1-1 By: Hilbert, Wohlgemuth (Senate Sponsor - Madla) H.B. No. 3158 1-2 (In the Senate - Received from the House May 2, 1997; 1-3 May 5, 1997, read first time and referred to Committee on Economic 1-4 Development; May 17, 1997, reported favorably by the following 1-5 vote: Yeas 7, Nays 0; May 17, 1997, sent to printer.) 1-6 A BILL TO BE ENTITLED 1-7 AN ACT 1-8 relating to certain bonds executed by sureties. 1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-10 SECTION 1. Section 1, Chapter 87, Acts of the 56th 1-11 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 1-12 Insurance Code), is amended by amending Subsection (a) and by 1-13 adding Subsections (c) and (d) to read as follows: 1-14 (a) Whenever any bond, undertaking, recognizance or other 1-15 obligation is, by law or the charter, ordinances, rules and 1-16 regulations of a municipality, board, body, organization, court, 1-17 judge or public officer, required or permitted to be made, given, 1-18 tendered or filed, and whenever the performance of any act, duty or 1-19 obligation, or the refraining from any act, is required or 1-20 permitted to be guaranteed, such bond, undertaking, obligation, 1-21 recognizance or guarantee may be executed by a surety company duly 1-22 authorized to do business in this state; and, except as provided by 1-23 Subsection (b), (c), or (d) of this section, such execution by such 1-24 company of such bond, undertaking, obligation, recognizance or 1-25 guarantee shall be in all respects a full and complete compliance 1-26 with every law, charter, rule or regulation that such bond, 1-27 undertaking, obligation, recognizance or guarantee shall be 1-28 executed by one surety or by one or more sureties, or that such 1-29 sureties shall be residents, or householders, or freeholders, or 1-30 either, or both, or possess any other qualification and all courts, 1-31 judges, heads of departments, boards, bodies, municipalities, and 1-32 public officers of every character shall accept and treat such 1-33 bond, undertaking, obligation, recognizance or guarantee when so 1-34 executed by such company, as conforming to, and fully and 1-35 completely complying with, every requirement of every such law, 1-36 charter, ordinance, rule or regulation. 1-37 Provided, however, that any municipality may require in any 1-38 specifications for work or supplies, on which sealed bids are 1-39 required, that any corporate surety tender shall designate, in a 1-40 manner satisfactory to it, an agent resident in the county of such 1-41 municipality to whom any requisite notices may be delivered and on 1-42 whom service of process may be had in matters arising out of such 1-43 suretyship. 1-44 (c) A bond that is made, given, tendered, or filed under 1-45 Chapter 53, Property Code, or Chapter 2253, Government Code, may be 1-46 executed only by a surety company that is authorized and admitted 1-47 to write surety bonds in this state. If the amount of the bond 1-48 exceeds $100,000, the surety must also: 1-49 (1) hold a certificate of authority from the United 1-50 States secretary of the treasury to qualify as a surety on 1-51 obligations permitted or required under federal law; or 1-52 (2) have obtained reinsurance for any liability in 1-53 excess of $100,000 from a reinsurer that is authorized and admitted 1-54 as a reinsurer in this state and is the holder of a certificate of 1-55 authority from the United States secretary of the treasury to 1-56 qualify as a surety or reinsurer on obligations permitted or 1-57 required under federal law. 1-58 (d) In determining whether the surety on the bond or the 1-59 reinsurer holds a certificate of authority from the United States 1-60 secretary of the treasury, a party may conclusively rely on the 1-61 list of companies holding certificates of authority as acceptable 1-62 sureties on federal bonds and as acceptable reinsuring companies 1-63 published in the Federal Register by the United States Department 1-64 of the Treasury covering the date on which the bond was executed. 2-1 A purchaser, insurer of title, or lender acquiring or insuring an 2-2 interest or title to real property may also conclusively rely on 2-3 and is protected by a statement on a recorded bond or a sworn 2-4 statement by the surety that is recorded and refers to the specific 2-5 recorded bond and that states that, at the time the bond was 2-6 executed, the surety: 2-7 (1) was a holder of a certificate of authority from 2-8 the United States secretary of the treasury to qualify as a surety 2-9 on obligations permitted or required under federal law; or 2-10 (2) had reinsured any liability in excess of $100,000 2-11 by a reinsurer holding a certificate of authority described by 2-12 Subdivision (1) of this subsection. 