BILL REQ. #:  H-3284.1 

Read first time 01/15/14.   Referred to Committee on Judiciary.

     AN ACT Relating to the regulation of legal service organizations; and adding a new chapter to Title 48 RCW.

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

NEW SECTION.  Sec. 1   PUBLIC POLICY. It is the public policy of the state of Washington to promote ready access to legal assistance and counsel for all citizens of the state and to encourage programs and plans that promote arrangements between members of the public as consumers of legal services and lawyers and other trained professionals who provide legal assistance and counsel to the general public for any type of legal needs. To that end, and to effectuate this public policy, the legislature finds that it is desirable and necessary to create a regulatory environment that is not more burdensome than is necessary both to ensure that the citizens of this state have ready and uncomplicated access to legal services and at the same time to safeguard the public from the risk that a legal expense organization providing access to legal services may be unable to fulfill its contractual obligations.

NEW SECTION.  Sec. 2   DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Commissioner" means the insurance commissioner of the state of Washington.
     (2) "Legal service organization" or "organization" means any person, entity, or group of persons, including associations or administrators, who provide or offer to provide a legal service plan.
     (3) "Legal service plan" or "plan" means an arrangement between an organization and an individual or person or group of individuals or persons, identified in the plan as members, whereby specified legal services are to be provided to the members in consideration of a specified payment for a specified period of time.
     (4) "Member" means an individual, person, or group of individuals or persons eligible to receive legal services under a legal service plan.
     (5) "Membership agreement" means the written contract or agreement entered into between a member or group of members and the legal service organization under which the member or group of members will have access to legal services under a legal service plan. Membership agreements are not to be considered retainer agreements as further described in section 3 of this act.
     (6) "Providing attorney" means an attorney duly licensed and in good standing in this state who provides legal services under a providing attorney agreement in accordance with the terms of the membership agreement.
     (7) "Providing attorney agreement" means a written contract or agreement between a legal service organization and a providing attorney under which the providing attorney renders and provides legal services to a member of a legal service plan.
     (8) "Sales representative" means a person who promotes, markets, and solicits members on behalf of a plan, and who, in conjunction therewith, thereafter sells a legal service plan to a person or individual who becomes a member.

NEW SECTION.  Sec. 3   ARRANGEMENTS EXCLUDED UNDER THIS CHAPTER. This chapter does not apply to any of the following arrangements:
     (1) Retainer agreements made by an attorney or firm of attorneys with specified individual, group, or corporate clients with fees based on reasonable estimates of the nature and amount of legal services to be provided to the particular client;
     (2) Retainer agreements, contingent fee arrangements, or similar agreements made by an attorney or firm of attorneys with a client or group of clients involved in the same or closely related legal matters including, but not limited to, class actions;
     (3) Any two-party agreement providing for the delivery of specified legal services in return for a specified payment, including administrative fees, under an arrangement made between an attorney or firm of attorneys and a group of individuals who are all members of the same bona fide nonprofit organization, or a group of individuals who are all employed by the same employer, if the primary purpose of the membership organization or employer is other than providing legal services. Groups of individuals under this subsection may include, without limitation, churches, labor unions, trade groups or trade associations, credit unions, and condominium or special purpose associations;
     (4) Referral of individual clients to an attorney by a nonprofit lawyer referral service or public corporation or entity such as a state or local bar association provided there is no fee or charge for such referral;
     (5) Employee welfare benefit plans to the extent that state law or regulation is preempted by federal law or regulation;
     (6) Legal assistance plans financed primarily by public funds, interest on lawyers' trust account funds in accordance with requirements and regulations of the state bar association, or other public service funds;
     (7) Policies of insurance, or coverage incidental to such insurance which may include legal defense, issued by an insurer holding a valid certificate of authority in this state and issued under applicable laws in this title pertaining to such insurance.

NEW SECTION.  Sec. 4   CERTIFICATE OF REGISTRATION REQUIRED. (1) A person or entity may not transact business in this state as a legal service organization, or otherwise offer, market, solicit, provide, or do business on behalf of a legal service plan, unless such person or entity holds a valid certificate of registration as a legal service organization issued pursuant to the provisions of this chapter.
     (2) Notwithstanding the provisions of subsection (1) of this section, any person or entity conducting business as a legal service organization in this state as of the effective date of this section, must be permitted to continue conducting business as a legal service organization in this state. However, such person or entity must apply for and obtain registration as a legal service organization in accordance with section 6 of this act within one year after the commissioner has prescribed the forms and established the fee for such registration required in this chapter.

