S-0658.1  _______________________________________________


                         SENATE BILL 5996



State of Washington      55th Legislature     1997 Regular Session


By Senators Schow, Newhouse and Horn


Read first time 02/25/97.  Referred to Committee on Commerce & Labor.

Regulating contractor registration bonds.

    AN ACT Relating to contractor registration bonds; and amending RCW 18.27.040.




    Sec. 1.  RCW 18.27.040 and 1988 c 139 s 1 are each amended to read as follows:

    (1) Each applicant shall, at the time of applying for or renewing a certificate of registration, file with the department ((a surety bond issued by a surety insurer who meets the requirements of chapter 48.28 RCW in a form acceptable to the department running to the state of Washington if a general contractor, in the sum of six thousand dollars; if a specialty contractor, in the sum of four thousand dollars,)) the application for a certificate of registration with a surety bond or continuation certificate issued by a surety insurer who meets the requirements of chapter 48.28 RCW in the sum of six thousand dollars if the applicant is a general contractor and four thousand dollars if the applicant is a specialty contractor.  The bond shall have the state of Washington named as obligee with good and sufficient surety in a form to be approved by the department.  The bond shall be continuous and may be canceled by the surety upon the surety giving written notice to the director of its intent to cancel the bond.  A cancellation or revocation of the bond or withdrawal of the surety from the bond suspends the registration issued to the registrant until a new bond or reinstatement notice has been filed and approved as provided in this section.  Whether or not the bond is renewed, continued, reinstated, reissued, or otherwise extended, replaced, or modified, including increases or decreases in the penal sum, it shall be considered one continuous obligation, and the surety upon the bond shall not be liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond.  In no event shall the penal sum, or a portion thereof, at two or more points in time be added together in determining the surety's liability.  The bond shall be conditioned that the applicant will pay all persons performing labor, including employee benefits, for the contractor, will pay all taxes and contributions due to the state of Washington, and will pay all persons furnishing labor or material or renting or supplying equipment to the contractor and will pay all amounts that may be adjudged against the contractor by reason of ((negligent or improper work or)) breach of contract including negligent or improper work in the conduct of the contracting business.  A change in the name of a business or a change in the type of business entity shall not impair a bond for the purposes of this section so long as one of the original applicants for such bond maintains partial ownership in the business covered by the bond.

    (2) Any contractor registered as of ((the effective date of this 1983 act)) July 1, 1997, who maintains such registration in accordance with this chapter shall be in compliance with this chapter until the next annual renewal of the contractor's certificate of registration.  At that time, the contractor shall provide a bond, cash deposit, or other security deposit as required by this chapter and comply with all of the other provisions of this chapter before the department shall renew the contractor's certificate of registration.

    (3) Any person, firm, or corporation having a claim against the contractor for any of the items referred to in this section may bring suit upon ((such)) the bond or deposit in the superior court of the county in which the work was done or of any county in which jurisdiction of the contractor may be had.  The surety issuing the bond shall be named as a party to any suit upon the bond.  Action upon ((such)) the bond or deposit shall be commenced by filing the summons and complaint with the clerk of the appropriate superior court within one year from the date of expiration of the certificate of registration in force at the time the claimed labor was performed and benefits accrued, taxes and contributions owing the state of Washington became due, materials and equipment were furnished, or the claimed contract work was completed or abandoned.  Service of process in an action against the contractor, the contractor's bond, or the deposit shall be exclusively by service upon the department.  Three copies of the summons and complaint and a fee of ten dollars to cover the handling costs shall be served by registered or certified mail upon the department at the time suit is started and the department shall maintain a record, available for public inspection, of all suits so commenced.  Service is not complete until the department receives the ten-dollar fee and three copies of the summons and complaint.  ((Such)) The service shall constitute service on the registrant and the surety for suit upon the bond or deposit and the department shall transmit the summons and complaint or a copy thereof to the registrant at the address listed in ((his)) the registrant's application and to the surety within forty-eight hours after it shall have been received.

    (4) The surety upon the bond shall not be liable in an aggregate amount in excess of the amount named in the bond nor for any monetary penalty assessed pursuant to this chapter for an infraction.  The liability of the surety shall not cumulate where the bond has been renewed, continued, reinstated, reissued or otherwise extended.  The surety upon the bond may, upon notice to the department and the parties, tender to the clerk of the court having jurisdiction of the action an amount equal to the claims thereunder or the amount of the bond less the amount of judgments, if any, previously satisfied therefrom and to the extent of such tender the surety upon the bond shall be exonerated but if the actions commenced and pending at any one time exceed the amount of the bond then unimpaired, claims shall be satisfied from the bond in the following order:

    (a) Employee labor, including employee benefits;

    (b) Claims for breach of contract by a party to the construction contract;

    (c) Material and equipment;

    (d) Taxes and contributions due the state of Washington;

    (e) Any court costs, interest, and attorney's fees plaintiff may be entitled to recover.  The prevailing party in a bond claim action against the contractor and the contractor's bond, as required by this section, for breach of a construction contract is entitled to costs, interest, and reasonable attorneys' fees.  However, the surety is not liable for any amount in excess of the penal limit of its bond.

    A payment made by the surety in good faith exonerates the bond to the extent of any payment made by the surety.

    (5) ((In the event that any)) If a final judgment ((shall)) impairs the liability of the surety upon the bond so furnished that there shall not be in effect a bond undertaking in the full amount prescribed in this section, the department shall suspend the registration of ((such)) the contractor until the bond liability in the required amount unimpaired by unsatisfied judgment claims ((shall have been)) is furnished.  If ((such)) the bond becomes fully impaired, a new bond must be furnished at the ((increased)) rates prescribed by this section ((as now or hereafter amended)).

    (6) In lieu of the surety bond required by this section the contractor may file with the department a deposit consisting of cash or other security acceptable to the department.

    (7) Any person having filed and served a summons and complaint as required by this section having an unsatisfied final judgment against the registrant for any items referred to in this section may execute upon the security held by the department by serving a certified copy of the unsatisfied final judgment by registered or certified mail upon the department within one year of the date of entry of such judgment.  Upon the receipt of service of such certified copy the department shall pay or order paid from the deposit, through the registry of the superior court which rendered judgment, towards the amount of the unsatisfied judgment.  The priority of payment by the department shall be the order of receipt by the department, but the department shall have no liability for payment in excess of the amount of the deposit.

    (8) The director may ((promulgate)) adopt rules necessary for the proper administration of the security.


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