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.