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.