1-1 By: Madla, Wentworth S.B. No. 1026 1-2 (In the Senate - Filed March 8, 1995; March 9, 1995, read 1-3 first time and referred to Committee on Economic Development; 1-4 April 26, 1995, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 8, Nays 0; April 26, 1995, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1026 By: Madla 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to certain bonds executed by sureties. 1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-12 SECTION 1. Section 1, Chapter 87, Acts of the 56th 1-13 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 1-14 Insurance Code), is amended by amending Subsection (a) and by 1-15 adding Subsections (c) and (d) to read as follows: 1-16 (a) Whenever any bond, undertaking, recognizance or other 1-17 obligation is, by law or the charter, ordinances, rules and 1-18 regulations of a municipality, board, body, organization, court, 1-19 judge or public officer, required or permitted to be made, given, 1-20 tendered or filed, and whenever the performance of any act, duty or 1-21 obligation, or the refraining from any act, is required or 1-22 permitted to be guaranteed, such bond, undertaking, obligation, 1-23 recognizance or guarantee may be executed by a surety company duly 1-24 authorized to do business in this state; and, except as provided by 1-25 Subsection (b) or (c) of this section, such execution by such 1-26 company of such bond, undertaking, obligation, recognizance or 1-27 guarantee shall be in all respects a full and complete compliance 1-28 with every law, charter, rule or regulation that such bond, 1-29 undertaking, obligation, recognizance or guarantee shall be 1-30 executed by one surety or by one or more sureties, or that such 1-31 sureties shall be residents, or householders, or freeholders, or 1-32 either, or both, or possess any other qualification and all courts, 1-33 judges, heads of departments, boards, bodies, municipalities, and 1-34 public officers of every character shall accept and treat such 1-35 bond, undertaking, obligation, recognizance or guarantee when so 1-36 executed by such company, as conforming to, and fully and 1-37 completely complying with, every requirement of every such law, 1-38 charter, ordinance, rule or regulation. 1-39 Provided, however, that any municipality may require in any 1-40 specifications for work or supplies, on which sealed bids are 1-41 required, that any corporate surety tender shall designate, in a 1-42 manner satisfactory to it, an agent resident in the county of such 1-43 municipality to whom any requisite notices may be delivered and on 1-44 whom service of process may be had in matters arising out of such 1-45 suretyship. 1-46 (c) A bond for an amount that exceeds $100,000 that is made, 1-47 given, tendered, or filed under Subchapter H, I, or J, Chapter 53, 1-48 Property Code, or Chapter 2253, Government Code, may be executed 1-49 only by a surety company that is authorized and admitted to write 1-50 surety bonds in this state and is the holder of a certificate of 1-51 authority from the United States secretary of the treasury to 1-52 qualify as a surety on obligations permitted or required under 1-53 federal law. A bond for an amount that exceeds $100,000 that is 1-54 made, given, tendered, or filed under Subchapter H or I, Chapter 1-55 53, Property Code, must state that the surety is a current holder 1-56 of a certificate of authority from the United States secretary of 1-57 the treasury. A third party afforded protection under Section 1-58 53.174 or 53.204, Property Code, may conclusively rely on the 1-59 statement and the record of the bond as provided in those sections. 1-60 (d) Subsection (c) of this section does not apply if the 1-61 amount of the bond in excess of $100,000 is reinsured by an entity 1-62 that is authorized and admitted in this state as a surety or 1-63 reinsurer and that is the holder of a certificate of authority from 1-64 the United States secretary of the treasury to qualify on 1-65 obligations permitted or required under federal law. A bond for an 1-66 amount that exceeds $100,000 that is made, given, tendered, or 1-67 filed under Subchapter H or I, Chapter 53, Property Code, and that 1-68 is so reinsured must state that the reinsurer of the surety is a 2-1 current holder of a certificate of authority from the United States 2-2 secretary of the treasury. A third party afforded protection under 2-3 Section 53.174 or 53.204, Property Code, may conclusively rely on 2-4 the statement and the record of the bond as provided in those 2-5 sections. 