THE SURETY & FIDELITY ASSOCIATION OF AMERICA
MEMORANDUM
TO:
Government Affairs Advisory Committee
FROM:
Lenore S. Marema
DATE:
March 7, 2014
SUBJECT:
Overview of the 2014 State Legislative Sessions—Commercial Surety
The following summarizes key state legislation affecting commercial surety that SFAA has been
working on most recently with AIA, our member companies, and other interested parties. This is
the short session in most states and things are starting to move now in advance of pending
crossover dates, and in a few cases, before a projected adjournment date.
Status of the States
The vast majority of the states legislatures reconvened in January and with six additional states
starting their sessions in February, there are now 43 states in full swing. Florida and Louisiana
in March, and North Carolina in May. Montana, Nevada, North Dakota and Texas have no
regular session this year. This is the short session in many states, and in some states the fiscal
2015 budget will be the primary item considered. New Mexico finished its budget and
adjourned and Nebraska, Oregon, Virginia, West Virginia and Wyoming are close to the
finish line for 2014.
Of General Interest
--Recent Introductions. Florida HB 375 would revise the existing countersignature law, which
prohibits insurers from assuming direct liability as to a subject of insurance resident, located, or
to be performed in the state unless the policy or contract of insurance is issued by or through, and
is countersigned by, an agent who is regularly commissioned and licensed currently as an agent
and appointed as an agent for the insurer under this HB 375 would provide that the absence of a
countersignature would not affect the validity of the policy or contract.
--Still Pending. Maryland HB 380 would permit insurers to designate rate filing information as
a trade secret or as confidential commercial information in connection with rate and form filings.
The Insurance Commissioner would have to approve an insurer’s request for information to be
determined as a trade secret or as confidential information.
--Dead for 2014. Mississippi HB 192 and South Dakota SB 1054 would have enacted the
Unfair Claims Settlement Practices Act. The bills exempted surety and fidelity insurance from
its provisions.
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Surety Disclosures
--Dead for 2014. Hawaii SB 2440 would have required surety companies issuing a surety bond
contract executed by a principal acting in the principal's individual capacity to disclose all
potential personal losses to the principal arising from any action on the surety bond in writing.
The surety also would have to provide principals who are over the age of 62 years with
counseling regarding the principal's capacity to sustain personal losses that may arise from any
action on the bond. The Department of Commerce and Consumer Affairs would prescribe the
counseling required. State Farm locally took the lead and organized the sureties with counsel in
Hawaii to oppose the bill. It died in committee.
Patent Litigation—Developing Issue
--Recent Introductions. A growing number of states have legislation that would permit/require
the state courts to require a patent owner bringing an infringement case to post a $250,000 bond
if the court determines that there is a reasonable likelihood that the patent owner has threatened
(through a demand letter) or is litigating a claim in bad faith (in federal court). The bond would
cover the defendant’s legal costs and damages. The bond requirement is adverse selection
against the surety. SFAA has seen such bills in the following states: Alabama SB 121, Georgia
HB 809, Kansas HB 2663, Maine SB 678, Mississippi HB 521/ HB 1074/SB 654, Missouri
HB 1374/ SB 706, New Hampshire SB 303, New Jersey AB 2462, Oklahoma HB 2837,
Pennsylvania SB 1222, South Carolina HB 4629, South Dakota SB 143 Tennessee SB 1967,
Utah HB 232 and Virginia HB 12/HB 375/SB 150
Congress enacted the America Invents Act last year, which contained some reforms of the patent
law and some help for businesses being targeted with patent infringement suits. Both the House
and Senate have additional legislation pending to further address patent assertion entities (PAEs
or Patent Trolls). Because Patent Trolls take aim at state and local businesses, which many times
are small businesses, the states apparently are not waiting for Congress to take further action.
Following the lead of Vermont, which enacted a protective law last year, more states are
considering such legislation this year. From what I have been able to determine, the 2014 state
legislation is based on the Vermont law and model legislation that is said to be from the Council
of State Governments. The bills this year generally set forth the factors that may be considered
as evidence of a bad faith assertion of a patent infringement in a demand letter or initiation of a
lawsuit. Some bills allow the Attorney General to investigate and bring charges. Most all the
legislation also allows the victims to bring lawsuits to recover actual damages and attorney’s fees
and costs. Some include treble damages and cap the amount.
Patent Trolls are businesses that buy patents owned by others—usually from owners with
financial problems and/or in some form of bankruptcy proceeding—that need to convert their
patent assets into cash. The sole purpose of a Patent Troll is to acquire and enforce patent rights.
The Patent Trolls are ventures formed for this purpose by investors, and in some cases, they are
large tech industry companies that are spinning off their patents into separate entities to
“monetize” their patent assets. Generally speaking, the patents now in question usually are for
software programs or business processes. Part of the problem may be that the US Patent Office
has granted patents in these areas have broad language in them. The trolls then pursue
infringement suits against many small businesses claiming that some part of the technology or
process that they have in place is covered by the troll’s patent such that they must pay to obtain a
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license to continue usage. Many small community banks in Georgia, for example, were told that
the technology that connects their ATM machines to the internet was patented. The banks either
had to pay a license fee to the Patent Troll for each ATM or defend against the patent
infringement litigation, which is extremely costly and takes a long time to resolve. Small
businesses do not have the resources to determine the validity of the infringement claims against
them. The number of infringement claims and defendants served has escalated, as has the cost of
the license fees demanded. One small business was asked to pay a $1,000 license fee for each
employee that used its scanners and another was asked to pay a license fee to use the technology
that converted a fax into an email attachment.
