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.

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