2-13 SECTION 2. Sections 53.172 and 53.202, Property Code, are 2-14 amended to read as follows: 2-15 Sec. 53.172. Bond Requirements. The bond must: 2-16 (1) describe the property on which the liens are 2-17 claimed; 2-18 (2) refer to each lien claimed in a manner sufficient 2-19 to identify it; 2-20 (3) be in an amount that is double the amount of the 2-21 liens referred to in the bond unless the total amount claimed in 2-22 the liens exceeds $40,000, in which case the bond must be in an 2-23 amount that is the greater of 1 1/2 times the amount of the liens 2-24 or the sum of $40,000 and the amount of the liens; 2-25 (4) be payable to the parties claiming the liens; 2-26 (5) be executed by: 2-27 (A) the party filing the bond as principal; and 2-28 (B) a corporate surety authorized and admitted 2-29 to do business under the law in this state and licensed by this 2-30 state to execute the bond as surety, subject to Section 1, Chapter 2-31 87, Acts of the 56th Legislature, Regular Session, 1959 (Article 2-32 7.19-1, Vernon's Texas Insurance Code); and 2-33 (6) be conditioned substantially that the principal 2-34 and sureties will pay to the named obligees or to their assignees 2-35 the amount that the named obligees would have been entitled to 2-36 recover if their claims had been proved to be valid and enforceable 2-37 liens on the property. 2-38 Sec. 53.202. Bond Requirements. The bond must: 2-39 (1) be in a penal sum at least equal to the total of 2-40 the original contract amount; 2-41 (2) be in favor of the owner; 2-42 (3) have the written approval of the owner endorsed on 2-43 it; 2-44 (4) be executed by: 2-45 (A) the original contractor as principal; and 2-46 (B) a corporate surety authorized and admitted 2-47 to do business in this state and licensed by this state to execute 2-48 bonds as surety, subject to Section 1, Chapter 87, Acts of the 56th 2-49 Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas 2-50 Insurance Code); and 2-51 (5) be conditioned on prompt payment for all labor, 2-52 subcontracts, materials, specially fabricated materials, and normal 2-53 and usual extras not exceeding 15 percent of the contract price. 2-54 SECTION 3. Subchapter B, Chapter 2253, Government Code, is 2-55 amended by adding Section 2253.022 to read as follows: 2-56 Sec. 2253.022. PERFORMANCE AND PAYMENT BONDS; INSURED LOSS. 2-57 (a) A governmental entity shall ensure that an insurance company 2-58 that is fulfilling its obligation under a contract of insurance by 2-59 arranging for the replacement of a loss, rather than by making a 2-60 cash payment directly to the governmental entity, furnishes or has 2-61 furnished by a contractor, in accordance with this chapter: 2-62 (1) a performance bond as described by Section 2-63 2253.021(b) for the benefit of the governmental entity; and 2-64 (2) a payment bond as described in Section 2253.021(c) 2-65 for the benefit of the beneficiaries described by that subsection. 2-66 (b) The bonds required to be furnished under Subsection (a) 2-67 must be furnished before the contractor begins work. 2-68 (c) It is an implied obligation under a contract of 2-69 insurance for the insurance company to furnish the bonds required 3-1 by this section. 3-2 (d) To recover in a suit with respect to which the insurance 3-3 company has furnished or caused to be furnished a payment bond, the 3-4 only notice required of a payment bond beneficiary is the notice 3-5 given to the surety in accordance with Subchapter C. 3-6 (e) This section does not apply to a governmental entity 3-7 when a surety company is complying with an obligation under a bond 3-8 that had been issued for the benefit of the governmental entity. 3-9 (f) If the payment bond required by Subsection (a) is not 3-10 furnished, the governmental entity is subject to the same liability 3-11 that a surety would have if the surety had issued the payment bond 3-12 and the governmental entity had required the bond to be provided. 3-13 To recover in a suit under this subsection, the only notice 3-14 required of a payment bond beneficiary is a notice given to the 3-15 governmental entity, as if the governmental entity were the surety, 3-16 in accordance with Subchapter C. 3-17 SECTION 4. This Act takes effect September 1, 1997, and 3-18 applies only to a bond made, given, tendered, or filed on or after 3-19 that date. A bond made, given, tendered, or filed before the 3-20 effective date of this Act is governed by the law as it existed 3-21 immediately before the effective date of this Act, and that law is 3-22 continued in effect for that purpose. 3-23 SECTION 5. The importance of this legislation and the 3-24 crowded condition of the calendars in both houses create an 3-25 emergency and an imperative public necessity that the 3-26 constitutional rule requiring bills to be read on three several 3-27 days in each house be suspended, and this rule is hereby suspended. 3-28 * * * * *