The patent law is federal so that any state laws enacted likely will be challenged as preempted
under federal law. The federal courts have exclusive jurisdiction over suits arising under the
patent law----disputes over ownership and rights. Vermont, however, couched its new law in
terms of creating a new state law claim in tort—bad faith allegations in patent infringement
litigation. The Vermont law sets forth the factors that may be considered as evidence that a
patent owner is bringing an infringement claim in bad faith—by way of a demand letter or in a
lawsuit. Regarding bad faith in connection with a demand letter, at a minimum, the state courts
would be dealing with areas they have never dealt with before—infringement and validity of
patents. There might be abusive tactics, deception or coercion involved in a demand letter that
would be similar to other activities that have been regulated or prohibited under state unfair
trade practices or consumer protection laws, which might give rise to a state tort action.
Regarding bad faith in connection with an infringement lawsuit, which would be filed in federal
court, the state courts would be in the position of determining that allegations in a federal
complaint are in bad faith. The federal court has jurisdiction and would be in the best position to
address that issue. At best, any state bad faith remedy would have to be stayed until the federal
court completes the infringement case. Some of the state legislation that we are reviewing
attempts to create disincentives/penalties in state law for filing a frivolous suit in the federal
court system.
LICENSE & PERMIT BONDS
Real Estate Appraisal Management Companies
--Bills on the Move. Arizona HB 2239 would change the amount of the license bond required
for real estate appraisal management companies. Current law requires a $20,000 bond. The bill
would require a bond in an amount not less than $50,000 and not more than $100,000. The bill
passed out of committee in the House. Mississippi SB 2671 would repeal the surety bond
requirement in the existing law for real estate appraisal management companies. The law
requires a $20,000 bond in connection with registration for such companies to secure their
compliance with the applicable laws. The bill passed the Senate and was sent to the House.
South Dakota SB 48 would require real estate appraisal management companies to post a
$25,000 surety bond or letter of credit in connection with licensure. The bond would be
conditioned on the company paying all amounts owed to its employees and all amounts adjudged
against the company for negligent or improper real estate appraisal, a negligent or improper
appraisal management service, or a breach of contract. The bond also would be conditioned on
the surety providing notice of cancellation of the bond or notice of payments of claims. The bill
would permit direct actions on the bond. The bill has passed both chambers. Virginia HB 762
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would increase the amount of the license bond required under existing law for real estate
appraisal management companies from $25,000 to $100,000. The bill has passed both chambers.
--Still Pending. Massachusetts HB 992/HB 3849 would require real estate appraisal
management companies to be licensed and post a $20,000 surety bond that accrues to the State
for the benefit of a claimant against the company. The bond would secure the company’s
faithful performance of its obligations under the proposed law. The bill would permit direct
actions on the bond, but it also provides that the surety’s aggregate liability would not exceed the
principal sum of the bond. A deposit of cash or security would be accepted in lieu of the surety
bond.
Mortgage Lenders, Brokers and Loan Originators
--Bills on the Move. Indiana SB 334 would allow depository institutions exempt from the law
concerning the licensing of creditors in first lien mortgage transactions to voluntarily register
with the Department of Financial Institutions (Department) to retain and sponsor licensed
mortgage loan originators under an exclusive contract. The bill would require such institutions
to comply with the existing law’s license bond requirements for mortgage lenders and brokers.
The bill passed the Senate is back in the Senate after being passed in the House with minor
amendments. Wisconsin SB 534/AB 678 would allow a mortgage loan originator to be
sponsored by a depository institution. The depository institution would have to register with the
Department of Financial Institutions and post a $300,000 surety bond. Further, for mortgage
lenders and mortgage brokers, the bill would increase the notice period for cancelling the bond
under existing law from 30 days to 60 days. The bill has passed both chambers.
--Still Pending. Alaska HB 252 would subject depository institutions to the existing law for
mortgage loan originators. Such institutions would be permitted to sponsor a mortgage loan
originator if it registers and has an exclusive contract with the originator. The bill also would
subject depository institutions to the existing law’s bonding requirements for mortgage loan
originators.
Maine SB 678 would revise the existing law for the licensing requirements to make supervised
loans and for mortgage loan originators. The law requires a license bond in an amount not to
exceed $50,000. The bill provides that a $50,000 surety bond would be required for each branch
location license.
Tennessee SB 1628/HB 1424 provides that a surety bond presented with a renewal certificate of
registration submitted from April 15, 2015 through June 1, 2015 for a mortgage lender, mortgage
originator, or mortgage servicer shall have a bond expiration date no sooner than March 31,
2016.
