By Keffer, Miller H.B. No. 548 77R9677 AJA-F A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the conduct of the business of certain surety 1-3 companies. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Chapter 7, Insurance Code, is amended by adding 1-6 Article 7.20 to read as follows: 1-7 Art. 7.20. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY; 1-8 PROMPT PAYMENT 1-9 Sec. 1. DEFINITIONS. In this article: 1-10 (1) "Claimant" means a person directly entitled to 1-11 payment under a construction payment bond. 1-12 (2) "Construction payment bond" means a surety 1-13 agreement or obligation issued to guarantee or assure payment by a 1-14 principal obligor for work performed or materials supplied or 1-15 specially fabricated for a public or private construction project. 1-16 (3) "Notice of claim" means a written notification by 1-17 a claimant who makes a claim for payment from the surety company. 1-18 The term does not include a routine statutory notice required by 1-19 Section 53.056(b), 53.057, 53.058, 53.252(b), or 53.253, Property 1-20 Code, or Section 2253.047, Government Code. 1-21 (4) "Surety company" means a licensed surety or 1-22 guaranty company that executes and delivers a construction payment 1-23 bond as a surety for a principal obligor. 1-24 Sec. 2. ACKNOWLEDGMENT AND INVESTIGATION OF CLAIM. (a) A 2-1 surety company that has issued a construction payment bond shall, 2-2 not later than the 15th day after the date of receipt of notice of 2-3 claim under the bond: 2-4 (1) acknowledge receipt of the claim; 2-5 (2) begin any review or investigation necessary to 2-6 determine whether the surety company is obligated to satisfy the 2-7 claim under the bond; and 2-8 (3) request from the claimant each document, item of 2-9 information, accounting, statement, or form that the surety company 2-10 then reasonably believes will be required from the claimant. 2-11 (b) Nothing in this article exempts a claimant from 2-12 compliance with any applicable statutory or contractual notice 2-13 requirement. 2-14 (c) If the construction payment bond provides an address of 2-15 the surety company to which claims should be submitted, the notice 2-16 of claim is effective on receipt of the notice at that address. 2-17 Sec. 3. ACCEPTANCE OR REJECTION OF CLAIM. (a) Except as 2-18 provided by Subsection (c) of this section, a surety company shall 2-19 notify a claimant in writing of the acceptance or rejection of a 2-20 claim not later than the 30th day after the date the surety company 2-21 receives all documents, items of information, accountings, 2-22 statements, and forms requested by the surety company as provided 2-23 by Section 2 of this article. 2-24 (b) If the surety company rejects all or part of the claim, 2-25 the notice required by Subsection (a) of this section must state in 2-26 specific terms the reasons for the rejection known to the surety 2-27 company at that time. 3-1 (c) If the surety company is unable to accept or reject the 3-2 claim within the period specified by Subsection (a) of this 3-3 section, the surety company shall provide written notice to the 3-4 claimant, not later than the date specified under Subsection (a), 3-5 that the surety company is unable to accept or reject the claim 3-6 within that period. The notice provided under this subsection 3-7 must: 3-8 (1) state the reasons for which the surety company 3-9 needs additional time to accept or reject the claim; and 3-10 (2) include a request for any additional information 3-11 reasonably needed by the surety company to process the claim. 3-12 (d) Not later than the 30th day after the date a surety 3-13 company notifies a claimant under Subsection (c) of this section, 3-14 the surety company shall notify the claimant in writing of the 3-15 acceptance or rejection of the claim. If the surety company 3-16 rejects all or part of the claim, the surety company shall state in 3-17 specific terms the reasons for the rejection known to the surety 3-18 company at that time. 3-19 (e) In addition to any other contractual or statutory basis 3-20 for denying a claim, the surety company may reject all or any part 3-21 of a claim: 3-22 (1) that is the subject of a legitimate dispute 3-23 between the principal obligor and the claimant; or 3-24 (2) for which the claimant has failed to provide 3-25 supporting documents or information reasonably requested by the 3-26 surety company. 3-27 (f) The time limits provided by this section and Section 2 4-1 of this article may be varied by any statute requiring a 4-2 construction payment bond. 4-3 (g) This section does not preclude a surety company from 4-4 asserting any defense in any action brought by a claimant against 4-5 the construction payment bond if a good faith effort is made to 4-6 inform the claimant in accordance with this section of reasons for 4-7 rejecting all or part of the claim. 4-8 Sec. 4. PAYMENT OF CLAIM. (a) If a surety company notifies 4-9 a claimant under Section 3 of this article that the surety company 4-10 accepts a claim or part of a claim, the surety company shall pay 4-11 the claim not later than the 15th day after the date of the notice. 4-12 (b) If payment of the claim or part of the claim is 4-13 conditioned on the execution of a document or performance of an act 4-14 by the claimant, the surety company shall pay the claim not later 4-15 than the seventh day after the date the surety company receives the 4-16 executed document or evidence that the act has been performed. 4-17 (c) For purposes of this section, payment of a claim occurs 4-18 when the surety company places the surety company's check or draft 4-19 in the United States mail properly addressed to the claimant or the 4-20 claimant's representative. 4-21 Sec. 5. RULES. The commissioner may adopt rules enforcing 4-22 this article in cases in which a surety company violates this 4-23 article as a general business practice. 4-24 Sec. 6. CONSTRUCTION. (a) This article shall be construed 4-25 to encourage prompt payment of just claims made under construction 4-26 payment bonds of surety companies. This article does not foreclose 4-27 any other remedy available to a claimant by law or contract. 5-1 (b) This article may not be construed to: 5-2 (1) create a private cause of action; 5-3 (2) be a precondition to judicially enforcing 5-4 obligations under a construction payment bond; 5-5 (3) diminish any other obligation of a surety company 5-6 that exists by law; or 5-7 (4) prohibit a surety company from asserting a defense 5-8 against a construction payment bond claim in a proceeding to 5-9 enforce a claim. 5-10 Sec. 7. MODIFICATION PROHIBITED. Any term contained in a 5-11 construction payment bond that is inconsistent with this article is 5-12 void. 5-13 SECTION 2. This Act takes effect September 1, 2001, and 5-14 applies only to a claim made under a construction payment bond, as 5-15 that term is defined by Article 7.20, Insurance Code, as added by 5-16 this Act, that is delivered, issued for delivery, or renewed on or 5-17 after January 1, 2002. A construction payment bond that is 5-18 delivered, issued for delivery, or renewed before January 1, 2002, 5-19 is governed by the law as it existed immediately before the 5-20 effective date of this Act, and that law is continued in effect for 5-21 that purpose.