By: Madla, Wentworth S.B. No. 1026 A BILL TO BE ENTITLED AN ACT 1-1 relating to certain bonds executed by sureties. 1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-3 SECTION 1. Section 1, Chapter 87, Acts of the 56th 1-4 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 1-5 Insurance Code), is amended by amending Subsection (a) and by 1-6 adding Subsections (c) and (d) to read as follows: 1-7 (a) Whenever any bond, undertaking, recognizance or other 1-8 obligation is, by law or the charter, ordinances, rules and 1-9 regulations of a municipality, board, body, organization, court, 1-10 judge or public officer, required or permitted to be made, given, 1-11 tendered or filed, and whenever the performance of any act, duty or 1-12 obligation, or the refraining from any act, is required or 1-13 permitted to be guaranteed, such bond, undertaking, obligation, 1-14 recognizance or guarantee may be executed by a surety company duly 1-15 authorized to do business in this state; and, except as provided by 1-16 Subsection (b) or (c) of this section, such execution by such 1-17 company of such bond, undertaking, obligation, recognizance or 1-18 guarantee shall be in all respects a full and complete compliance 1-19 with every law, charter, rule or regulation that such bond, 1-20 undertaking, obligation, recognizance or guarantee shall be 1-21 executed by one surety or by one or more sureties, or that such 1-22 sureties shall be residents, or householders, or freeholders, or 1-23 either, or both, or possess any other qualification and all courts, 2-1 judges, heads of departments, boards, bodies, municipalities, and 2-2 public officers of every character shall accept and treat such 2-3 bond, undertaking, obligation, recognizance or guarantee when so 2-4 executed by such company, as conforming to, and fully and 2-5 completely complying with, every requirement of every such law, 2-6 charter, ordinance, rule or regulation. 2-7 Provided, however, that any municipality may require in any 2-8 specifications for work or supplies, on which sealed bids are 2-9 required, that any corporate surety tender shall designate, in a 2-10 manner satisfactory to it, an agent resident in the county of such 2-11 municipality to whom any requisite notices may be delivered and on 2-12 whom service of process may be had in matters arising out of such 2-13 suretyship. 2-14 (c) A bond for an amount that exceeds $100,000 that is made, 2-15 given, tendered, or filed under Subchapter H, I, or J, Chapter 53, 2-16 Property Code, or Chapter 2253, Government Code, may be executed 2-17 only by a surety company that is authorized and admitted to write 2-18 surety bonds in this state and is the holder of a certificate of 2-19 authority from the United States secretary of the treasury to 2-20 qualify as a surety on obligations permitted or required under 2-21 federal law. A bond for an amount that exceeds $100,000 that is 2-22 made, given, tendered, or filed under Subchapter H or I, Chapter 2-23 53, Property Code, must state that the surety is a current holder 2-24 of a certificate of authority from the United States secretary of 2-25 the treasury. A third party afforded protection under Section 3-1 53.174 or 53.204, Property Code, may conclusively rely on the 3-2 statement and the record of the bond as provided in those sections. 3-3 (d) Subsection (c) of this section does not apply if the 3-4 amount of the bond in excess of $100,000 is reinsured by an entity 3-5 that is authorized and admitted in this state as a surety or 3-6 reinsurer and that is the holder of a certificate of authority from 3-7 the United States secretary of the treasury to qualify on 3-8 obligations permitted or required under federal law. A bond for an 3-9 amount that exceeds $100,000 that is made, given, tendered, or 3-10 filed under Subchapter H or I, Chapter 53, Property Code, and that 3-11 is so reinsured must state that the reinsurer of the surety is a 3-12 current holder of a certificate of authority from the United States 3-13 secretary of the treasury. A third party afforded protection under 3-14 Section 53.174 or 53.204, Property Code, may conclusively rely on 3-15 the statement and the record of the bond as provided in those 3-16 sections. 