Debt Management Providers
--Recent Introductions. Ohio HB 173 would require debt settlement service providers to be
licensed and to provide a $50,000 surety bond. The bond would have had to be issued by a
bonding or an insurance company authorized to do business in the State. The bill would permit
direct actions on the bond, but the aggregate liability of the surety for any and all breaches of the
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conditions of the bond shall not exceed the penal sum of the bond. The surety could cancel the
bond with 30 days’ notice to the Superintendent of Financial Institutions by certified mail, return
receipt requested.
Pennsylvania SB 622 would require debt settlement service providers to be licensed and
bonded. The bond would have to be for $25,000. The bill provides for the forfeiture of the bond
and for direct actions on the bond.
Washington HB 2142 would require debt settlement services providers to be licensed and
furnish an umbrella insurance policy or post a surety bond in an amount not less than $10,000 or
an amount the Department determines to be required based on the provider’s financial condition
and performance history, whichever is greater. In no event can the bond exceed $50,000. The
surety bond shall run to the State for the benefit of the State and its residents when they agree to
receive services from the provider in the event of the provider or its agent’s noncompliance with
the applicable law. The bill has not moved this session and likely is dead.
--Dead for 2014. West Virginia HB 2346 would have adopedt the Uniform Debt Management
Services Act of the National Conference of Commissioners of Uniform State Law. The bill
required debt management service providers to post a $50,000 surety bond. The bill would have
required sureties to have an "A-" rating from a nationally recognized rating service and be
licensed in the State. The bond would have to run to the State for its benefit and individuals who
entered into agreements with the provider. The bond would have to be effect for an additional
two years after the registrant stops performing debt management services in West Virginia. The
bond could be cancelled with 30 days’ notice. The bill died in committee.
Debt Collectors
--Recent Introductions. New York AB 455 would require debt collection agencies to be
licensed and post a surety bond, contract of indemnity, or an irrevocable letter of credit. The
bond amount would be based on the number of persons employed by the licensee. A $10,000
bond would be required for one to four employees; a $25,000 bond for five to nine employees; a
$50,000 bond for 10 to 20 employees, and a $75,000 bond for 20 or more employees. The bond
would secure the licensee’s compliance with the applicable law and the payment of all costs and
penalties.
Credit Service Organizations
--Recent Introductions. Oklahoma HB 3434 would increase the amount of the surety bond
required for credit services organizations from $10,000 to $1 million. The bill remains in
committee.
Money Transmitters
--Bills on the Move. Georgia HB 982 would rewrite the law for money transmitters and check
sellers. Current law requires a surety bond in connection with licensure. The bond must be for
$50,000 for money transmitters and for $100,000 for check sellers. The law requires an
additional $5,000 per location and caps the bond at not more than $250,000, unless the licensee
has outstanding obligations in excess of this amount. In this case the bond can be increased up to
a maximum of $1.5 million based on the licensee’s average daily account balances. The bill
provides that the bond for payment instrument sellers would have to be for $250,000, and
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$100,000 for money transmitters. The bill would eliminate the provision for basing the bond
amount on locations. The bill also would increase the maximum amount of the bond based on the
licensee’s balances to $2 million. The bill would eliminate the options to post other forms of
security. The bill was amended and passed the House. It is in committee in the Senate and the
clock is ticking on adjournment this year.
West Virginia SB 438/HB 4290 would revise the bond requirements for money transmitters.
Current law provides that the license bond required under existing law must be in the amount of
$100,000 for a licensee issuing or selling checks or money orders, or engaging in currency
exchange. The bond must be for $300,000 for a licensee receiving money for transmission by
wire, facsimile or electronic transfer, or engaging in currency transportation. The bonds may be
increased by $25,000 per location or authorized delegate in the State, but may not exceed $1
million. Instead, the bill provides that the bond could be increased at the time of license renewal
by 1% of the annual volume of business the licensee conducts in the State exceeding $10 million
rounded to the nearest thousand. The bond still would be capped at $1 million. The bill would
eliminate the use of alternative forms of security in lieu of the bond. HB 4290 passed the House
and is moving in committee in the Senate..
--Still Pending. New Jersey AB 2513 would revise the existing law for money transmitter
licensing. The bill would provide additional procedures for consumer claims with regard to the
handling of the consumer’s funds. The bill provides that if the licensee has insufficient assets to
make the purchaser or holder whole, the purchaser or holder would be entitled to reimbursement
under the surety bond, irrevocable letter of credit or security device that the money transmitter
has posted under the existing law’s requirements.
--Dead for 2014. Mississippi SB 2500 would have authorized the Commissioner of Banking
and Consumer Finance to make a claim against a money transmitter’s surety bond on behalf of
the State of Mississippi.
Home Warranty Providers
--Recent Introductions. Indiana HB 1377 would require home warranty providers to post a
$100,000 surety bond or other security in connection with licensure. The bond would secure the
provider’s faithful performance of its obligations to warranty holders. The bond may be used to
satisfy the provider’s obligations in certain cases. The bill has not moved this session.
