Untitled Texas Attorney General Opinion

@ffice of the !Zittornep&herd i&ate of Ill;exae DAN MORALES ATTORNEY GENERAL September 14, 1993 Honorable Gonzalo Barrientos Qpinion No. DM-254 Chair Committee on Nominations Re: Whether an unincorporated association Texas State Senate insurance carrier is eligible to serve as a P.O. Box 2910 corporate surety pursuant to V.T.C.S. article Austin, Texas 78768-2910 5160.A (RQ-579) You have asked us to consider whether, under V.T.C.S. article 516O.A an unincorporated association insurance carrier may serve as a corporate surety. Your question requires that we reexamt‘ne Attorney General Opinion JM-923 (1988) in light of amendments to article 5160.A that the legislature has enacted since 1988. In Attorney General Opinion TM-923 this office considered whether an unincorporated association insurance carrier organized under the Texas Lloyd’s Plan Insurance Code chapter 18, may serve as a “corporate surety” in providing a performance and a payment bond when required by V.T.C.S. article 5160.A. At that time, article 5 160.A provided in pertinent part as follows: Any person or persons, firm, or corporation, hereinafter referred to as “prime contractor,” entering into a format contract in excess of $25,000 with this State, any department, board or agency thereoc or any county of this State, department, board or agency thereof, or any municipality of this State, department, board or agency thereoc or any school district in this State, common or independent, or subdivision thereoc or any other governmental or quasi-govem- mental authority whether specifically named herein or not, authorized under any law of this State, general or local, to enter into contractual agreements for the construction, alteration or repair of any public building or the prosecution or completion of any public work, shall be required before commencing such work to execute to the aforementioned governmental authority or authorities, as the case may be, the statutory bonds as hereinatter prescribed, but no governmental authority may require a bond if the contract does not exceed the sum of $25,000. Each such bond shall be executed by a corporate sure@ or corporate sureties duly authorized to do business in this Stute. In the case of contracts of the State or a department, board, or agency thereof, the aforesaid bonds shall be p. 1318 Honorable Gonxalo Barrientos - Page 2 (DM-254) payable to the State and shall be approved by the Attorney General as to form. In case of all other wntracts subject to this Act, the bonds shall be payable to the governmental awarding authority concerned, and shall be approved by it as to form. Any bond furnished by any prime contractor in an attempted compliance with this Act shall be treated and wnstrued as in conformity with the requirements of this Act as to rights created, limitations thereon, and remedies provided. [Emphasis added.] The opinion emphasii that article 5160.A requires a “corporate” surety to execute a bond. Attorney General Opinion IM-923 at 2. The opinion also cited article 18.01 of the Insurance Code, which authorizes underwriters to make any insurance, except lie insurance, on the Lloyd’s plan. Id. at 2-3. Article 18.03 included within the meaning of “any insurance” fidelity and surety bonds insurance. Id. at 3. As the opinion stated, “by its terms, the Insurance Code authorizes a Lloyd’s company to write ‘fidelity and surety bonds insurance.‘” Id. Noting the apparent conflict between V.T.C.S. article 516O.A which precluded a Lloyd’s company from executing a bond because Lloyd’s is not a corporate surety, and articles 18.01 and 18.03 of the Insurance Code, which authorized a Lloyd’s company to write “fidelity and surety bonds insurance,” this office used established principles of statutory construction to conclude that V.T.C.S. article 5160.A controlled. Id. The opinion stated: As between article 5160.A and the Insurance Code, the special requirement of a corporate surety therefore controls or limits the general authorization of a Lloyd’s company to write fidelity and surety bond insurance. Put another way: Although the legislature has authorized Lloyd’s companies to write fidelity and surety bond insurance, the legislature requires a corporate surety when public work is concerned. Id. You point out that the legislature amended V.T.C.S. article 5160.A in 1991. See Acts 1991, 72d Leg., ch. 242, § 11.29, at 1067-68. You suggest that this amendment “now allows surety bonds issued by a Lloyd’s company, authorized to do business in Texas, to satisfy the requirements of [article] 5160.” We disagree. The 1991 legislation amended the sentence italicized in article 516O.A quoted spa, to provide as follows: “Each such bond shall be executed by a corporate surety or corporate sureties in accordance with Section 1, Chapter 87, Acts of the 56th Legislature, p. 1319 Honorable Gonxalo Barrientos - Page 3 (DM-254) Regular Session, 1959 (Article 7.19-1, [Insurance Code]).