NEW SECTION.  Sec. 5   REQUIREMENTS AND QUALIFICATIONS FOR CERTIFICATE OF REGISTRATION. (1) A person or entity applying for registration as a legal service organization must comply with the following requirements as set forth in this section:
     (a) Apply for registration on such forms prescribed by the commissioner and pay all applicable fees associated therewith under this chapter;
     (b) Appoint the commissioner as its attorney-in-fact for service of process, upon whom must be served all legal process issued against such person or entity in regard to all causes of action arising within this state. Service of process against a person or entity doing business as a legal service organization must be available only by service upon the commissioner, and valid service of legal process against the commissioner as attorney-in-fact constitutes service upon the organization; and
     (c) Designate by name and address the individual or person who must serve as the organization's registered agent to whom the commissioner must forward legal process issued against the organization and received by the commissioner.
     (2) A person or entity applying for registration as a legal service organization must meet the following qualifications:
     (a) The applicant must be financially responsible and be able to meet its direct obligations and responsibilities to its members under the terms of its membership agreements with its members; and
     (b) The applicant must provide such information as the commissioner may establish by regulation that the directors, officers, and managers of the organization are competent, trustworthy, and have sufficient management and business experience to conduct the business and affairs of the organization in a reasonable and prudent manner.

NEW SECTION.  Sec. 6   REGISTRATION APPLICATION--FORM--FEE. (1) An applicant for a certificate of registration must apply to the commissioner on a form prescribed by the commissioner.
     (2) The applicant must deposit with the office of insurance commissioner the filing fees established by the commissioner to be paid for filing the application for the certificate of registration and any necessary accompanying documents to be filed with the application.
     (3) The application must include the following information:
     (a) The name, address, telephone number, and any other reasonable and necessary contact information of the organization making application for the certificate of registration;
     (b) The name, address, and reasonable and necessary contact information of the directors, executive officers, or senior managers of the organization making application for the certificate of registration;
     (c) Whether any of the directors, officers, or senior managers of the organization making application for the certificate of registration has ever been convicted of or is currently under indictment for fraud or other crime involving moral turpitude, or has ever had a judgment entered against him or her, or has ever had any professional license refused, revoked, or suspended in any state where the applicant conducts business as a legal service organization;
     (d) A statement of financial condition of the organization making application for a certificate of registration, in a form satisfactory to the commissioner and as may be specifically provided for in this chapter or in such regulation as the commissioner may adopt hereunder; and
     (e) Any other information as the commissioner may, by regulation, require as reasonable and necessary.

NEW SECTION.  Sec. 7   ISSUANCE OF CERTIFICATE OF REGISTRATION. (1) Upon a determination that the organization making application for a certificate of registration has satisfied the requirements and met the qualifications of this chapter to conduct business as a legal service organization, the commissioner must issue the certificate of registration to the applicant.
     (2) If the commissioner denies or refuses to issue the certificate of registration to any applicant, the commissioner must notify the applicant of the denial of or refusal to issue the certificate of registration in writing within fifteen days of such denial or refusal. The commissioner must provide the applicant with the specific reasons for the denial of or refusal to issue the certificate of registration and advise the applicant of the right to appeal the actions of the commissioner in accordance with the provisions of this title and chapter 34.05 RCW.

NEW SECTION.  Sec. 8   DURATION OF CERTIFICATE OF REGISTRATION--RENEWAL--FEE. (1) The initial certificate of registration to conduct business as a legal service organization must be effective as of the date of issue and valid through the balance of the year in which the initial certificate of registration is issued. Thereafter, a certificate of registration is effective for one calendar year, from January 1st through December 31st.
     (2) A legal service organization may renew its certificate of registration by timely paying the applicable renewal fee during such renewal period and in such amount as is established by the commissioner.

NEW SECTION.  Sec. 9   GROUNDS FOR SUSPENSION, REVOCATION, OR REFUSAL TO ISSUE OR RENEW CERTIFICATE OF REGISTRATION. (1) The commissioner may suspend, revoke, or refuse to issue or renew a certificate of registration only upon a finding of the following reasons:
     (a) Fraud or deceit by the organization applying for or obtaining the certificate of registration;
     (b) Dishonesty, fraud, or gross negligence by the organization applying for or holding a certificate of registration in the conduct of its business as a legal service organization;
     (c) Conduct resulting in the conviction of a felony under the laws of any state or the United States;
     (d) Conviction of any crime under the laws of any state or the United States punishable by imprisonment of not less than one year, the essential element of which crime is dishonesty or fraud;
     (e) Failure to pay a civil penalty imposed by final order of the commissioner after hearing.
     (2) An organization holding a certificate of registration that has not been renewed or has been revoked must surrender the certificate of registration to the commissioner at the commissioner's request.
     (3) The commissioner may suspend, revoke, or refuse to issue or renew a certificate of registration only after giving written notice of the reasons for such action and after giving the organization an opportunity for appeal and hearing pursuant to the provisions of chapters 48.04 and 34.05 RCW.