Contractor License Bonds
--Bills on the Move. Alabama HB 143/SB 150 would revise the bond requirement for master
plumbers and master gas fitters. Current law provides that a $2,000 bond must be filed with the
judge of probate in the county of the plumber or gas fitter’s principal place of business. The bill
would increase the bond to $15,000 and convert the requirement into a statewide bond. The bill
would prohibit cities and counties from requiring a bond to be furnished if the plumber or gas
fitter has a bond with the Alabama Plumbers and Gas Fitters Examining Board. The bill also
would eliminate a procedure for restoring a revoked plumber or gas fitter’s license, which
includes a requirement to post a $1,000 bond for the return of the license.
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The bill was amended on the House floor and now would repeal the current bond requirement
and establish a recovery fund for consumers. The bill also now provides that participation in the
recovery fund also would be in lieu of any performance bonds required by a city or county. We
will fight this bill in the Senate.
Kentucky HB 38 would revise the bond requirement for electrical inspectors. Current law
requires all inspectors to post a $5,000 bond. The bill provides that the bond requirement only
would apply to inspectors that work as contractors with a city, county, urban-county, charter
county, unified local government, consolidated local government, or combination of governing
entities. The bill would exempt inspectors that are employees of the above-listed governing
entities from the bond requirement. The bill has passed the House.
--Still Pending. Kentucky HB 207 would require residential roofing contractors to be licensed
and post a surety bond. The amount of the bond would be determined through regulations that
the bill would direct the Kentucky Board of Roofing Contractors to adopt. The bill is in
committee.
Missouri HB 1513/SB 755 would require electrical contractor firms to comply with the bond
requirements in each political subdivision in which he or she will perform work in connection
with obtaining a statewide electrical contractor’s license. HB 153 has been heard in committee
and SB 755 is out of committee in the Senate.
Motor Vehicle Dealers
--Enactments. Pennsylvania HB 1128 rewrites the law for motor vehicle sales finance
companies. Prior law required a $5,000 surety bond in connection with licensure as a sales
finance company or a collector-repossessor. The new law increases the bond amount for sales
finance companies to $10,000.
--To Governor. Alabama HB 400/SB 305 would increase the amount of the license bond
required for motor vehicle dealers. Current law requires a license bond in the amount of $25,000
for new vehicle dealers and $10,000 for all other dealers. The bill would require all dealers to
post a $50,000 bond. The bill would rewrite the conditions of the bond. The bill would
eliminate a provision limiting the surety’s aggregate liability to the bond amount. The bill also
would eliminate the licensing requirements for motor vehicle re-conditioners and would
eliminate the bond requirement in connection with this change.
--Bills on the Move. Kentucky HB 133 would require new recreational vehicle dealers to
comply with the existing law’s licensing requirements for motor vehicle dealers. Existing law
requires an insurance policy or bond in connection with licensure. A $15,000 surety bond also
may be required under existing law in certain cases where the licensee’s financial responsibility
or compliance with the law is in doubt. The bill passed the House.
--Still Pending. Kentucky HB 169 would increase the bond and insurance amounts required in
connection with the licensing requirements for motor vehicle dealers. Current law requires an
insurance policy or bond in connection with licensure. The bill would increase the limits of
liability for the insurance policy or bond. A minimum $15,000 surety bond also may be required
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under existing law where the licensee’s financial responsibility or compliance with the law is in
doubt. The bill would increase this bond to an amount up to a maximum of $100,000. The bill
has passed the House and has been sent to the Senate.
Wisconsin AB 262 would increase the minimum amount required for a license bond for motor
vehicle dealers from $25,000 to $50,000. The bill also would revise the existing law, which
allows the Department of Transportation (DOT) to contract with any person for title and
registration processing services. Existing law requires the contractor to post a surety bond or
letter of credit in the amount of $10,000 if the person is applying to do registration renewal
transactions, or for $25,000 if the person is applying to do title and original registration
transactions. The bill provides that if a contractor of the DOT has more than 100 subcontractors
as agents, the contractor may provide the surety bond or letter of credit on behalf of these
applicants in an amount equal to $2,000 for each subcontractor. The bill has passed both
chambers.
Commodities Dealers
--Bills on the Move. Tennessee HB 1922/SB 2070 would exempt a commodity dealer,
warehouseman or commodities warehouseman from the existing law’s surety bond requirement
if such persons pay in full for all commodities purchased at, or prior to, the time that such person
accepts delivery of the commodities. If these persons paid less than the full amount, they would
be subject to the bond requirement. Current law requires a bond to secure the protection of those
persons storing commodities in the warehouse or selling commodities to a dealer in the event of
bankruptcy, fraud, or other occurrence that would deprive the person storing or selling
commodities from recovering its value. HB 1922 is moving to the House floor and SB 2070
remains in committee.
Public Adjusters
--Bills on the Move. Virginia HB 755 would revise the existing law to require public adjusters
to post a $50,000 surety bond in favor of the Commonwealth. The bond would be conditioned
on the public adjuster conducting business in accordance with the law. Existing law requires
public adjusters to be licensed. The bill has passed both chambers.