“’ See generally Attorney General Opiion DM-165 (1992). The amendment thus substituted for “duly authorized to do business in this state” a reference to article 7.19-1 of the Insurance Code. See id. at 4 n.2. Article 7.19-1 provides in pertinent part as follows: (a) Whenever any bond, is, by law. . , required. to be made,. : , and whenever the performance of any act. . , is required to be guaranteed, such bond. may be executed by a surety company duly authorized to do business in this state; and, . such execution by such company of such bond . . shall be in all respects a lidl and complete compliance with every law. that such bond. shall be executed by one surety or by one or more sureties, or that such sureties shall be residents, or householders, or freeholders, or either, or both, or possess any other qualification and all courts, judges, heads of departments, boards, bodies, municipalities, and public officers of every character shall accept and treat such bond. when so executed by such company, as wnfonning to, and fully and completely complying with, every requirement of every such law. . Provided, however, that any municipality may require in any specifications for work or supplies, on which sealed bids are required, that any corporate surety tender shall designate, in a manner satisfactory to it, an agent resident in the county of such municipality to whom any requisite notices may be delivered and on whom service of process may be had in matters arising out of such suretyship. (b) If any bond described in Subsection (a) of this section is in an amount in excess of 10 percent of the surety company’s capital and surplus, the municipality, board, body, organization, court, judge, or public officer may require, as a condition to accepting the bond, 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 duly authorized to do business in this state. Reading article 7.19-1 by itself, one might conclude that a Lloyd’s company, authorized to do business in Texas, may execute a bond required to comply with V.T.C.S. ‘III addition to the 1991 amendments to V.T.C.S. article 5160.A discussed here, the legislature also amended article 5160.A in 1989, see AL%1989, 71st Leg., ch. 1138, 8 38, and in 1993, see Acts 1993,73d Leg., ch. 865, $1. These amendments to the article 5160.A are irrelevant to the resolution of the question yen ask. p. 1320 HonorableGonzaloBatrientos - Page 4 (DM-254) article 5 160.A. Significantly, however, the legislature has not deleted from article 5 160.A the requirement that the surety be “corporate.” On its face, article 5160.A thus limits to “corporate sureties” the class of sureties duly authorized to do business in this state that may execute a bond under article 5160.A.2 We note that the legislature has not amended articles 18.01 and 18.03 of the Insurance Code since the issuance of Attorney General Opinion IM-923. Consequently, we aflhm our conclusion in Attorney General Opinion TM-923 that “the legislature requires a corporate surety when public work is concerned.” See Attorney General Gpiion IM-923 at 3. We therefore conclude that an unincorporated association insurance carrier is ineligible to serve as a corporate surety pursuant to V.T.C.S. article 5160.A. SUMMARY The conclusion in Attorney General Opinion IM-923 (1988) that “the legislature requires a corporate surety when public work is concerned” is aFumed. Thus, an unincorporated association insurance carrier is ineligible to serve as a corporate surety pursuant to V.T.C.S. article 5160.A. DAN MORALES Attorney General of Texas zWe note that the legislature amended article 7.19-1 of the Innuance Code in 1991 to add adsection @) (among other thlnga) hy the same act that amended V.T.C.S. article 516D.A to refer to article 7.19-1. See Acta 1991,72d Leg., ch. 242, 8 11.28, at 1067. In Attorney General Opinion DM-165 (1992) this office found that the amendments to articles 5160 and 7.19-l accomplished three things.: First, they authorize local officials to obtain information from the Department of Inamance regarding the condition of the surety company’s capital and smplus for zmm;f determining whether to consider reqniring the aorety company to nsttmnce. Second, article 7.19-1 &ectively authorizes political a&divisions to reqnire that corporate anretiea aecore reinanmnce for the portion of any risk that exceeds ten percent of the amety company’s capital and amplus. Third, article 7.19-1 reqnires reinsurers to he “duly authorized, accredited, or troateed to do business in this state.” Id. at 4. In our opinionthe legislatnre intended the 1991 amendment to V.T.C.S. article 5160.A solely to authorize a political subdivision to avail itself of the protections article 7.19-l provides; thus, we do not believe that the legislature intended hy the amendment to remove the requirement in article 5160.A that the surety be “corporate.” p. 1321 Honorable Gonzalo Banientos - Page 5 @M-254) WILL PRYOR First Assistant Attorney General MARYKELLER Deputy Attorney General for Litigation RENEA HICKS State Solicitor MADELEINE B. JOHNSON Chair, Opinion Committee Prepared by Kymberly K. Oltrogge Assistant Attorney General p. 1322