SENATE BILL REPORT

SB 5654

BYSenators Lee and Matson

Restricting the insurance coverage provided by a bond.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 17, 1989

Majority Report:  That Substitute Senate Bill No. 5654 be substituted therefor, and the substitute bill do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McCaslin, McMullen, Matson, Rasmussen, Sellar, Smitherman.

Senate Staff:Walt Corneille (786-7416)

                  February 20, 1989

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 17, 1989

BACKGROUND:

Bonds are often required to ensure the performance of a given activity by a party.  Many bonds are required by statute.  When a contractor registers pursuant to the Registration of Contractors Act, he must post a bond in a specified amount to ensure that materials, labor, taxes and any judgment for negligent or improper work is paid.  The bond for a general contractor is $6000 and for a specialty or subcontractor, $4000.  A contractor may post cash in lieu of the bond.

The contractor's bond must be filed at the same time the contractor registers with the Department of Licensing and is renewed yearly with the registration.  The bond stays in effect until it is subject to a judgment.  A cash deposit merely stays on deposit if not reduced by judgments.  Contractors who have had judgments entered against them must reimburse the bonding company and pay off judgments before they can continue registration as licensed contractors.  Bond companies charge a fee for their services, usually on an annual basis.  At such time as a bond or cash deposit has been impaired in part, or totally, by a judgment, a new bond is issued.

Contractors are also required to purchase a liability insurance policy to become licensed.  Confusion has arisen over whether or not the bond executed by the contractor is subject to liability claims for bodily injury or property damage.

SUMMARY:

A bond must not provide any other type of insurance including casualty insurance.  No bond must be liable for damage based upon negligent injury to a person or real or personal property.  Any language in any contract or bond to the contrary is void.

A bonding company may be held liable for damage or damages to property which are part of the principal's work product where they result directly from improper work.  Work product includes labor and materials.

EFFECT OF PROPOSED SUBSTITUTE:

Unless provided by statute, no bond is liable for damages based upon negligent injury to a person or property even if indicated by the contract, bond or common law.

Language is changed to improve clarity.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: FOR:  Doug Bohlke, Steven Gaines, Contractors Bonding and Insurance Company; Barb Dettorre, Safeco Insurance Company