Title Agents
--Recent Introductions. Florida HB 321/SB 570 would eliminate a deposit of securities or
surety bond required for title insurance agencies, which must be for at least $35,000. The bond
is for the benefit of any appointing insurer damaged by the agency’s violation of its contract with
the appointing insurer. An existing law enacted in 2012 requires a surety bond from the agency
in addition to this requirement for a bond or deposit. The obligation for both of the surety bonds
is the same.
Title Lenders
--Recent Introductions. Alabama HB 406 would require title lenders to be licensed and post a
bond or other security for $50,000 for each location where the licensee will perform title lending.
The maximum bond amount would have been $250,000. The bond would be for the benefit of
any consumer who is injured by the fraud, misrepresentation, breach of contract, financial
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failure, or violation of the by the title loan lender in a loan transaction. The bill provides that the
surety’s aggregate liability would be limited to the bond amount.
Private Investigators
--Still Pending. Alaska HB 253 would require private detective agencies to be licensed and to
post a minimum $15,000 surety bond. Colorado SB 133 would require private investigators and
private investigator apprentices to post or be covered by a surety bond. The bill would require
the Director of the Division of Professions and Occupations to determine the bond amount
through rules.
Process Servers
--Still Pending. Maryland SB 838 would require private process servers to be licensed and post
a surety bond. The bond would have to be for a minimum of $15,000. The surety’s total liability
could not exceed the penal sum of the bond. The surety would have to give immediate notice of
the cancellation, forfeiture, or termination of the licensee’s bond to the Secretary of State Police
(Secretary). If the surety failed to give such notice, the bond would have continued to be in effect
until the notice is given to the Secretary. The bill has been heard in committee.
Martial Arts
--Still Pending. New York AB 8775/ SB 6502 would authorize mixed martial arts matches to be
conducted in the State. The bill would require persons applying for a license to conduct such
matches to post a surety bond conditioned on compliance with the applicable laws and
regulations. An additional bond would be required to secure the payment of professional
combative sports participants' purses, salaries of club employees licensed by the State Athletic
Commission (Commission), and the legitimate expenses of printing tickets and all advertising
material. The Commission would determine the amount required for both bonds that the bill
would require.
Metal Buyers/Recyclers
--Dead for 2014. New Mexico HB 198 would have required precious metal buyers to obtain a
permit and post a $10,000 bond to the local government where the buyer’s business is located.
The bond would have been conditioned on the buyer conducting his or her business in
compliance with the applicable law. The bond was for the benefit of persons damaged by a
breach of any condition set
Second Hand Dealers
--Still Pending. Massachusetts SB 125 would require second-hand dealers to post a $300
license bond in the city or town where they are located. New York SB 6093 would require
pawnbrokers to be licensed and maintain a net worth of $50,000 or post a surety bond for
$10,000 for each license. In lieu of the bond, a certificate of deposit or irrevocable letter of
credit would be accepted. The bond would have to be in favor of the agency and be for the
benefit of consumers who are injured by the fraud, misrepresentation, breach of contract,
financial failure, or violation of the applicable law by the pawnbroker. The bill would establish
procedures for filing claims on the bond through a judicial suit or an administrative adjudication.
The proceeds of the bond would be distributed on a pro rata basis.
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Ohio HB 192 would increase the amount of the license bond required for pawnbrokers from
$25,000 to $100,000. The bond may be posted under current law in lieu of maintain liquid assets
in the amount of $50,000. The bill also would increase the amount of assets required to
$100,000. The bond is for the benefit of persons injured by the pawnbroker’s violation of the
applicable law.
School Bonds
--To Governor. Idaho HB 361 would amend the existing bond requirement for proprietary
schools to provide that such schools that are accredited by an accreditation organization that the
State Board of Education recognizes would not be required to obtain a bond or other financial
instrument.
--Bills on the Move. Alabama SB 38 would clarify that private, nonpublic, and church schools
offering instruction in grades K-12, are no longer subject to licensure or regulation by the State
Department of Education (Department), which would include the existing bond requirement for
such schools. The bill also would limit the regulation of private post secondary schools as well.
Current law requires a surety bond from a surety acceptable to the Department in the penal sum
of not more than $10,000. The Department currently determines the amount required by
regulation.
Warehouse and Commodities Dealers
--Bills on the Move. Tennessee HB 1922/SB 2070 would exempt a commodity dealer,
warehouseman or commodities warehouseman from the existing law’s surety bond requirement
if such persons pay in full for all commodities purchased at, or prior to, the time that such person
accepts delivery of the commodities. If these persons paid less than the full amount, they would
be subject to the bond requirement. Current law requires a bond to secure the protection of those
persons storing commodities in the warehouse or selling commodities to a dealer in the event of
bankruptcy, fraud, or other occurrence that would deprive the person storing or selling
commodities from recovering its value. HB 1922 is on the House floor.
Fuel Distributors
--Still Pending. New York SB 1719 would regulate fuel distributors, importing transporters of
motor fuel, terminal operators, and liquefied petroleum gas fuel businesses. The bill would
require distributors and liquefied petroleum gas fuel businesses to register and post a bond or
other security to secure the payment of any sums due under the proposed law. Of note, the bill
would permit the waiver of the bond requirement for liquefied petroleum gas fuel businesses.
