CHAPTER 3503. SURETY BONDS AND RELATED INSTRUMENTS
INSURANCE CODE
TITLE 12. OTHER COVERAGE
CHAPTER 3503. SURETY BONDS AND RELATED INSTRUMENTS
SUBCHAPTER A. CERTAIN REQUIRED OR PERMITTED OBLIGATIONS
Sec. 3503.001. DEFINITION. In this subchapter, "obligation"
means a bond, undertaking, recognizance, guaranty, or other
obligation that is by law or by a charter, ordinance, or rule of
a municipality, board, body, organization, court, or public
officer required or permitted to be made, given, tendered, or
filed to guarantee the performance of an act, duty, or obligation
or the refraining from an act.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.002. EXECUTION OF OBLIGATION BY SURETY COMPANY. (a)
A surety company authorized to engage in business in this state
may execute an obligation.
(b) Except as provided by Section 3503.004 or 3503.005, the
execution of an obligation by a surety company under Subsection
(a) is in full compliance with each law, charter, ordinance, or
rule that requires:
(1) the obligation to be executed by one or more sureties; or
(2) the executing sureties to possess any qualification,
including the requirement that a surety be a resident,
householder, or freeholder.
(c) Each municipality, board, body, organization, court, public
officer, and head of department shall accept and treat an
obligation executed by a surety company under Subsection (a) as
fully complying with each law, charter, ordinance, or rule
described by Subsection (b).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.003. DESIGNATION OF AGENT BY CORPORATE SURETY
REQUIRED. Notwithstanding Section 3503.002, in specifications by
a municipality for work or supplies for which sealed bids are
required, the municipality may require that a corporate surety
tender designate, in a manner satisfactory to the municipality,
an agent:
(1) who is a resident of the county in which the municipality is
located; and
(2) to whom any required notices may be delivered and on whom
process may be served in matters arising out of the suretyship.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.004. WRITTEN CERTIFICATION OF REINSURANCE AS CONDITION
OF ACCEPTANCE OF OBLIGATION. (a) If an obligation is in an
amount that exceeds 10 percent of the surety company's capital
and surplus, the municipality, board, body, organization, court,
or public officer may require, as a condition of accepting the
obligation, written certification that the surety company has
reinsured the portion of the risk that exceeds 10 percent of the
surety company's capital and surplus with one or more reinsurers
who are authorized, accredited, or trusteed to engage in business
in this state.
(b) The amount reinsured by a reinsurer under this section may
not exceed 10 percent of the reinsurer's capital and surplus.
(c) On request, the department shall provide the amount of the
allowed capital and surplus, as of the date of the last annual
statutory financial statement, for a surety company or reinsurer
authorized to engage in business in this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.005. ADDITIONAL REQUIREMENTS FOR CERTAIN BONDS. (a)
A bond that is made, given, tendered, or filed under Chapter 53,
Property Code, or Chapter 2253, Government Code, may be executed
only by a surety company that is authorized to write surety bonds
in this state. If the amount of the bond exceeds $100,000, the
surety company must also:
(1) hold a certificate of authority from the United States
secretary of the treasury to qualify as a surety on obligations
permitted or required under federal law; or
(2) have obtained reinsurance for any liability in excess of
$100,000 from a reinsurer that:
(A) is an authorized reinsurer in this state; and
(B) holds a certificate of authority from the United States
secretary of the treasury to qualify as a surety or reinsurer on
obligations permitted or required under federal law.
(b) To determine whether the surety on the bond or the reinsurer
holds a certificate of authority from the United States secretary
of the treasury, a party may conclusively rely on the list
published in the Federal Register by the United States Department
of the Treasury, covering the date on which the bond was
executed, of the companies holding certificates of authority as
acceptable sureties on federal bonds and as acceptable reinsuring
companies. A purchaser, insurer of title, or lender acquiring or
insuring an interest in or title to real property may also
conclusively rely on, and is protected by, a statement on a
recorded bond or a sworn, recorded statement by the surety that
refers to the specific recorded bond and states that, at the time
the bond was executed, the surety complied with Subsection (a)(1)
or (2).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER B. PROMPT PAYMENT OF CONSTRUCTION PAYMENT BONDS
Sec. 3503.051. DEFINITIONS. In this subchapter:
(1) "Claimant" means a person directly entitled to payment under
a construction payment bond.
