By: Jackson S.B. No. 1675 Line and page numbers may not match official copy. Bill not drafted by TLC or Senate E&E. 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. Chapter 7, Insurance Code, is amended by adding 1-6 Article 7.18 to read as follows: 1-7 Art. 7.18. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY; 1-8 PROMPT PAYMENT 1-9 Sec. 1. DEFINITIONS. In this article: 1-10 (1) "Construction Payment Bond" means a surety agreement or 1-11 obligation issued to guarantee or assure payment by a principal 1-12 obligor for work performed or materials supplied or specially 1-13 fabricated for public or private construction projects. 1-14 (2) "Claimant" means a person directly entitled to payment 1-15 under a construction payment bond. 1-16 (3) "Notice of claim" means a written notification by a 1-17 claimant that makes a claim for payment from the surety company. 1-18 "Notice of claim" does not include a routine statutory notice 1-19 required by Sections 53.056(b), 53.057, 53.058, 53.252(b) or 53.253 1-20 of the Property Code, or by Sections 2253.047(b), (c) or (d) of the 1-21 Government Code. 1-22 (4) "Surety company" means a licensed surety or guaranty 1-23 company executing and delivering a construction payment bond as 2-1 surety for a principal obligor. 2-2 Sec. 2. NOTICE OF CLAIM. (a) A surety company that has 2-3 issued a construction payment bond shall, not later than the 15th 2-4 day after receipt of written notice of claim under the bond: 2-5 (1) acknowledge receipt of the claim; 2-6 (2) begin any review or investigation necessary to 2-7 determine whether the surety company is obligated to satisfy the 2-8 claim under the bond; and 2-9 (3) request from the claimant each document, item of 2-10 information, accounting, statement or form that the surety company 2-11 then reasonably believes will be requir ed from the claimant. 2-12 (b) Nothing in this Article shall excuse a claimant from 2-13 compliance with any applicable statutory or contractual notice 2-14 requirements. 2-15 (c) If the bond provides an address of the surety company to 2-16 which claims should be submitted, the notice of claim shall be 2-17 effective upon its receipt at that address. 2-18 Sec. 3. ACCEPTANCE OR REJECTION OF CLAIMS. (a) Except as 2-19 provided by Subsection (c) of this section, a surety company shall 2-20 notify a claimant in writing of the acceptance or rejection of the 2-21 claim not later than the 30th day after the date the surety company 2-22 receives all documents, items of information, accountings, 2-23 statements, and forms requested by the surety company as provided 2-24 in Section 2. 2-25 (b) If the surety company rejects all or any part of the 2-26 claim, the notice required by Subsection (a) of this section must 3-1 state in specific terms the reasons for the rejection known to it 3-2 at that time. 3-3 (c) If the surety company is unable to accept or reject the 3-4 claim within the period specified by Subsection (a) of this 3-5 section, the surety company shall provide written notice to the 3-6 claimant, not later than the date specified under Subsection (a), 3-7 that the surety company is unable to accept or reject the claim 3-8 within that period. The notice provided under this subsection 3-9 must: 3-10 (1) state the reasons for which the surety company 3-11 needs additional time to accept or reject the claim; and 3-12 (2) include a request for any additional information 3-13 reasonably needed by the surety to process the claim. 3-14 (d) Not later than the 30th day after the date a surety 3-15 company notifies a claimant under Subsection (c) of this section, 3-16 the surety company shall notify the claimant in writing of the 3-17 acceptance or rejection of the claim. If the surety company 3-18 rejects all or part of the claim, the surety company shall state in 3-19 specific terms the reasons for any rejection known to it at that 3-20 time. 3-21 (e) In addition to any other contractual or statutory basis 3-22 for denying a claim, the surety company may reject all or any part 3-23 of a claim: 3-24 (1) which is the subject of a legitimate dispute 3-25 between the principal and the claimant; or 3-26 (2) for which the claimant has failed to provide 4-1 supporting documents or information reasonably requested by the 4-2 surety company. 4-3 (f) The time limits set forth in Sections 2 and 3 of this 4-4 article may be varied by any statute requiring the bond. 4-5 (g) Nothing in this section shall preclude a surety company 4-6 from asserting other defenses in any action brought by a claimant 4-7 against the construction payment bond provided a good faith effort 4-8 is made to inform the claimant of reasons for rejection in 4-9 accordance with this Section. 4-10 Sec. 4. PAYMENT OF CLAIMS. (a) If a surety company 4-11 notifies a claimant under Section 3 of this article that the surety 4-12 company accepts a claim or part of a claim, the surety company 4-13 shall pay the claim not later than the 15th day after the date of 4-14 the notice. 4-15 (b) If the payment of the claim, or part of the claim, is 4-16 conditioned on execution of a document or performance of an act by 4-17 the claimant, the surety company shall pay the claim not later than 4-18 the seventh day after the surety company receives the executed 4-19 document or evidence that the act has been performed. 4-20 (c) For purposes of this Section, payment occurs when the 4-21 surety company places its check or draft in the United States mail 4-22 properly addressed to the claimant or its representative. 4-23 Sec. 5. JURISDICTION OF THE DEPARTMENT. The Texas 4-24 Department of Insurance is authorized to promulgate regulations 4-25 enforcing this Article in the event a surety company violates this 4-26 Article as a general business practice. 5-1 Sec. 6. CONSTRUCTION. (a) This article shall be construed 5-2 to encourage prompt payment of just claims made under construction 5-3 payment bonds of surety companies and shall not foreclose any other 5-4 remedy available to a claimant by law or contract. 5-5 (b) This Article shall not be construed to: 5-6 (1) create a private cause of action; 5-7 (2) be a precondition to judicially enforcing 5-8 obligations under a construction payment bond; 5-9 (3) diminish any other obligation of a surety that 5-10 exists by law; or 5-11 (4) prohibit a surety from asserting a defense against 5-12 a construction payment bond claim in a proceeding to enforce a 5-13 claim. 5-14 Sec. 7. MODIFICATION PROHIBITED. Any term contained within 5-15 a construction payment bond that is inconsistent with this Article 5-16 is void. 5-17 SECTION 2. This Act takes effect September 1, 2001, and 5-18 applies only to a claim made under a bond as defined in this Act 5-19 that is delivered, issued for delivery, or renewed on or after the 5-20 effective date. A bond that is delivered, issued for delivery, or 5-21 renewed before September 1, 2001, is governed by the law as it 5-22 existed immediately before the effective date of this Act, and that 5-23 law is continued in effect for that purpose.