Importing transporters and terminal operators each would have to be licensed and post a surety
bond to secure the performance of its duties under the applicable laws and regulations.
Vermont SB 314 would increase the maximum amount of the license bond required of motor
fuel distributors from $400,000 to $1 million. The bill has received a favorable committee report.
Other License Bonds
--Bills on the Move. Washington HB 2543 provides for the electronic monitoring of persons
sentenced to a home detention program. The bill would require electronic monitoring agencies
to post a $10,000 surety bond. The bond would have to run to the State for the benefit of a
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person injured by a wrongful act of the monitoring agency. The bill has passed the House and is
moving in committee in the Senate.
--Still Pending. Oklahoma SB 1715 would establish a license requirement for public events
that sell alcohol. The bill would subject such licensees to the existing law’s bonding
requirements. The bond secures the payment of a gross receipts tax.
Oklahoma SB 1929 would revise the existing law for barber schools to subject them to the
bonding requirements applicable to cosmetology schools. The bond must be in an amount equal
to $2,000, plus $1,000 per instructor. Existing law already requires barber schools to be licensed.
Oklahoma HB 3434 would increase the amount of the surety bond required for credit services
organizations from $10,000 to $1 million.
Washington HB 2663 would regulate tow truck operators, requiring licensure and a $5,000
surety bond. The bond would secure the operator’s compliance with the applicable laws and
regulations. The bill would permit direct actions on the bond, but the surety’s aggregate liability
would be limited to the bond amount. The bill has been heard in committee.
--Recent Introductions. Florida HB 7051/SB 1018 would modify the existing license bond
requirements for health studios, commercial telephone sellers, pawnbrokers, sellers of travel, to
provide additional claims procedures. The changes would include new provisions allowing
direct actions on the bond for health studios, commercial telephone sellers, and pawnbrokers.
The bill also would make changes to the conditions of the bonds for commercial telephone seller.
--Withdrawn. Missouri SB 851 would revise the amount of the insurance policy, bond, or other
acceptable surety required for tow truck companies. Current law requires a bond or policy
providing coverage for the death of, or injury to, persons and damage to property for each
accident or occurrence in the amount of at least $500,000 per incident. The bill would require
the bond or policy to be in the amount that the Department of Transportation requires.
Permit Bonds
--Still Pending. Hawaii HB 1537 would establish requirements for obtaining grading and
grubbing permits within shoreline area. The bill provides that a surety bond may be required in
connection with the permit for certain projects. The bill moved in committee but it failed to get
out of the House before the crossover date.
Kentucky HB 203 would require owners of outdoor advertising devices to obtain a performance
bond in connection with a permit for trimming and/or pruning vegetation around the device. The
bond must be sufficient to cover the work being done on the site.
Pennsylvania HB 1877 would establish requirements for the demolition of buildings and
structures. The bill would require contractors or owners of a structure to obtain a permit for the
demolition project and post a performance bond in an amount equal to the cost of the demolition
work, but not less than $25,000. The bond is conditioned on the completion of the work
authorized under the permit.
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Tennessee SB 2108 would require building permit applicants to post a bond or other guarantee
for the unfinished streets and other infrastructure projects that are in an approved subdivision
plat. The bond would secure the completion of these items.
COURT BONDS
Appeal Bonds
--Still Pending. Kansas HB 2516 would revise the amount of the supersedeas bond required for
medical malpractice cases. Current law requires the bond to be in the full amount of the
judgment against the health care provider. The bill would require the bond to be in the amount
of the judgment for which the Health Care Stabilization Fund is liable.
New Jersey SB 616 would require all actions alleging medical malpractice be mediated by a
panel that would have to evaluate the claim and would have the ability to declare the action or
the defense to be frivolous. If an action goes to trial after mediation, then the party with the
frivolous action or defense would be required to post cash or surety bond in the amount of in the
amount of $10,000 for each party against whom the action or defense was determined to be
frivolous. The bill provides that if a judgment were to be entered against the party who posted
the bond, then it would be used to pay all reasonable costs that the other party or parties had
incurred in the frivolous action, as well as any costs allowed by law or by court rule, including
court costs and reasonable attorneys' fees.
Fiduciary Bonds
--Bills on the Move. Alabama SB 238 would revise the liability of a probate judge and the
sureties of his or her official bond. Current law provides that the judge and the sureties on his or
her official bond are liable to any person injured for the judge’s neglect or omission for not
taking a bond, or a new or additional bond, if required, or for taking an insufficient surety on the
bond from a conservator, any executor or administrator. The bill would delete “neglect or
omission” and provide instead that the judge and his or her sureties only would be liable for the
judge’s wanton, fraudulent, or intentional misconduct with regard to the requirement of bonds
for conservators, executors, administrators, fiduciaries, or someone serving in a similar capacity.
The Senate bill is moving to third reading.
Virginia SB 346 would revise the current law for fiduciaries of a decedent’s estate. Current law
permits the personal representative, guardian of a minor, conservator, or committee to post a
bond without surety when the value of the property he or she receives does not exceed $15,000.