3-17 SECTION 2. Sections 53.172, 53.202, and 53.237, Property 3-18 Code, are amended to read as follows: 3-19 Sec. 53.172. Bond Requirements. The bond must: 3-20 (1) describe the property on which the liens are 3-21 claimed; 3-22 (2) refer to each lien claimed in a manner sufficient 3-23 to identify it; 3-24 (3) be in an amount that is double the amount of the 3-25 liens referred to in the bond unless the total amount claimed in 4-1 the liens exceeds $40,000, in which case the bond must be in an 4-2 amount that is the greater of 1 1/2 times the amount of the liens 4-3 or the sum of $40,000 and the amount of the liens; 4-4 (4) be payable to the parties claiming the liens; 4-5 (5) be executed by: 4-6 (A) the party filing the bond as principal; and 4-7 (B) a corporate surety authorized and admitted 4-8 to do business under the law in this state and licensed by this 4-9 state to execute the bond as surety, subject to Section 1(c), 4-10 Chapter 87, Acts of the 56th Legislature, Regular Session, 1959 4-11 (Article 7.19-1, Vernon's Texas Insurance Code); and 4-12 (6) be conditioned substantially that the principal 4-13 and sureties will pay to the named obligees or to their assignees 4-14 the amount that the named obligees would have been entitled to 4-15 recover if their claims had been proved to be valid and enforceable 4-16 liens on the property. 4-17 Sec. 53.202. Bond Requirements. The bond must: 4-18 (1) be in a penal sum at least equal to the total of 4-19 the original contract amount; 4-20 (2) be in favor of the owner; 4-21 (3) have the written approval of the owner endorsed on 4-22 it; 4-23 (4) be executed by: 4-24 (A) the original contractor as principal; and 4-25 (B) a corporate surety authorized and admitted 5-1 to do business in this state and licensed by this state to execute 5-2 bonds as surety, subject to Section 1(c), Chapter 87, Acts of the 5-3 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's 5-4 Texas Insurance Code); and 5-5 (5) be conditioned on prompt payment for all labor, 5-6 subcontracts, materials, specially fabricated materials, and normal 5-7 and usual extras not exceeding 15 percent of the contract price. 5-8 Sec. 53.237. Bond Requirements. The bond must be: 5-9 (1) in an amount double the amount of the claims 5-10 filed; 5-11 (2) payable to the claimants; 5-12 (3) executed by: 5-13 (A) the party filing the bond as principal; and 5-14 (B) a corporate surety authorized, admitted to 5-15 do business, and licensed by the law of this state to execute the 5-16 bond as surety, subject to Section 1(c), Chapter 87, Acts of the 5-17 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's 5-18 Texas Insurance Code); and 5-19 (4) conditioned that: 5-20 (A) the principal and surety will pay to the 5-21 obligees named or to their assignees the amount of the claims or 5-22 the portions of the claims proved to be liens under this 5-23 subchapter; and 5-24 (B) the principal and surety will pay all court 5-25 costs adjudged against the principal in actions brought by a 6-1 claimant on the bond. 6-2 SECTION 3. Subdivision (4), Section 2253.001, Government 6-3 Code, is amended to read as follows: 6-4 (4) "Public work contract" means a contract for 6-5 constructing, altering, or repairing a public building or carrying 6-6 out or completing any public work. The term includes a contract 6-7 for constructing, altering, or repairing a public building or 6-8 carrying out or completing any public work in which an insurance 6-9 company is fulfilling its obligation under a contract of insurance 6-10 by arranging for the replacement of a loss rather than making a 6-11 cash payment directly to the governmental entity. The term does 6-12 not include a contract with a surety company complying with an 6-13 obligation under a bond. 6-14 SECTION 4. Chapter 7, Insurance Code, is amended by adding 6-15 Article 7.03 to read as follows: 6-16 Art. 7.03. DISCRIMINATION IN RATES OR ISSUANCE. A surety 6-17 company authorized to do business in this state may not 6-18 discriminate on the basis of race, color, religion, national 6-19 origin, or sex in the setting of rates or the issuance of a bond, 6-20 undertaking, obligation, recognizance, or guarantee. 6-21 SECTION 5. This Act takes effect September 1, 1995, and 6-22 applies only to a bond made, given, tendered, or filed on or after 6-23 that date. A bond made, given, tendered, or filed before the 6-24 effective date of this Act is governed by the law as it existed 6-25 immediately before the effective date of this Act, and that law is 7-1 continued in effect for that purpose. 7-2 SECTION 6. The importance of this legislation and the 7-3 crowded condition of the calendars in both houses create an 7-4 emergency and an imperative public necessity that the 7-5 constitutional rule requiring bills to be read on three several 7-6 days in each house be suspended, and this rule is hereby suspended.