Can a Texas Lloyd's Plan insurance company issue the surety bond a contractor needs to do a public construction job in Texas?

Texas AG Opinion JM-923: Can a Lloyd's Plan Insurer Be the Surety on a Public Job?

Plain-English summary

When a contractor takes on a public construction job in Texas over a certain dollar amount, state law makes the contractor post two bonds: a performance bond, which protects the government if the work is not finished properly, and a payment bond, which protects the workers and material suppliers who might otherwise go unpaid. Someone has to stand behind those bonds financially, and the statute is specific about who that can be: a "corporate surety" authorized to do business in Texas. The question here was whether a particular kind of insurance company, one organized under the Texas Lloyd's Plan, qualifies.

A Lloyd's Plan company is not a corporation. It is an unincorporated association of individual underwriters who band together to write insurance, a structure Texas has allowed since 1921. The wrinkle is that the Insurance Code, in listing the kinds of coverage a Lloyd's company may sell, expressly includes "fidelity and surety bonds insurance." So on one page the law seems to say a Lloyd's company can write surety bonds, and on another page the public-works statute says the surety has to be corporate. The Attorney General had to decide which controls.

The answer is that the public-works statute wins, so a Lloyd's company cannot serve as the surety on these bonds. When a general rule and a specific rule collide, Texas courts read them together and let the specific one carve out an exception to the general one. The general rule is that Lloyd's companies may write surety bonds. The specific rule is that when the job is public work, the surety must be corporate. That specific requirement limits the general permission. The Attorney General also leaned on the timeline: the legislature authorized Lloyd's surety writing in 1921, then in 1959 chose the word "corporate" when it set the rule for public-works bonds. Lawmakers are presumed to know what is already on the books and to pick their words deliberately, so the later, narrower choice of "corporate" was treated as intentional. The upshot for a contractor is practical: if you are bonding a public job, your surety has to be an incorporated one, and a Lloyd's Plan bond will not clear the requirement.

Currency note

This opinion was issued in 1988. Later statutes, court decisions, and AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule mentioned here.

The public-works bonding statute discussed here, former article 5160.A, V.T.C.S., has since been recodified into the Government Code, where the performance-bond and payment-bond requirements for public work now live, and the Insurance Code's Lloyd's Plan provisions have likewise been recodified. Section numbers and some details have changed, and the dollar thresholds and eligible-surety rules should be checked against the current statutes and the State Board of Insurance's successor agency requirements. The core holding, that a public-works surety must be a corporate surety and that a specific statutory requirement controls a conflicting general one, reflects settled statutory-construction principles that remain good law, but a contractor or surety today should confirm eligibility under the current codified provisions rather than the 1988 citations here.

Who this opinion affected (as of 1988)

Contractors bidding public work: The opinion told them a Lloyd's Plan bond would not satisfy the statutory bonding requirement, so they needed a corporate surety to bond a public job over the threshold.

Lloyd's Plan insurance carriers: The opinion confirmed that although they could write fidelity and surety bond insurance generally, they were shut out of the public-works surety market by the corporate-surety requirement.

Government awarding authorities: The opinion gave state agencies, counties, cities, and school districts a clear answer that a Lloyd's bond could be rejected as non-conforming for public-works contracts.

Common questions

What is a "corporate surety" and why does it matter here?
It is a surety organized as a corporation and authorized to do business in Texas. Article 5160.A requires public-works performance and payment bonds to be executed by a corporate surety, so the form of the surety, not just its financial strength, is what the statute demands.

Isn't a Lloyd's company allowed to write surety bonds?
Yes, in general. The Insurance Code lists fidelity and surety bonds insurance among the kinds of coverage a Lloyd's company may write. But that general permission does not override the specific requirement that public-works bonds be backed by a corporate surety.

Why does the specific statute beat the general one?
Under Texas statutory-construction rules, when a general provision and a special provision conflict, courts harmonize them by letting the special provision control or limit the general one. The corporate-surety requirement is the special provision here.

Did the order in which the laws were passed matter?
Yes. The Lloyd's authorization came first, in 1921, and the corporate-surety requirement came later, in 1959. The legislature is presumed to have known about the earlier law and to have chosen the word "corporate" deliberately when it wrote the later one.

