By Hilbert, Wohlgemuth H.B. No. 3158 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to certain bonds executed by sureties. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Section 1, Chapter 87, Acts of the 56th 1-5 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 1-6 Insurance Code), is amended by amending Subsection (a) and by 1-7 adding Subsections (c) and (d) to read as follows: 1-8 (a) Whenever any bond, undertaking, recognizance or other 1-9 obligation is, by law or the charter, ordinances, rules and 1-10 regulations of a municipality, board, body, organization, court, 1-11 judge or public officer, required or permitted to be made, given, 1-12 tendered or filed, and whenever the performance of any act, duty or 1-13 obligation, or the refraining from any act, is required or 1-14 permitted to be guaranteed, such bond, undertaking, obligation, 1-15 recognizance or guarantee may be executed by a surety company duly 1-16 authorized to do business in this state; and, except as provided by 1-17 Subsection (b), (c), or (d) of this section, such execution by such 1-18 company of such bond, undertaking, obligation, recognizance or 1-19 guarantee shall be in all respects a full and complete compliance 1-20 with every law, charter, rule or regulation that such bond, 1-21 undertaking, obligation, recognizance or guarantee shall be 1-22 executed by one surety or by one or more sureties, or that such 1-23 sureties shall be residents, or householders, or freeholders, or 1-24 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 that is made, given, tendered, or filed under 2-15 Chapter 53, Property Code, or Chapter 2253, Government Code, may be 2-16 executed only by a surety company that is authorized and admitted 2-17 to write surety bonds in this state. If the amount of the bond 2-18 exceeds $100,000, the surety must also: 2-19 (1) hold a certificate of authority from the United 2-20 States secretary of the treasury to qualify as a surety on 2-21 obligations permitted or required under federal law; or 2-22 (2) have obtained reinsurance for any liability in 2-23 excess of $100,000 from a reinsurer that is authorized and admitted 2-24 as a reinsurer in this state and is the holder of a certificate of 2-25 authority from the United States secretary of the treasury to 2-26 qualify as a surety or reinsurer on obligations permitted or 2-27 required under federal law. 3-1 (d) In determining whether the surety on the bond or the 3-2 reinsurer holds a certificate of authority from the United States 3-3 secretary of the treasury, a party may conclusively rely on the 3-4 list of companies holding certificates of authority as acceptable 3-5 sureties on federal bonds and as acceptable reinsuring companies 3-6 published in the Federal Register by the United States Department 3-7 of the Treasury covering the date on which the bond was executed. 3-8 A purchaser, insurer of title, or lender acquiring or insuring an 3-9 interest or title to real property may also conclusively rely on 3-10 and is protected by a statement on a recorded bond or a sworn 3-11 statement by the surety that is recorded and refers to the specific 3-12 recorded bond and that states that, at the time the bond was 3-13 executed, the surety: 3-14 (1) was a holder of a certificate of authority from 3-15 the United States secretary of the treasury to qualify as a surety 3-16 on obligations permitted or required under federal law; or 3-17 (2) had reinsured any liability in excess of $100,000 3-18 by a reinsurer holding a certificate of authority described by 3-19 Subdivision (1) of this subsection. 3-20 SECTION 2. Sections 53.172 and 53.202, Property Code, are 3-21 amended to read as follows: 3-22 Sec. 53.172. Bond Requirements. The bond must: 3-23 (1) describe the property on which the liens are 3-24 claimed; 3-25 (2) refer to each lien claimed in a manner sufficient 3-26 to identify it; 3-27 (3) be in an amount that is double the amount of the 4-1 liens referred to in the bond unless the total amount claimed in 4-2 the liens exceeds $40,000, in which case the bond must be in an 4-3 amount that is the greater of 1 1/2 times the amount of the liens 4-4 or the sum of $40,000 and the amount of the liens; 4-5 (4) be payable to the