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.