Background and statutory framework

Article 5160.A, V.T.C.S., required any prime contractor entering a formal contract in excess of $25,000 with the State, a county, a municipality, a school district, or another governmental or quasi-governmental authority for the construction, alteration, or repair of a public building or the prosecution or completion of a public work, to execute statutory bonds before commencing work. The statute specified: "Each such bond shall be executed by a corporate surety or corporate sureties duly authorized to do business in this State." The required bonds are a performance bond in the amount of the contract, conditioned on faithful performance and solely for the protection of the awarding governmental authority, and a payment bond in the amount of the contract, solely for the protection of claimants supplying labor and material. By its terms, article 5160.A requires a bond executed by a "corporate" surety.

Article 18.01 of the Insurance Code authorizes individuals, partnerships, or associations of individuals, designated "underwriters," to make any insurance except life insurance on the Lloyd's plan by executing articles of agreement and complying with the chapter. Article 18.03 requires the attorney to file a verified application for license setting forth the kinds of insurance to be effected, which may include "fidelity and surety bonds insurance" (article 18.03(c)(7)). So by its terms the Insurance Code authorizes a Lloyd's company to write fidelity and surety bonds insurance.

Article 5160.A and the Insurance Code are in apparent conflict. Where a general provision and a special provision apparently conflict, the statutes must be read together and harmonized if possible, and in doing so the general provision is controlled or limited by the special provision (Halsell v. Texas Water Commission, 380 S.W.2d 1, 15 (Tex. Civ. App. - Austin 1964, writ ref'd n.r.e.); see Trinity Universal Ins. Co. v. McLaughlin, 373 S.W.2d 66, 69 (Tex. Civ. App. - Austin), reh'g denied, 374 S.W.2d 350 (1963)). As between article 5160.A and the Insurance Code, the special requirement of a corporate surety controls or limits the general authorization of a Lloyd's company to write fidelity and surety bond insurance. Although the legislature authorized Lloyd's companies to write fidelity and surety bond insurance, it requires a corporate surety when public work is concerned.

The dates of enactment support this reading. The Lloyd's authorization became law in 1921 (Acts 1921, 37th Leg., ch. 127, §§ 1 & 3, at 238), and the corporate-surety requirement for public-works performance and payment bonds became law in 1959 (Acts 1959, 56th Leg., ch. 93, § 1, at 155). The legislature is presumed to have known, when it required a corporate surety in 1959, that it had earlier authorized Lloyd's companies to write fidelity and surety bond insurance (Garner v. Lumberton Ind. Sch. Dist., 430 S.W.2d 418, 423 (Tex. Civ. App. - Austin 1968, no writ)), and to have intended to use the word "corporate" for a purpose (Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981)). The special 1959 requirement of a corporate surety for public works therefore controls over the general 1921 authorization (State v. Easley, 404 S.W.2d 296, 300 (Tex. 1966); Halsell, 380 S.W.2d at 15). The requirement of a bond executed by a corporate surety is not satisfied by surety bond insurance issued by a Lloyd's company.

Citations

Statutory authority:

• V.T.C.S. article 5160.A (public-works performance and payment bonds on contracts over $25,000; each bond must be executed by a corporate surety authorized to do business in Texas)
• Insurance Code article 18.01 (Texas Lloyd's Plan; underwriters authorized to make any insurance except life)
• Insurance Code article 18.03(c)(7) (kinds of insurance a Lloyd's company may write include fidelity and surety bonds insurance)
• Acts 1921, 37th Leg., ch. 127, §§ 1 & 3, at 238 (Lloyd's plan authorization)
• Acts 1959, 56th Leg., ch. 93, § 1, at 155 (corporate-surety requirement for public-works bonds)

Cases (all Texas state courts):

• Halsell v. Texas Water Commission, 380 S.W.2d 1, 15 (Tex. Civ. App. - Austin 1964, writ ref'd n.r.e.) (harmonize general and special provisions; special controls general)
• Trinity Universal Ins. Co. v. McLaughlin, 373 S.W.2d 66, 69 (Tex. Civ. App. - Austin), reh'g denied, 374 S.W.2d 350 (1963) (general provision limited by special provision)
• Garner v. Lumberton Ind. Sch. Dist., 430 S.W.2d 418, 423 (Tex. Civ. App. - Austin 1968, no writ) (legislature presumed to know existing law)
• Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981) (Texas Supreme Court; legislature presumed to use each word for a purpose)
• State v. Easley, 404 S.W.2d 296, 300 (Tex. 1966) (Texas Supreme Court; special provision controls general)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-923
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0923.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative.