(2) "Construction payment bond" means a surety agreement or
obligation issued to guarantee or assure payment by a principal
obligor for work performed or materials supplied or specially
fabricated for a public or private construction project.
(3) "Notice of claim" means a written notification by a claimant
who makes a claim for payment from the surety company. The term
does not include a routine statutory notice required by Section
53.056(b), 53.057, 53.058, 53.252(b), or 53.253, Property Code,
or Section 2253.047, Government Code.
(4) "Surety company" means an authorized surety or guaranty
company that executes and delivers a construction payment bond as
a surety for a principal obligor.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.052. CONSTRUCTION OF SUBCHAPTER. (a) This subchapter
shall be construed to encourage prompt payment of just claims
made under construction payment bonds of surety companies. This
subchapter does not foreclose any other remedy available to a
claimant by law or contract.
(b) This subchapter may not be construed to:
(1) create a private cause of action;
(2) be a precondition to judicially enforcing an obligation
under a construction payment bond;
(3) diminish any other obligation of a surety company that
exists by law; or
(4) prohibit a surety company from asserting a defense against a
construction payment bond claim in a proceeding to enforce a
claim.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.053. CERTAIN TERMS VOID. A term contained in a
construction payment bond that is inconsistent with this
subchapter is void.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.054. NOTICE OF CLAIM; ACKNOWLEDGMENT AND
INVESTIGATION. (a) A surety company that issues a construction
payment bond shall, not later than the 15th day after the date of
receipt of notice of claim under the bond:
(1) acknowledge receipt of the claim;
(2) begin any review or investigation necessary to determine
whether the surety company is obligated to satisfy the claim
under the bond; and
(3) request from the claimant each document, item of
information, accounting, statement, or form that the surety
company reasonably believes, at that time, will be required from
the claimant.
(b) If a construction payment bond provides an address to which
a notice of claim under the bond should be submitted, the notice
is effective on the date the notice is received at that address.
(c) This subchapter does not exempt a claimant from complying
with any applicable statutory or contractual notice requirement.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.055. NOTICE OF ACCEPTANCE OR REJECTION OF CLAIM. (a)
Except as provided by Subsection (c), a surety company shall
notify a claimant in writing of the acceptance or rejection of a
claim not later than the 30th day after the date the company
receives all documents, items of information, accountings,
statements, and forms requested by the company under Section
3503.054.
(b) If the surety company rejects all or part of the claim, the
notice required by Subsection (a) must state in specific terms
the reasons for the rejection that are known by the company at
the time of the rejection.
(c) If the surety company is unable to accept or reject the
claim within the period specified by Subsection (a), the company,
in that same period, shall notify the claimant in writing that
the company is unable to accept or reject the claim. The notice
provided under this subsection must:
(1) state the reasons for which the company needs additional
time to accept or reject the claim; and
(2) include a request for any additional information the company
reasonably needs to process the claim.
(d) Not later than the 30th day after the date a surety company
notifies a claimant under Subsection (c), the company shall
notify the claimant in writing of the acceptance or rejection of
the claim. If the company rejects all or part of the claim, the
company shall state in specific terms the reasons for the
rejection that are known by the company at the time of the
rejection.
(e) In addition to any other contractual or statutory basis for
denying a claim, the surety company may reject all or part of a
claim:
(1) that is the subject of a legitimate dispute between the
principal obligor and the claimant; or
(2) for which the claimant has failed to provide supporting
documents or information the company reasonably requested.
(f) The time limits provided by this section and Section
3503.054 may be varied by any statute requiring a construction
payment bond.
(g) This section does not preclude a surety company from
asserting any defense in an action brought by a claimant on a
construction payment bond if the company makes a good faith
effort to inform the claimant in accordance with this section of
the reasons for rejecting all or part of the claim.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.056. PAYMENT OF CLAIM. (a) If a surety company
notifies a claimant under Section 3503.055 that the company
accepts a claim or part of a claim, the company shall pay the
claim not later than the 15th day after the date of the notice.
