By Keffer H.B. No. 548 77R3396 AJA-D 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. Section 2(a), Article 21.21, Insurance Code, is 1-6 amended to read as follows: 1-7 (a) "Person" shall mean any individual, corporation, 1-8 association, partnership, reciprocal exchange, inter-insurer, 1-9 Lloyds insurer, fraternal benefit society, and any other legal 1-10 entity engaged in the business of insurance, including agents, 1-11 brokers, adjusters and life insurance counselors. For purposes of 1-12 this subdivision, the business of insurance includes making or 1-13 proposing to make, as guarantor or surety, a guaranty or suretyship 1-14 contract as a vocation and not merely incidental to another 1-15 legitimate business or activity of the guarantor or surety. 1-16 SECTION 2. Chapter 7, Insurance Code, is amended by adding 1-17 Article 7.20 to read as follows: 1-18 Art. 7.20. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY; 1-19 PROMPT PAYMENT 1-20 Sec. 1. DEFINITIONS. In this article: 1-21 (1) "Construction payment bond" means a surety 1-22 agreement or obligation issued to guarantee or ensure payment for 1-23 work performed or materials supplied or specially fabricated for a 1-24 public or private construction project. 2-1 (2) "Surety company" means any person issuing a 2-2 construction payment bond. 2-3 Sec. 2. ACKNOWLEDGMENT AND INVESTIGATION OF CLAIM. (a) A 2-4 surety company that has issued a construction payment bond shall, 2-5 not later than the 15th day after receipt of notice of a claim 2-6 under the bond: 2-7 (1) acknowledge receipt of the claim; 2-8 (2) begin any review or investigation necessary to 2-9 determine whether the surety company is obligated to pay the claim 2-10 under the bond; and 2-11 (3) request from the claimant each item, statement, or 2-12 form that the surety company reasonably believes will be required 2-13 from the claimant. 2-14 (b) If the acknowledgment of receipt of the claim is not 2-15 made in writing, the surety company must make a record of the date, 2-16 means, and content of the acknowledgment. 2-17 (c) A surety company may make a request for an item, 2-18 statement, or form in addition to the request made in compliance 2-19 with Subsection (a) of this section only if during the review or 2-20 investigation the surety company reasonably determines that the 2-21 additional request is necessary. 2-22 Sec. 3. ACCEPTANCE OR REJECTION OF CLAIM. (a) Except as 2-23 provided by Subsection (c) of this section, a surety company shall 2-24 notify a claimant in writing of the acceptance or rejection of a 2-25 claim described by Section 2 of this article not later than the 2-26 25th day after the date the surety company receives all items, 2-27 statements, and forms required under Section 2. 3-1 (b) If the surety company rejects the claim, the notice 3-2 required by Subsection (a) of this section must state the reasons 3-3 for the rejection. 3-4 (c) If the surety company is unable to accept or reject the 3-5 claim within the period specified by Subsection (a) of this 3-6 section, the surety company must notify the claimant, not later 3-7 than the date specified under Subsection (a), that the surety 3-8 company is unable to accept or reject the claim within that period. 3-9 The notice provided under this subsection must give the reasons the 3-10 surety company needs additional time to accept or reject the claim. 3-11 (d) Not later than the 30th day after the date a surety 3-12 company notifies a claimant under Subsection (c) of this section, 3-13 the surety company shall notify the claimant in writing of the 3-14 acceptance or rejection of the claim. 3-15 Sec. 4. PAYMENT OF CLAIM. (a) If a surety company notifies 3-16 a claimant under Section 3 of this article that the surety company 3-17 accepts a claim or part of a claim, the surety company must pay the 3-18 claim not later than the seventh day after the date of the notice. 3-19 If payment of the claim or part of the claim is conditioned on the 3-20 performance of an act by the claimant, the surety company must pay 3-21 the claim not later than the seventh day after the date the act is 3-22 performed. 3-23 (b) A surety company that delays payment of a claim until 3-24 after the 60th day after the first day on which all items, 3-25 statements, and forms reasonably requested under Section 2 of this 3-26 article are received is liable to the claimant under Section 5 of 3-27 this article. This subsection does not apply if it is determined 4-1 as a result of arbitration or litigation that the claim received by 4-2 the surety company is invalid. 4-3 Sec. 5. DAMAGES. (a) A surety company that is obligated to 4-4 pay a claim under a construction payment bond and that violates 4-5 this article is liable to pay the claimant, in addition to the 4-6 amount of the claim, interest on the amount of the claim accruing 4-7 at the rate of 18 percent a year beginning on the 16th day after 4-8 the date on which the claim is filed and reasonable attorney's 4-9 fees. 4-10 (b) In addition to the amount of the claim for which a 4-11 surety company is liable and the interest awarded under Subsection 4-12 (a) of this section, a surety company that violates this article in 4-13 bad faith is liable to the claimant for an amount equal to: 4-14 (1) the lesser of: 4-15 (A) three times the amount of the claim; or 4-16 (B) $30,000; and 4-17 (2) two times the amount by which the claim exceeds 4-18 $10,000. 4-19 (c) A surety company that pays damages under this section in 4-20 excess of the amount of the claim may not subrogate those damages, 4-21 including interest and attorney's fees, to the company's principal 4-22 or invoke any indemnity agreement provided by the principal for 4-23 reimbursement of those damages. A principal may not be held 4-24 liable to the principal's surety company for damages described by 4-25 this subsection. 4-26 Sec. 6. CUMULATIVE REMEDIES. The remedies and procedures of 4-27 this article are not exclusive but are in addition to any other 5-1 remedy or procedure provided by any other law, including common 5-2 law. 5-3 Sec. 7. LIBERAL CONSTRUCTION. This article shall be 5-4 liberally construed to obtain prompt payment of claims made under 5-5 the construction payment bonds of surety companies. 5-6 Sec. 8. WAIVER. The provisions of this article may not be 5-7 waived by contract or otherwise. 5-8 Sec. 9. DISCLOSURE. In an action for damages described by 5-9 Section 5 of this article, materials prepared, mental impressions 5-10 developed, and communications made in connection with an 5-11 investigation described by Sections 2 and 3 of this article are not 5-12 protected from disclosure under Rule 192.5, Texas Rules of Civil 5-13 Procedure. 5-14 SECTION 3. This Act takes effect September 1, 2001, and 5-15 applies only to a claim made under a construction payment bond, as 5-16 that term is defined by Article 7.20, Insurance Code, as added by 5-17 this Act, that is delivered, issued for delivery, or renewed on or 5-18 after January 1, 2002. A construction payment bond that is 5-19 delivered, issued for delivery, or renewed before January 1, 2002, 5-20 is governed by the law as it existed immediately before the 5-21 effective date of this Act, and that law is continued in effect for 5-22 that purpose.