2-6 SECTION 2. Sections 53.172, 53.202, and 53.237, Property 2-7 Code, are amended to read as follows: 2-8 Sec. 53.172. Bond Requirements. The bond must: 2-9 (1) describe the property on which the liens are 2-10 claimed; 2-11 (2) refer to each lien claimed in a manner sufficient 2-12 to identify it; 2-13 (3) be in an amount that is double the amount of the 2-14 liens referred to in the bond unless the total amount claimed in 2-15 the liens exceeds $40,000, in which case the bond must be in an 2-16 amount that is the greater of 1 1/2 times the amount of the liens 2-17 or the sum of $40,000 and the amount of the liens; 2-18 (4) be payable to the parties claiming the liens; 2-19 (5) be executed by: 2-20 (A) the party filing the bond as principal; and 2-21 (B) a corporate surety authorized and admitted 2-22 to do business under the law in this state and licensed by this 2-23 state to execute the bond as surety, subject to Section 1(c), 2-24 Chapter 87, Acts of the 56th Legislature, Regular Session, 1959 2-25 (Article 7.19-1, Vernon's Texas Insurance Code); and 2-26 (6) be conditioned substantially that the principal 2-27 and sureties will pay to the named obligees or to their assignees 2-28 the amount that the named obligees would have been entitled to 2-29 recover if their claims had been proved to be valid and enforceable 2-30 liens on the property. 2-31 Sec. 53.202. Bond Requirements. The bond must: 2-32 (1) be in a penal sum at least equal to the total of 2-33 the original contract amount; 2-34 (2) be in favor of the owner; 2-35 (3) have the written approval of the owner endorsed on 2-36 it; 2-37 (4) be executed by: 2-38 (A) the original contractor as principal; and 2-39 (B) a corporate surety authorized and admitted 2-40 to do business in this state and licensed by this state to execute 2-41 bonds as surety, subject to Section 1(c), Chapter 87, Acts of the 2-42 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's 2-43 Texas Insurance Code); and 2-44 (5) be conditioned on prompt payment for all labor, 2-45 subcontracts, materials, specially fabricated materials, and normal 2-46 and usual extras not exceeding 15 percent of the contract price. 2-47 Sec. 53.237. Bond Requirements. The bond must be: 2-48 (1) in an amount double the amount of the claims 2-49 filed; 2-50 (2) payable to the claimants; 2-51 (3) executed by: 2-52 (A) the party filing the bond as principal; and 2-53 (B) a corporate surety authorized, admitted to 2-54 do business, and licensed by the law of this state to execute the 2-55 bond as surety, subject to Section 1(c), Chapter 87, Acts of the 2-56 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's 2-57 Texas Insurance Code); and 2-58 (4) conditioned that: 2-59 (A) the principal and surety will pay to the 2-60 obligees named or to their assignees the amount of the claims or 2-61 the portions of the claims proved to be liens under this 2-62 subchapter; and 2-63 (B) the principal and surety will pay all court 2-64 costs adjudged against the principal in actions brought by a 2-65 claimant on the bond. 2-66 SECTION 3. Subdivision (4), Section 2253.001, Government 2-67 Code, is amended to read as follows: 2-68 (4) "Public work contract" means a contract for 2-69 constructing, altering, or repairing a public building or carrying 2-70 out or completing any public work. The term includes a contract 3-1 for constructing, altering, or repairing a public building or 3-2 carrying out or completing any public work in which an insurance 3-3 company is fulfilling its obligation under a contract of insurance 3-4 by arranging for the replacement of a loss rather than making a 3-5 cash payment directly to the governmental entity. The term does 3-6 not include a contract with a surety company complying with an 3-7 obligation under a bond. 3-8 SECTION 4. Chapter 7, Insurance Code, is amended by adding 3-9 Article 7.03 to read as follows: 3-10 Art. 7.03. DISCRIMINATION IN RATES OR ISSUANCE. A surety 3-11 company authorized to do business in this state may not 3-12 discriminate on the basis of race, color, religion, national 3-13 origin, or sex in the setting of rates or the issuance of a bond, 3-14 undertaking, obligation, recognizance, or guarantee. 3-15 SECTION 5. This Act takes effect September 1, 1995, and 3-16 applies only to a bond made, given, tendered, or filed on or after 3-17 that date. A bond made, given, tendered, or filed before the 3-18 effective date of this Act is governed by the law as it existed 3-19 immediately before the effective date of this Act, and that law is 3-20 continued in effect for that purpose. 3-21 SECTION 6. The importance of this legislation and the 3-22 crowded condition of the calendars in both houses create an 3-23 emergency and an imperative public necessity that the 3-24 constitutional rule requiring bills to be read on three several 3-25 days in each house be suspended, and this rule is hereby suspended. 3-26 * * * * *