BILL ANALYSIS Insurance Committee By: Madla (Smithee) 05-09-95 Committee Report (Unamended) BACKGROUND Current law permits any corporate surety authorized to do business in Texas to execute public contracting bonds. In recent years, some sureties that issued bonds guaranteeing performance by the original contractor to the owner, or payment by the original contractor to the subcontractors, have failed or are in receivership. As a result, public entities are not receiving their buildings, and many subcontractors have not been paid for their work and have lost thousands of dollars. In the past 25 years, there has not been a treasury listed (T-listed) surety company that has failed while it was a T-listed company. Some companies were dropped from the T-list two or three years prior to failure. PURPOSE As proposed, S.B. 1026 authorizes certain bonds to be executed only by a state-licensed surety company that holds a certificate of authority from the U.S. secretary of the treasury to qualify as a surety on obligations permitted or required under federal law. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 1, Article 7.19-1, V.T.I.C., by amending Subsection (a) and by adding Subsections (c) and (d), as follows: (a) Makes a conforming change. (c) Authorizes a bond for an amount that exceeds $100,000 that is made, given, tendered, or filed under Chapter 53H, I, or J, Property Code, or Chapter 2253, Government Code, to be executed only by a surety company that is authorized and admitted to write surety bonds in this state and holds a certificate of authority from the U.S. secretary of the treasury to qualify as a surety on obligations permitted or required under federal law. Requires a bond for an amount that exceeds $100,000 that is made, given, tendered, or filed under Chapter 53H or I, Property Code, to state that the surety is a current holder of a certificate of authority from the U.S. secretary of the treasury. Authorizes a third party afforded protection under Section 53.174 or 53.204, Property Code, to conclusively rely on the statement and the record of the bond as provided in those sections. (d) Provides that Subsection (c) does not apply if the amount of the bond in excess of $100,000 is reinsured by an entity that is authorized and admitted in this state as a surety or reinsurer and holds a certificate of authority from the U.S. secretary of the treasury to qualify on obligations permitted or required under federal law. Requires a bond for an amount that exceeds $100,000 that is made, given, tendered, or filed under Chapter 53H or I, Property Code, and that is reinsured to state that the reinsurer of the surety is a current holder of a certificate of authority from the U.S. secretary of the treasury. Makes a conforming change. SECTION 2. Amends Sections 53.172, 53.202, and 53.237, Property Code, as follows: Sec. 53.172: BOND REQUIREMENTS. Requires the bond, among other requirements, to be executed by a corporate surety authorized to do business under state law and licensed by this state to execute the bond as surety, subject to Section 1(c), Article 7.19-1, V.T.I.C. Sec. 53.202: BOND REQUIREMENTS. Makes a conforming change. Sec. 53.237: BOND REQUIREMENTS. Makes a conforming change. SECTION 3. Amends Section 2253.001(4), Government Code, to redefine "public work contract." SECTION 4. Amends Chapter 7, Insurance Code, by adding Article 7.03, as follows: Sec. 7.03: DISCRIMINATION IN RATES OR ISSUANCE. Prohibits a surety company authorized to do business in this state from discriminating on the basis of race, color, religion, national origin, or sex in the setting of rates or the issuance of a bond, undertaking, obligation, recognizance, or guarantee. SECTION 5. Effective date: September 1, 1995. Makes application of this Act prospective. SECTION 6. Emergency clause. SUMMARY OF COMMITTEE ACTION Pursuant to an announcement filed with the Journal Clerk and read by the Reading Clerk, in accordance with House Rules, the House Committee on Insurance met in a formal meeting on May 9, 1995 at desk #24 on the House Floor and was called to order by the Chair, Representative John Smithee. The Chair laid out S.B. 1026 and recognized Representative Counts who moved the Committee report S.B. 1026 as engrossed to the full House with the recommendation that it do pass and be printed. Representative Averitt seconded the motion and the motion prevailed by the following vote: AYES: (7); NAYS: (0); PNV: (0); ABSENT: (2).