(b) If payment of the claim or part of the claim is conditioned
on the execution of a document or performance of an act by the
claimant, the surety company shall pay the claim not later than
the seventh day after the date the company receives the executed
document or evidence that the act has been performed.
(c) For purposes of this section, payment of a claim occurs when
the surety company places the company's check or draft in the
United States mail properly addressed to the claimant or the
claimant's representative.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.057. RULES. The commissioner may adopt rules
enforcing this subchapter in cases in which a surety company
violates this subchapter as a general business practice.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER C. OTHER BONDS
Sec. 3503.101. BAIL BOND CERTIFICATES. (a) In any year, an
insurance company authorized to engage in fidelity and surety
insurance business in this state may become surety in an amount
not to exceed $200 with respect to each bail bond certificate
issued in that year by:
(1) an automobile club authorized to transact business in this
state; or
(2) a truck and bus association incorporated in this state.
(b) The bail bond certificate must be a printed card or other
certificate that:
(1) is issued by:
(A) an automobile club authorized to transact business within
this state; or
(B) a truck and bus association incorporated in this state;
(2) is issued to a member of the club or association and signed
by the member of the club or association; and
(3) contains a printed statement that:
(A) a fidelity and surety company authorized to engage in
business in this state guarantees the appearance of the member
whose signature appears on the card or certificate; and
(B) if the member fails to appear in court at the time of trial,
the fidelity and surety company will pay any fine or forfeiture
imposed on the member in an amount not to exceed $200.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER D. SUIT ON CERTAIN BONDS OR OTHER OBLIGATIONS
Sec. 3503.151. VENUE OF SUIT ON CERTAIN BONDS OR OTHER
OBLIGATIONS. (a) This section applies to:
(1) a bond or other obligation of an insurance company
authorized to engage in business in this state and to act as
surety and guarantor of the fidelity of employees, trustees,
executors, administrators, guardians, or others appointed to, or
assuming the performance of, any public or private trust under
appointment of a court or tribunal, or under contract between
private individuals or corporations; or
(2) a bond that may be required:
(A) to be filed in a judicial proceeding;
(B) to guarantee a contract or undertaking between:
(i) individuals;
(ii) private corporations;
(iii) individuals and corporations; or
(iv) individuals or private corporations and the state, a
municipal corporation, or a county; or
(C) of a state, county, municipal, or district official,
including a school district official.
(b) A proper court in the county in which a bond or other
obligation described by Subsection (a) is filed has jurisdiction
of a suit instituted on the bond or obligation.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.152. RESIDENCE OF INSURANCE COMPANY. An insurance
company described by Section 3503.151 is a resident of a county
in which the company engages in business.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.153. SERVICE OF PROCESS. In a suit described by
Section 3503.151, process shall be served in accordance with
Sections 804.003, 804.101, 804.102, 804.103, 804.201, 804.202,
804.203(a), (c), and (d), and 804.204, as applicable.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
Sec. 3503.154. ACCEPTANCE OF SUBCHAPTER. The doing or
performance of any business in any county is considered an
acceptance of the provisions of this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.
SUBCHAPTER E. REGULATION OF SURETY COMPANY
Sec. 3503.201. MERGER OR CONSOLIDATION OF CERTAIN COMPANIES.
When two or more companies authorized to write fidelity,
guaranty, and surety insurance in this state merge or consolidate
and, incident to the merger or consolidation, enter into a total
reinsurance contract under which the merged or ceding company is
dissolved and that company's assets are acquired and liabilities
are assumed by the new or surviving company, the commissioner, on
finding that the contracting companies have on deposit with the
comptroller two or more deposits made for the same or similar
purposes under former Article 7.03, repealed by Chapter 388, Acts
of the 55th Legislature, Regular Session, 1957, or under Section
861.252, shall authorize the comptroller to:
(1) retain for a single purpose only the deposit of the greatest
amount and value; and
(2) permit the new or surviving company, on proper showing that
there is duplication of deposits and that the new or surviving
company is the owner of those deposits, to withdraw a duplicate
or excessive deposit.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 3, eff. April 1, 2007.