Sureties writing public construction bonds under Chapter 149A in the Commonwealth of Massachusetts should pay close attention to Mass. Bill No. 3889, which seeks to create a Public Construction Surety Bond State Guarantee Fund. The Fund would guarantee payment to claimants who have obtained judgment on their claims in a court of competent jurisdiction where the surety has first failed to satisfy the judgment.
The proposed law would also require any surety issuing bonds pursuant to chapter 149A to also specially register with the Division of Insurance making payment of an annual registration fee of $10,000. The fee is flat and has no relationship to the dollar value of bonds or the number of bonds a specific surety might write in the Commonwealth.
The registration fees would be set aside for payment to qualified claimants according to regulations to be promulgated by the Department of Insurance. Presumably, the regulations would define with specificity the requirements for a claimant to obtain payment including a time limit for submitting claims as well as the Fund’s right to reimbursement from the defaulting surety.
Monies paid into the Fund would not revert to the General Fund. The registration fees would remain in the Fund indefinitely until paid over to qualified claimants. Payments from the fund in excess of the balance would not be permitted.
Any surety who fails to register would be subject to a fine payable to the Department of Insurance in the amount of $50,000 to $150,000. Nothing in the Bill indicates how the fine will be calculated. The calculation of the fines will presumably be covered in the regulations. The Bill is also silent as to whether fines would likewise be paid into the Fund – although that seems to be a plausible requirement. The Surety & Fidelity Association of America is tracking the proposed legislation and interested sureties can contact that organization or the author directly for more information.