                          @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



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          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,




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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.




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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.”




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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




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