HBA-TBM H.B. 548 77(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 548
By: Keffer
Insurance
2/23/2001
Introduced



BACKGROUND AND PURPOSE 

Texas law requires a contractor to secure a payment bond and a performance
bond on all public projects. Often a construction payment bond is issued by
an insurance company performing the duties of a commercial surety (surety).
The contractor is the principal.  The governmental entity contracting the
construction or any subcontractor providing services may be the bond
obligee.  If the contractor defaults on completion of the project or
payment for services rendered, the bond obligee may file suit against the
surety to collect compensation.  However, the Texas Supreme Court has ruled
that there is no common law duty of good faith and fair dealing between the
surety and the bond obligee comparable to that between a liability insurer
and its insured.  The court has further held that provisions regarding
compensation of injuries sustained due to practices declared to be unfair
or deceptive are inapplicable to a commercial surety.  As a result, some
commercial surety companies refuse to pay on a claim until the surety is
sued, and then attempt to force a settlement with the bond obligee that
favors the surety.  House Bill 548 amends the Insurance Code to provide
that the business of insurance includes the actions of a surety company,
and sets forth provisions relating to the duties of a commercial surety.   

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

ANALYSIS

House Bill 548 amends the Insurance Code to regulate the conduct of a
surety company issuing a construction payment bond.  The bill sets forth
provisions regarding a surety company's duties of acknowledgment and
investigation upon receipt of notice of a claim on a construction payment
bond.  The bill sets forth the methods by which the surety company accepts
or rejects the claim.  The bill specifies the procedure for payment of a
claim by the surety company.  The bill prescribes remedies and damages a
claimant is entitled to if a surety company violates the provisions of this
bill.  The bill authorizes, in an action for damages, the disclosure of
information accumulated in connection with the investigation.   

EFFECTIVE DATE

September 1, 2001, and applies only to construction payment bonds
delivered, issued for delivery, or renewed on or after January 1, 2002.