1-1 By: Keffer, Miller (Senate Sponsor - Jackson) H.B. No. 548 1-2 (In the Senate - Received from the House April 30, 2001; 1-3 May 1, 2001, read first time and referred to Committee on Business 1-4 and Commerce; May 10, 2001, reported favorably by the following 1-5 vote: Yeas 7, Nays 0; May 10, 2001, sent to printer.) 1-6 A BILL TO BE ENTITLED 1-7 AN ACT 1-8 relating to the conduct of the business of certain surety 1-9 companies. 1-10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-11 SECTION 1. Chapter 7, Insurance Code, is amended by adding 1-12 Article 7.20 to read as follows: 1-13 Art. 7.20. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY; 1-14 PROMPT PAYMENT 1-15 Sec. 1. DEFINITIONS. In this article: 1-16 (1) "Claimant" means a person directly entitled to 1-17 payment under a construction payment bond. 1-18 (2) "Construction payment bond" means a surety 1-19 agreement or obligation issued to guarantee or assure payment by a 1-20 principal obligor for work performed or materials supplied or 1-21 specially fabricated for a public or private construction project. 1-22 (3) "Notice of claim" means a written notification by 1-23 a claimant who makes a claim for payment from the surety company. 1-24 The term does not include a routine statutory notice required by 1-25 Section 53.056(b), 53.057, 53.058, 53.252(b), or 53.253, Property 1-26 Code, or Section 2253.047, Government Code. 1-27 (4) "Surety company" means a licensed surety or 1-28 guaranty company that executes and delivers a construction payment 1-29 bond as a surety for a principal obligor. 1-30 Sec. 2. ACKNOWLEDGMENT AND INVESTIGATION OF CLAIM. (a) A 1-31 surety company that has issued a construction payment bond shall, 1-32 not later than the 15th day after the date of receipt of notice of 1-33 claim under the bond: 1-34 (1) acknowledge receipt of the claim; 1-35 (2) begin any review or investigation necessary to 1-36 determine whether the surety company is obligated to satisfy the 1-37 claim under the bond; and 1-38 (3) request from the claimant each document, item of 1-39 information, accounting, statement, or form that the surety company 1-40 then reasonably believes will be required from the claimant. 1-41 (b) Nothing in this article exempts a claimant from 1-42 compliance with any applicable statutory or contractual notice 1-43 requirement. 1-44 (c) If the construction payment bond provides an address of 1-45 the surety company to which claims should be submitted, the notice 1-46 of claim is effective on receipt of the notice at that address. 1-47 Sec. 3. ACCEPTANCE OR REJECTION OF CLAIM. (a) Except as 1-48 provided by Subsection (c) of this section, a surety company shall 1-49 notify a claimant in writing of the acceptance or rejection of a 1-50 claim not later than the 30th day after the date the surety company 1-51 receives all documents, items of information, accountings, 1-52 statements, and forms requested by the surety company as provided 1-53 by Section 2 of this article. 1-54 (b) If the surety company rejects all or part of the claim, 1-55 the notice required by Subsection (a) of this section must state in 1-56 specific terms the reasons for the rejection known to the surety 1-57 company at that time. 1-58 (c) If the surety company is unable to accept or reject the 1-59 claim within the period specified by Subsection (a) of this 1-60 section, the surety company shall provide written notice to the 1-61 claimant, not later than the date specified under Subsection (a), 1-62 that the surety company is unable to accept or reject the claim 1-63 within that period. The notice provided under this subsection 1-64 must: 2-1 (1) state the reasons for which the surety company 2-2 needs additional time to accept or reject the claim; and 2-3 (2) include a request for any additional information 2-4 reasonably needed by the surety company to process the claim. 2-5 (d) Not later than the 30th day after the date a surety 2-6 company notifies a claimant under Subsection (c) of this section, 2-7 the surety company shall notify the claimant in writing of the 2-8 acceptance or rejection of the claim. If the surety company 2-9 rejects all or part of the claim, the surety company shall state in 2-10 specific terms the reasons for the rejection known to the surety 2-11 company at that time. 2-12 (e) In addition to any other contractual or statutory basis 2-13 for denying a claim, the surety company may reject all or any part 2-14 of a claim: 2-15 (1) that is the subject of a legitimate dispute 2-16 between the principal obligor and the claimant; or 2-17 (2) for which the claimant has failed to provide 2-18 supporting documents or information reasonably requested by the 2-19 surety company. 2-20 (f) The time limits provided by this section and Section 2 2-21 of this article may be varied by any statute requiring a 2-22 construction payment bond. 2-23 (g) This section does not preclude a surety company from 2-24 asserting any defense in any action brought by a claimant against 2-25 the construction payment bond if a good faith effort is made to 2-26 inform the claimant in accordance with this section of reasons for 2-27 rejecting all or part of the claim. 2-28 Sec. 4. PAYMENT OF CLAIM. (a) If a surety company notifies 2-29 a claimant under Section 3 of this article that the surety company 2-30 accepts a claim or part of a claim, the surety company shall pay 2-31 the claim not later than the 15th day after the date of the notice. 2-32 (b) If payment of the claim or part of the claim is 2-33 conditioned on the execution of a document or performance of an act 2-34 by the claimant, the surety company shall pay the claim not later 2-35 than the seventh day after the date the surety company receives the 2-36 executed document or evidence that the act has been performed. 2-37 (c) For purposes of this section, payment of a claim occurs 2-38 when the surety company places the surety company's check or draft 2-39 in the United States mail properly addressed to the claimant or the 2-40 claimant's representative. 2-41 Sec. 5. RULES. The commissioner may adopt rules enforcing 2-42 this article in cases in which a surety company violates this 2-43 article as a general business practice. 2-44 Sec. 6. CONSTRUCTION. (a) This article shall be construed 2-45 to encourage prompt payment of just claims made under construction 2-46 payment bonds of surety companies. This article does not foreclose 2-47 any other remedy available to a claimant by law or contract. 2-48 (b) This article may not be construed to: 2-49 (1) create a private cause of action; 2-50 (2) be a precondition to judicially enforcing 2-51 obligations under a construction payment bond; 2-52 (3) diminish any other obligation of a surety company 2-53 that exists by law; or 2-54 (4) prohibit a surety company from asserting a defense 2-55 against a construction payment bond claim in a proceeding to 2-56 enforce a claim. 2-57 Sec. 7. MODIFICATION PROHIBITED. Any term contained in a 2-58 construction payment bond that is inconsistent with this article is 2-59 void. 2-60 SECTION 2. This Act takes effect September 1, 2001, and 2-61 applies only to a claim made under a construction payment bond, as 2-62 that term is defined by Article 7.20, Insurance Code, as added by 2-63 this Act, that is delivered, issued for delivery, or renewed on or 2-64 after January 1, 2002. A construction payment bond that is 2-65 delivered, issued for delivery, or renewed before January 1, 2002, 2-66 is governed by the law as it existed immediately before the 2-67 effective date of this Act, and that law is continued in effect for 2-68 that purpose. 3-1 * * * * *