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).