The bill would increase this amount to $25,000. The bill has passed both chambers.
--Dead for 2014. Virginia HB 487 would revise the current law for fiduciaries of a decedent’s
estate. Current law permits the personal representative, guardian of a minor, conservator, or
committee to post a bond without surety when the value of the property he or she receives does
not exceed $15,000. The bill would clarify the law by adding that no personal representative
giving bond without surety would be permitted control over a decedent's property that is valued
in excess of $15,000. The bill was defeated in committee.
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West Virginia HB 2972 would revise the bond requirements for a conservator for a minor
awarded a structured settlement. Current law provides that if the net proceeds are less than
$25,000, the court may waive the bond requirement for conservator. The bill would reduce the
amount under which the bond may be waived from $25,000 to $10,000. The bill provides that if
the proceeds are $10,000 or more, the court would be prohibited from waiving the bond
requirement. The conservator’s bond could not be a blanket bond and it would have to be "dollar
for dollar," covering the entire settlement. The bill provides that if the structured settlement is
from a regulated annuity company, the bond does not need to be equal to the settlement amount.
The bill never got out of committee and the bill is dead because it missed the crossover date.
Notary Bonds
--Still Pending. Pennsylvania HB 25 would rewrite the existing law for notaries public. Current
law requires a $10,000 bond that may be provided by a duly authorized surety company, or the
bond may be provided by two sufficient individual sureties. The bill provides that the bond
would have to be provided by an insurance company authorized to do business in the
Commonwealth, and that the bond would have to be for $10,000 or an amount set by regulation.
The bill provides that if a notary public violates the applicable law, the surety or issuing entity is
liable under the bond. The surety or issuing entity also would have to notify the Department of
State (Department) Department not later than 30 days after making a payment to a claimant
under the bond. The bill would require the surety or issuing entity to give 30 days' notice to the
Department before canceling the bond.
--Bills on the Move. West Virginia HB 4012, as introduced, have had required a notary public
to post a $10,000 surety bond or another “functional equivalent” secure the faithful performance
of his or her duties and his or her compliance with the applicable laws. Current law does not
require bonding. The bond requirement was controversial in the legislative debate in both
chambers. In a bill that has passed both chambers, notaries would be required to obtain a $1,000
bond or its functional equivalent or file a certification that the notary is covered under 1) a
professional liability insurance policy; 2) an errors and omissions insurance policy; 3) a
commercial general liability insurance policy; or 4) their equivalent. The bill is headed toward
enactment.
Uniform Trust Act
--Recent Introductions. Kentucky HB 78, Maryland HB 83/SB 240 and Mississippi HB 845
/SB 2727 would rewrite existing law to adopt the Uniform Trust Code. The existing law
provides that a trustee only has to provide a surety bond if required by the terms of the trust,
reasonably requested by a beneficiary, or the court finds it necessary to protect the interests of
the beneficiaries. The bill provides that the bond is required only if the court finds that a bond is
needed to protect the interests of the beneficiaries or is required by the terms of the trust and the
court has not dispensed with the requirement. The bill would authorize the court to specify the
amount of a bond, its liabilities, and whether sureties are necessary. The court also could modify
or terminate a bond at any time. Regulated financial-service institutions qualified to do trust
business in the Commonwealth would be exempt from the bonding requirement.
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The Kentucky bill passed the House, the Maryland bills were heard in committee in January, and
the Mississippi Senate bill has passed and was sent to the House. The bill was referred to the
committee where the House companion bill died earlier this year.
Other
--Still Pending. New Hampshire SB 289 would establish new court procedures for validated
wills. Persons contesting a validated will in court would have to post a bond to secure the
payment of the costs of the proceedings for the prevailing party and reasonable attorneys’ fees.
Tobacco Litigation
--Recent Introductions. Alabama HB 449/SB 334 would require tobacco manufacturers that are
not participating in the Master Settlement Agreement to post a bond in certain circumstances
based on its sales history in the state, its listing on the state directory of manufacturers, and
whether the manufacturer made its required escrow deposits. The bond would have to be in an
amount equal to the greatest required escrow amount due from the nonparticipating manufacturer
or its predecessor for any of the 12 preceding calendar quarters, or $25,000, whichever is greater.
The bond would be conditioned to pay the escrow requirements as well as any penalties or other
charges. For failure to make such payments, the State could execute on the bond.
Oklahoma HB 2363 would rewrite the existing law for the bond requirements for
nonparticipating tobacco manufacturers in connection with the Master Settlement Agreement.
Current law requires the bond for newly qualified manufacturers to be listed in the Oklahoma
Tobacco Directory or if the Attorney General reasonably determines that the manufacturer poses
an elevated risk for noncompliance. The bond must be for $50,000 or the amount of escrow the
manufacturer was required to deposit as a result of its sales in the previous calendar year in
Oklahoma. The bill would revise the basis for determining which manufacturers must post the
bond, including the factors for determining what qualifies as an elevated risk. The bill also
would change the bond amount to $50,000 or 50% of the required escrow that the manufacturer
was required to deposit as a result of its sales in Oklahoma during the last full calendar year it
was listed in the Directory.
