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.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 548 was passed by the House on April
27, 2001, by a non-record vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 548 was passed by the Senate on May
16, 2001, by a viva-voce vote.
_______________________________
Secretary of the Senate
APPROVED: __________________________
Date
__________________________
Governor