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.
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