parties claiming the liens; 4-6 (5) be executed by: 4-7 (A) the party filing the bond as principal; and 4-8 (B) a corporate surety authorized and admitted 4-9 to do business under the law in this state and licensed by this 4-10 state to execute the bond as surety, subject to Section 1, Chapter 4-11 87, Acts of the 56th Legislature, Regular Session, 1959 (Article 4-12 7.19-1, Vernon's Texas Insurance Code); and 4-13 (6) be conditioned substantially that the principal 4-14 and sureties will pay to the named obligees or to their assignees 4-15 the amount that the named obligees would have been entitled to 4-16 recover if their claims had been proved to be valid and enforceable 4-17 liens on the property. 4-18 Sec. 53.202. Bond Requirements. The bond must: 4-19 (1) be in a penal sum at least equal to the total of 4-20 the original contract amount; 4-21 (2) be in favor of the owner; 4-22 (3) have the written approval of the owner endorsed on 4-23 it; 4-24 (4) be executed by: 4-25 (A) the original contractor as principal; and 4-26 (B) a corporate surety authorized and admitted 4-27 to do business in this state and licensed by this state to execute 5-1 bonds as surety, subject to Section 1, Chapter 87, Acts of the 56th 5-2 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 5-3 Insurance Code); and 5-4 (5) be conditioned on prompt payment for all labor, 5-5 subcontracts, materials, specially fabricated materials, and normal 5-6 and usual extras not exceeding 15 percent of the contract price. 5-7 SECTION 3. Subchapter B, Chapter 2253, Government Code, is 5-8 amended by adding Section 2253.022 to read as follows: 5-9 Sec. 2253.022. PERFORMANCE AND PAYMENT BONDS; INSURED LOSS. 5-10 (a) A governmental entity shall ensure that an insurance company 5-11 that is fulfilling its obligation under a contract of insurance by 5-12 arranging for the replacement of a loss, rather than by making a 5-13 cash payment directly to the governmental entity, furnishes or has 5-14 furnished by a contractor, in accordance with this chapter: 5-15 (1) a performance bond as described by Section 5-16 2253.021(b) for the benefit of the governmental entity; and 5-17 (2) a payment bond as described in Section 2253.021(c) 5-18 for the benefit of the beneficiaries described by that subsection. 5-19 (b) The bonds required to be furnished under Subsection (a) 5-20 must be furnished before the contractor begins work. 5-21 (c) It is an implied obligation under a contract of 5-22 insurance for the insurance company to furnish the bonds required 5-23 by this section. 5-24 (d) To recover in a suit with respect to which the insurance 5-25 company has furnished or caused to be furnished a payment bond, the 5-26 only notice required of a payment bond beneficiary is the notice 5-27 given to the surety in accordance with Subchapter C. 6-1 (e) This section does not apply to a governmental entity 6-2 when a surety company is complying with an obligation under a bond 6-3 that had been issued for the benefit of the governmental entity. 6-4 (f) If the payment bond required by Subsection (a) is not 6-5 furnished, the governmental entity is subject to the same liability 6-6 that a surety would have if the surety had issued the payment bond 6-7 and the governmental entity had required the bond to be provided. 6-8 To recover in a suit under this subsection, the only notice 6-9 required of a payment bond beneficiary is a notice given to the 6-10 governmental entity, as if the governmental entity were the surety, 6-11 in accordance with Subchapter C. 6-12 SECTION 4. This Act takes effect September 1, 1997, and 6-13 applies only to a bond made, given, tendered, or filed on or after 6-14 that date. A bond made, given, tendered, or filed before the 6-15 effective date of this Act is governed by the law as it existed 6-16 immediately before the effective date of this Act, and that law is 6-17 continued in effect for that purpose. 6-18 SECTION 5. The importance of this legislation and the 6-19 crowded condition of the calendars in both houses create an 6-20 emergency and an imperative public necessity that the 6-21 constitutional rule requiring bills to be read on three several 6-22 days in each house be suspended, and this rule is hereby suspended.