@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