Bill not drafted by TLC or Senate E&E. Line and page numbers may not match official copy. By Hilbert H.B. No. 3158 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to certain construction 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 adding 1-7 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 completely 2-5 complying with, every requirement of every such law, charter, 2-6 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, 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 2-26 53.174 or 53.204, Property Code, may conclusively rely on the 2-27 statement and the record of the bond as provided in those sections. 2-28 (d) Subsection (c) of this section does not apply if the 2-29 amount of the bond in excess of $100,000 is reinsured by an entity 2-30 that is authorized and admitted in this state as a surety or 3-1 reinsurer and that is the holder of a certificate of authority from 3-2 the United States secretary of the treasury to qualify on 3-3 obligations permitted or required under federal law. 3-4 SECTION 2. Sections 53.172, 53.202, Property Code, are 3-5 amended to read as follows: 3-6 Sec. 53.172. Bond Requirements. The bond must: 3-7 (1) describe the property on which the liens are 3-8 claimed; 3-9 (2) refer to each lien claimed in a manner sufficient 3-10 to identify it; 3-11 (3) be in an amount that is double the amount of the 3-12 liens referred to in the bond unless the total amount claimed in 3-13 the liens exceeds $40,000, in which case the bond must be in an 3-14 amount that is the greater of 1 1/2 times the amount of the liens 3-15 or the sum of $40,000 and the amount of the liens; 3-16 (4) be payable to the parties claiming the liens; 3-17 (5) be executed by: 3-18 (A) the party filing the bond as principal; and 3-19 (B) a corporate surety authorized and admitted 3-20 to do business under the law in this state and licensed by this 3-21 state to execute the bond as surety, subject to Section 1, Chapter 3-22 87, Acts of the 56th Legislature, Regular Session, 1959 (Article 3-23 7.19-1, Vernon's Texas Insurance Code); and 3-24 (6) be conditioned substantially that the principal 3-25 and sureties will pay to the named obligees or to their assignees 3-26 the amount that the named obligees would have been entitled to 3-27 recover if their claims had been proved to be valid and enforceable 3-28 liens on the property. 3-29 Sec. 53.202. Bond Requirements. The bond must: 3-30 (1) be in a penal sum at least equal to the total of 4-1 the original contract amount; 4-2 (2) be in favor of the owner; 4-3 (3) have the written approval of the owner endorsed on 4-4 it; 4-5 (4) be executed by: 4-6 (A) the original contractor as principal; and 4-7 (B) a corporate surety authorized and admitted 4-8 to do business in this state and licensed by this state to execute 4-9 bonds as surety, subject to Section 1, Chapter 87, Acts of the 56th 4-10 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 4-11 Insurance Code); and 4-12 (5) be conditioned on prompt payment for all labor, 4-13 subcontracts, materials, specially fabricated materials, and normal 4-14 and usual extras not exceeding 15 percent of the contract price. 4-15 SECTION 3. Section 2253.021, Government Code, is amended by 4-16 adding Subsection (f) as follows: 4-17 (f)(1) A governmental entity shall take all necessary 4-18 actions to insure that an insurance company that is fulfilling its 4-19 obligation under a contract of insurance by arranging for the 4-20 replacement of a loss, rather than making a cash payment directly 4-21 to a governmental entity, will furnish or have furnished by a 4-22 contractor the following bonds in accordance with this Chapter 4-23 prior to beginning work: 4-24 (A) a performance bond as described in Section 4-25 2253.021(b) for the benefit of the governmental entity; and 4-26 (B) a payment bond as described in Section 4-27 2253.021(c) for the benefit of the beneficiaries described in 4-28 Section 2253.021(c). 4-29 (2) It is an implied obligation under a contract of 4-30 insurance for the insurance company to furnish the bonds specified 5-1 in this subsection. 5-2 (3) To recover in a suit where the insurance company 5-3 has furnished or caused to be furnished a payment bond, the only 5-4 notice required of a payment bond beneficiary shall be the notice 5-5 given to the surety in accordance with Subchapter C. 5-6 (4) This subsection does not apply to a governmental 5-7 entity when a surety company is complying with an obligation under 5-8 a bond that had been issued for the benefit of the governmental 5-9 entity. 5-10 (g) If the payment bond required by subsection (f) is not 5-11 furnished, then: 5-12 (1) the governmental entity is subject to the same 5-13 liability that a surety would have if the surety had issued the 5-14 payment bond and the governmental entity had required the bond to 5-15 be obtained. 5-16 (2) To recover in a suit under this subsection, the 5-17 only notice required of a payment bond beneficiary shall be a 5-18 notice given to the governmental entity as if it were the surety, 5-19 in accordance with the requirements of Subchapter C. 5-20 SECTION 4. This Act takes effect September 1, 1997, and 5-21 applies only to a bond made, given, tendered, or filed on or after 5-22 that date. A bond made, given, tendered, or filed before the 5-23 effective date of this Act is governed by the law as it existed 5-24 immediately before the effective date of this Act, and that law is 5-25 continued in effect for that purpose. 5-26 SECTION 5. The importance of this legislation and the 5-27 crowded condition of the calendars in both houses create an 5-28 emergency and an imperative public necessity that the 5-29 constitutional rule requiring bills to be read on three several 5-30 days in each house be suspended, and this rule is hereby suspended.