NEW SECTION.  Sec. 10   PROVIDING ATTORNEY AGREEMENT. An organization may not offer, market, or operate a legal service plan in this state unless the organization first enters into a written providing attorney agreement with at least one providing attorney.

NEW SECTION.  Sec. 11   MEMBERSHIP AGREEMENT. A legal service organization must provide a membership agreement to each individual, person, or group of individuals or persons who is a party to a legal service plan. Each membership agreement must contain the following basic provisions:
     (1) A listing and clear description of the legal services to be provided under the plan and a clear explanation of the limits of such legal services;
     (2) The name and address of the principal place of business of the legal service organization offering the plan;
     (3) If the plan offers a limited choice of providing attorneys, a process for providing the services of an alternate attorney in the event the designated providing attorney is unable to perform the legal services provided under the plan because of a conflict of interests, ethical considerations, or the particular circumstances would make it impractical for the providing attorney to render legal services requested by the member; and
     (4) A provision for review and settlement of disagreements about the grounds for requesting an alternate attorney.

NEW SECTION.  Sec. 12   UNFAIR, DISCRIMINATORY, OR MISLEADING PROVISIONS IN AGREEMENTS PROHIBITED. (1) No providing attorney agreement or membership agreement may contain any provisions that are unfair, discriminatory, or misleading, or that encourage misrepresentation or misunderstanding of the terms of the agreement, or that endanger the solvency of the organization or the plan, or that are intentionally contrary to law.
     (2) For the term of each providing attorney agreement and each member agreement, a legal service organization must maintain at its principal place of business adequate books and records of all transactions between the organization and the providing attorney and between the organization and the members of a plan. Upon reasonable notice to the organization, the commissioner must have reasonable access to such books and records provided such access does not violate or conflict with the attorney-client relationship or with any privilege or other privacy right recognized in this state.

NEW SECTION.  Sec. 13   FILING AGREEMENTS WITH COMMISSIONER. Each legal service organization must file with the commissioner a copy of all current membership agreement forms used by the organization in this state. The organization must also file any material changes or revisions in the membership agreement forms with the commissioner prior to using any such revised forms.

NEW SECTION.  Sec. 14   ANNUAL REPORT OF LEGAL SERVICE ORGANIZATION. (1) Each legal service organization doing business in this state must annually file with the commissioner, on such form and in such detail as the commissioner may prescribe by regulation, a verified financial statement providing sufficient information concerning the legal service organization's assets, liabilities, loss and expense records, if applicable, fee refund reserves or unearned payment reserves, if applicable, and such other information as may reasonably be required so long as the disclosure of such information does not violate or conflict with the attorney-client relationship or with any privilege or any other privacy right recognized in this state.
     (2) Each legal service organization must submit to the commissioner annually a statement containing the names and addresses of all individuals or persons in this state whom the organization has contracted, appointed, or retained as sales or marketing representatives to act on behalf of the organization.

NEW SECTION.  Sec. 15   BOND OR SECURITY DEPOSIT--WHEN REQUIRED--AMOUNT. A legal service organization may not issue, sell, or offer for sale in this state a legal service plan providing for access to legal services under the plan unless the organization offering the plan posts a bond or provides evidence of a security deposit pursuant to this section. The bond or security deposit must be held in trust to the commissioner for the protection of members in the plan and other affected persons, if any, under the plan. The security bond or other deposit posted by the organization under this section must be in the amount of one hundred thousand dollars, and must be held in a bank authorized to transact business in this state and insured by the federal deposit insurance corporation.

NEW SECTION.  Sec. 16   SCOPE AND APPLICABILITY OF THIS CHAPTER. (1) The provisions of this chapter may not in any way affect the practice of law in this state.
     (2) The provisions of this chapter must provide for the oversight of legal service plans and legal service organizations in this state. Legal service organizations are not insurers under RCW 48.01.050, and, legal service plans are not insurance under RCW 48.01.040. Except as specifically described and provided for in this chapter, legal service plans, and legal service organizations and their representatives are not subject to the provisions of this title.
     (3) The provisions of this chapter may not affect the validity of any legal service plan, membership agreement, or providing attorney agreement in force as of the effective date of this section and which would otherwise be subject to the provisions of this chapter. Any revision to a legal service plan, membership agreement, providing attorney agreement, or similar plan or agreement after the effective date of this section is subject to the full provisions of this chapter and must comply in all respects therewith from and after any such renewal or revision thereof.

NEW SECTION.  Sec. 17   REGULATIONS. The commissioner has authority to promulgate such regulations and rules as may be reasonable and necessary to carry out the provisions of this chapter within the scope and application of this chapter as specifically set forth in this chapter.

NEW SECTION.  Sec. 18   Sections 1 through 17 of this act constitute a new chapter in Title 48 RCW.