June 24, 1988

Honorable David H. Cain
Chairman, Committee on Transportation
Texas House of Representatives
P. O. Box 12068
Austin, Texas 78769

Opinion No. JM-923

Re: Whether an unincorporated association insurance carrier organized under the Texas Lloyd's plan may serve as a "corporate surety" under article 5160.A, V.T.C.S. (RQ-1308)

Dear Representative Cain:

You ask whether an unincorporated association insurance carrier organized under the Texas Lloyd's Plan, Insurance Code, article 18.01 et seq., can serve as a "corporate surety" in providing a performance and a payment bond when required by article 5160.A, V.T.C.S. We conclude not.

Article 5160.A provides as follows (emphasis added):

Any person or persons, firm, or corporation, hereinafter referred to as "prime contractor," entering into a formal contract in excess of $25,000 with this State, any department, board or agency thereof; or any county of this State, department, board or agency thereof; or any municipality of this State, department, board or agency thereof; or any school district in this State, common or independent, or subdivision thereof; or any other governmental or quasi-governmental 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 hereinafter 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 surety or corporate sureties duly authorized to do business in this State. In the case of contracts of the State or a department, board, or agency thereof, the aforesaid bonds shall be payable to the State and shall be approved by the Attorney General as to form. In case of all other contracts 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 construed as in conformity with the requirements of this Act as to rights created, limitations thereon, and remedies provided.

(a) A Performance Bond in the amount of the contract conditioned upon the faithful performance of the work in accordance with the plans, specifications, and contract documents. Said bond shall be solely for the protection of the State or the governmental authority awarding the contract, as the case may be.

(b) A Payment Bond, in the amount of the contract, solely for the protection of all claimants supplying labor and material as hereinafter defined, in the prosecution of the work provided for in said contract, for the use of each such claimant.

By its terms, as set forth in the underscored sentence, article 5160.A requires a bond to be executed by a "corporate" surety.

Article 18.01 of the Insurance Code, however, provides as follows (emphasis added):

Individuals, partnerships or associations of individuals, hereby designated "underwriters," are authorized to make any insurance, except life insurance, on the Lloyd's plan, by executing articles of agreement expressing their purpose so to do and complying with the requirements set forth in this chapter.

Article 18.03 of the Insurance Code delineates the meaning of "any insurance" by providing (emphasis added):

The attorney shall file with the Board of Insurance Commissioners a verified application for license setting forth and accompanied by:

. . . .

(c) The kinds of insurance to be effected, which kinds of insurance may be as follows:

. . . .

7. Fidelity and surety bonds insurance.

. . . .

Thus, by its terms, the Insurance Code authorizes a Lloyd's company to write "fidelity and surety bonds insurance."

Article 5160.A and the Insurance Code are in apparent conflict. In the case of an apparent conflict between a general provision and a special provision, the statutes must be read together and harmonized if possible. Halsell v. Texas Water Commission, 380 S.W.2d 1, 15 (Tex. Civ. App. - Austin 1964, writ ref'd n.r.e.). In doing so, the general provision is controlled or limited by the special provision. See Trinity Universal Ins. Co. v. McLaughlin, 373 S.W.2d 66, 69 (Tex. Civ. App. - Austin), reh'g denied, 374 S.W.2d 350 (1963). 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.

This conclusion is supported by the date of enactment of each statute. The provision for Lloyd's companies to write "fidelity and surety bond insurance" became law in 1921. Acts 1921, 37th Leg., ch. 127, §§ 1 & 3, at 238. The requirement that a "corporate surety" stand behind both a performance bond and a payment bond on behalf of a contractor doing public work became law in 1959. Acts 1959, 56th Leg., ch. 93, § 1, at 155. The legislature is presumed to have known when it required a corporate surety that it had earlier authorized Lloyd's companies to write fidelity and surety bond insurance. See Garner v. Lumberton Ind. Sch. Dist., 430 S.W.2d 418, 423 (Tex. Civ. App. - Austin 1968, no writ). The legislature is also presumed to have intended to use the word "corporate" for a purpose. See Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981). Thus we can only conclude that the special requirement of 1959 for a corporate surety for public works controls over the general authorization in 1921 for a Lloyd's company to write fidelity and surety bond insurance. See State v. Easley, 404 S.W.2d 296, 300 (Tex. 1966); Halsell v. Texas Water Commission, supra, 380 S.W.2d at 15.

SUMMARY

The requirement in article 5160.A of a bond executed by a "corporate surety" authorized to do business in Texas is not satisfied by surety bond insurance issued by a Lloyd's company authorized to do business in Texas.

Very truly yours,

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by F. Scott McCown
Assistant Attorney General