offers a limited choice of providing attorneys, a mechanism to provide the services of an alternate attorney in case representation by the designated providing attorneys would be improper, unethical, or impractical under the circumstances;

(e) A provision for an impartial review for settling disagreements about the grounds for demanding an alternative attorney or any benefit; and

(f) All criteria by which a member may be denied renewal of membership.

(4) A copy of the current membership agreement forms, the current provider agreement forms used by an organization, and a schedule of the rates charged members shall be filed with the commissioner prior to issuance of a certificate of registration. Any change in the provider agreement, membership agreement, or rates charged shall be filed with the commissioner prior to use.

(5) The commissioner may disapprove a form of membership agreement or provider agreement for any of the following reasons:

(a) It contains or incorporates by reference any inconsistent, ambiguous, or misleading clauses, or exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed;

(b) It has any title, heading, or other indication of its provisions that are misleading;

(d) For other good reasons as determined by the commissioner and adopted by rule following a public hearing.

(6) No provider agreement or membership agreement may contain provisions which are unfair, discriminatory, misleading, encourage misrepresentation or misunderstanding of the agreement, or are contrary to law.

(7) For the duration of the membership and provider agreements referred to in this chapter, and for six years thereafter, every prepaid legal service organization shall maintain at its principal administrative office, adequate books and records of all transactions between the organization and the providing attorneys and adequate books and records of all transactions between the organization and plan members. The commissioner shall have reasonable access to the books and records so long as the access does not violate or conflict with the attorney-client privilege recognized under state law.

NEW SECTION. Sec. 6. COMMISSIONER AS ATTORNEY FOR SERVICE OF PROCESS. (1) Each prepaid legal service organization shall appoint the commissioner as its attorney to receive service of, and upon whom shall be served, all legal process issued against it in this state upon causes of action arising within this state. Service upon the commissioner as attorney shall constitute service upon the organization. Service of legal process against such organization can be had only by service upon the commissioner.

(2) With the appointment the organization shall designate by name and address the person to whom the commissioner shall forward legal process so served upon him or her. The insurer may change the named person by filing a new designation.

(3) The appointment of the commissioner as attorney shall be irrevocable and shall bind any successor in interest to the assets or liabilities of the insurer.

NEW SECTION. Sec. 7. ANNUAL REPORT. Each prepaid legal service organization shall provide annually to the commissioner, in as much detail as the commissioner may require:

(1) A verified financial statement detailing the organization's assets, liabilities, loss records, number of plan members, and such other items as the commissioner may reasonably require so long as the reporting does not violate or conflict with the attorney-client privilege recognized under state law; and

(2) A list of the names and addresses of the organizations' providing attorneys licensed in this state.

NEW SECTION. Sec. 8. LICENSING OF REPRESENTATIVES. (1) The commissioner may require the licensing of an organization's sales or marketing representatives pursuant to the procedures in chapter 48.17 RCW.

(2) The commissioner may revoke, suspend, or refuse to issue or renew a sales or marketing representative's license, or levy a fine upon the licensee, in accordance with those provisions of chapter 48.17 RCW that are applicable to an insurance agent.

NEW SECTION. Sec. 9. REIMBURSEMENT INSURANCE POLICY. (1) A reimbursement insurance policy shall not be issued, sold, or offered for sale in this state unless it conspicuously states that the issuer of the policy shall pay on behalf of the prepaid legal service organization all sums which the organization is legally obligated to pay for failure to perform according to the organization's contractual obligations under its prepaid legal service plan and membership and provider agreements entered into in connection with the plan.

(2) A prepaid legal service plan shall not be issued, sold, or offered for sale in this state unless the membership and provider agreements entered into in connection with the plan conspicuously state:

(a) That the obligations of the prepaid legal service organization to the plan members are guaranteed under a prepaid legal service plan reimbursement insurance policy; and

(b) The name and address of the issuer of the reimbursement policy, its applicable policy number, and the means by which the member may file a claim under the policy.

(3) If, after hearing, the commissioner finds that the reimbursement insurance policies required by this chapter are not reasonably available the commissioner may, by rule, establish an alternate means for a prepaid legal service organization to guarantee its ability to perform its contractual obligations.

NEW SECTION. Sec. 10. UNFAIR PRACTICES. (1) Failure to comply with the provisions of this chapter or rules adopted under it is an unfair method of competition and an unfair or deceptive act or practice in the conduct of a trade or commerce constituting a violation of RCW 19.86.020, and is a violation of the consumer protection act, chapter 19.86 RCW. Any plan member injured as a result of a violation of a provision of this chapter shall be entitled to maintain an action under chapter 19.86 RCW against the prepaid legal service organization and the insurer issuing the applicable prepaid legal service plan reimbursement insurance policy and shall be entitled to all of the rights and remedies afforded by that chapter. Any successful claimant under this section shall also be entitled to reasonable attorneys' fees.

(2) No prepaid legal service organization or sales or marketing representative may engage in unfair methods of competition or in such unfair or deceptive acts or practices in the conduct of business as the commissioner may from time to time define.

(3) The commissioner may order such a person or organization to cease and desist from such acts if the commissioner has cause to believe that the person or organization is violating this section or rules adopted under this section or is engaged in an unfair or deceptive act or practice. If the person or organization violates the order, the commissioner may thereafter levy a fine of not more than one thousand dollars for each violation committed, and may take such other action as is permitted under this title for violation of a rule.

NEW SECTION. Sec. 11. RULES. The commissioner may adopt reasonable rules effecting any provision of this chapter.

NEW SECTION. Sec. 12. PENALTIES. (1) Failure to obtain or maintain the certificate of registration required by this chapter, or to comply with any of the requirements of this chapter, shall subject the plan or the organization to a civil fine of not more than ten thousand dollars per violation.

(2) Upon a determination that the organization or a sales or marketing representative of a plan has violated any of the requirements of this chapter or that the plan has been carried out by persons who are incompetent or untrustworthy or so lacking in managerial experience as to make the operation of the plan hazardous to the plan member, the commissioner may, after hearing or upon stipulation:

(a) Revoke, suspend, or refuse to renew the certificate of registration;

(b) Impose a civil fine of not more than ten thousand dollars per violation against the organization, or any person who issues, provides, sells, or offers to sell the plan;

(c) Order such organization or any person who issues, provides, sells, or offers to sell the plan to cease and desist the action violating the requirement; or

(d) Any combination of the above.

(3) Any penalty or other punitive action taken pursuant to this chapter shall be subject to the right of the organization or any affected person to a hearing as provided in RCW 48.04.010.

NEW SECTION. Sec. 13. CAPTIONS. Section captions as used in this chapter constitute no part of the law.

NEW SECTION. Sec. 14. Sections 1 through 13 of this act shall constitute a new chapter in Title 48 RCW.

NEW SECTION. Sec. 15. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 16. This act shall take effect May 1, 1989, and the insurance commissioner may adopt such rules as the commissioner deems necessary before May 1, 1989, to implement this act.