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.
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