Tennessee SB 2309 would revise the bond requirement for non-participating manufacturers.
The law requires a $100,000 bond for manufacturers that are not participants in the Master
Settlement Agreement. The bill provides that the bond would have to be the greater of $100,000
or the greatest required escrow amount due from the non-participating manufacturer or its
predecessor for any of the 12 preceding calendar quarters. The bill also would revise the
conditions of the bond and circumstances in which the State could
PUBLIC OFFICIAL BONDS
--Recent Introductions. Pennsylvania SB 497 would rewrite and make revisions to existing law
for Cities categorized as Class Three under Pennsylvania law. The existing bonding requirements
for public official bonds are not changed. Corporate sureties must issue public official bonds.
Individual or personal sureties cannot issue public official bonds. Elected or appointed officials
are given authority to purchase blanket bonds and other insurance coverage may be purchased in
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lieu of the bond if it provides the same coverage as the bond. The City treasurer specifically is
required to have fidelity coverage.
Tennessee HB 1382/SB 1490 would permit the City of Cleveland to purchase public employee
dishonesty coverage or similar insurance coverage through an insurance company licensed to do
business in the State in lieu of the surety bond required under existing law for its officials and
employees who handle money.
MISCELLANEOUS BONDS
Pre Need Funeral
--Recent Introductions. Alabama HB 87/SB 98 would revise the bond requirement for pre-need
funeral contracts. Current law provides the bond must be in an amount “not less than the
aggregate value of outstanding liabilities on undelivered preneed contracts for merchandise,
services, and cash advances.” The bill would revise the meaning of “outstanding liabilities” to
provide that it applies to contracts written after April 30, 2002. The bill provides that the bond
must be in an amount sufficient to cover the outstanding liability when each contract is executed.
The bill would require the bond amount to be based on the liabilities of the previous quarter and
the projected liabilities of the next quarter. Current law requires the bond amount to be based on
an annual reporting of the contract seller’s liabilities. The bill also would require the trustees of
a cemetery authority to post a bond in an amount equal to $100,000 or the amount of the
endowment fund for which they serve as trustees, whichever is greater. This legislation is
moving in both chambers.
Illinois HB 4201 would revise the law on securing pre-need cemetery sales contracts. Following
the enactment of the bill, the seller would have to notify the purchaser that he or she may secure
the funding of the contract by depositing the funds in a local banking institution, depositing the
funds in the seller’s trust account program, or other means that the seller offers. The existing law
requires the seller to deposit funds from such contracts in a trust fund or to furnish a performance
bond in an amount at least equal to 50% of the sales price of the undeveloped spaces or the
estimated cost of completing construction, whichever is greater. The bill does not change either
the requirements for the seller’s trust fund or the bond that may be provided in lieu of the trust.
The bill provides that the current law would continue to apply to contracts entered into prior to
the bill’s enactment.
South Dakota SB 183 would eliminate certain provisions in current law pertaining to the
perpetual care and maintenance guarantee fund for cemeteries. The bill would eliminate a
court’s authority to determine the amount of a surety bond required in connection with the fund.
Financial Responsibility
--Recent Introductions. Colorado HB 1199 would require consumer goods service contract
providers to assure faithful performance of its contracts by insuring all service contracts under a
reimbursement insurance policy. The provider also could maintain a funded reserve account for
its obligations and place a financial security deposit in trust with the Insurance Commissioner.
The financial security deposit would have to be for at least 5% of the gross consideration
received, less claims paid, for each service contract in force. The minimum deposit would be
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$25,000. Surety bonds would be accepted to meet this requirement. The provider also could
maintain a net worth or stockholders' equity of at least $100 million.
New Jersey AB 557 would require third-party disbursement service organizations that contract
with local government units and boards of education pursuant to post a bond in an amount and
with the sureties that the Local Finance Board would approve. The bill provides that the bond
would be forfeited if the organization failed to make payments or execute financial transactions
on behalf of the local government or the board of education.
Washington HB 2287/ HB 2691 would require legal service organizations selling legal service
plans to register and post a $100,000 bond or deposit for the protection of members in the plan
and other affected persons, if any, under the plan
Workers Compensation Self Insurance
--Recent Introductions. Idaho SB 1252 would define the types of acceptable security that an
employer may deposit in a custodial account to secure its workers’ compensation obligations as a
self-insurer. Acceptable security would be bonds, treasury bills, interest-bearing notes or other
obligations of the United States that are backed by the full faith and credit of the United States.
Existing law permits self-insured employers to furnish a surety bond or a guaranty contract in
lieu of the deposits. The bill would eliminate the option of a guaranty contract.
Massachusetts HB 276 would require vendors conducting retail sales or services in a booth,
tent, table, kiosk, or other space that is not the vendor's fixed building site to post a surety bond
from a licensed insurance or surety company. The bond would have to guarantee repayment of a
consumer's purchase price in the event of a return. The bond would have to be in place for one
year from date of the vendor's sublease or from the issuance of the vendor's license. Of note, the
bond would have to guarantee a minimum return amount of up to $1000 for a single purchase.
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