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Texas Insurance Code - Not Codified - Article 7.20. Construction Payment Bond Of Surety Company; Prompt Payment

Legal Research Home > Texas Lawyer > Insurance Code - Not Codified > Texas Insurance Code - Not Codified - Article 7.20. Construction Payment Bond Of Surety Company; Prompt Payment

Art. 7.20. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY;  
PROMPT PAYMENT.     

Article repealed effective April 1, 2007
	                                                                               

Definitions
	Sec. 1. In this article:                                                       
	(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 a licensed surety or guaranty 
company that executes and delivers a construction payment bond as a 
surety for a principal obligor.

Acknowledgment and investigation of claim
	Sec. 2. (a) A surety company that has issued 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 
then reasonably believes will be required from the claimant.
	(b)  Nothing in this article exempts a claimant from 
compliance with any applicable statutory or contractual notice 
requirement.
	(c)  If the construction payment bond provides an address of 
the surety company to which claims should be submitted, the notice 
of claim is effective on receipt of the notice at that address.

Acceptance or rejection of claim
	Sec. 3. (a) Except as provided by Subsection (c) of this 
section, 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 surety company receives all documents, items of 
information, accountings, statements, and forms requested by the 
surety company as provided by Section 2 of this article.
	(b)  If the surety company rejects all or part of the claim, 
the notice required by Subsection (a) of this section must state in 
specific terms the reasons for the rejection known to the surety 
company at that time.
	(c)  If the surety company is unable to accept or reject the 
claim within the period specified by Subsection (a) of this 
section, the surety company shall provide written notice to the 
claimant, not later than the date specified under Subsection (a), 
that the surety company is unable to accept or reject the claim 
within that period.  The notice provided under this subsection 
must:
	(1)  state the reasons for which the surety company needs 
additional time to accept or reject the claim;  and
	(2)  include a request for any additional information 
reasonably needed by the surety company to process the claim.
	(d)  Not later than the 30th day after the date a surety 
company notifies a claimant under Subsection (c) of this section, 
the surety company shall notify the claimant in writing of the 
acceptance or rejection of the claim.  If the surety company rejects 
all or part of the claim, the surety company shall state in specific 
terms the reasons for the rejection known to the surety company at 
that time.
	(e)  In addition to any other contractual or statutory basis 
for denying a claim, the surety company may reject all or any 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 reasonably requested by the surety 
company.
	(f)  The time limits provided by this section and Section 2 
of this article 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 any action brought by a claimant against 
the construction payment bond if a good faith effort is made to 
inform the claimant in accordance with this section of reasons for 
rejecting all or part of the claim.

Payment of claim
	Sec. 4. (a) If a surety company notifies a claimant under 
Section 3 of this article that the surety company accepts a claim or 
part of a claim, the surety 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 surety 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 surety company's check or draft 
in the United States mail properly addressed to the claimant or the 
claimant's representative.

Rules
	Sec. 5. The commissioner may adopt rules enforcing this 
article in cases in which a surety company violates this article as 
a general business practice.

Construction
	Sec. 6. (a) This article shall be construed to encourage 
prompt payment of just claims made under construction payment bonds 
of surety companies.  This article does not foreclose any other 
remedy available to a claimant by law or contract.
	(b)  This article may not be construed to:                                     
	(1)  create a private cause of action;                                         
	(2)  be a precondition to judicially enforcing obligations 
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.

Modification prohibited
	Sec. 7. Any term contained in a construction payment bond 
that is inconsistent with this article is void.

Added by Acts 2001, 77th Leg., ch. 470, Sec. 1, eff. Sept. 1, 2001.           

Last modified: August 11, 2007