TDI Orders Two Bond Companies to Cease and Desist

The Texas Department of Insurance announced it recently took action against two bonding companies operating in the Houston area. Both companies, International Fidelity & Surety Ltd. and Providential Surety Company Ltd., were issuing surety bonds without a license and therefore were engaged in the unauthorized business of insurance.

The problem with International Fidelity & Surety Ltd., based in Connecticut, came to light after a construction company attempted to file a claim on a bonded subcontractor and the bonding company failed to acknowledge the claim. Because it has been found to be operating without a license, International has been ordered by TDI to cease and desist from further insurance business in the state.

Providential Surety, an offshore company headquartered in the British West Indies, was found to be operating without a license in July 2005 and was fined $100,000 in addition to being ordered to cease and desist from the business of insurance. The company continued writing bonds however, resulting in a request by TDI to the Texas Attorney General seeking temporary and permanent injunctions against the company.

A surety bond is a contract whereby the surety guarantees the faithful performance of the contractor to the entity requiring the bond. There are many different types of contract surety bonds, including bid bonds, performance bonds, payment/labor and material bonds, and maintenance bonds. Federal and public works projects require that the contractor obtain a surety bond as a condition of performing the work. Surety bonds are also used in private work contracts.

TDI maintains a Web page (www.tdi.state.tx.us/company/pcbond.html) for information about surety bonds, which includes:

–Links to governmental entities that provide assistance with obtaining surety bonds, including some municipalities, state agencies, and the federal Small Business Administration;
–A list of surety companies that write bonds for small contractors and a list of agents with contact information;
–The relevant Texas laws that pertain to the use of surety bonds; and
–Answers to Frequently Asked Questions about contract surety bonds.

The Web resources are also beneficial to contracting entities that require bonded contractors and to those who assist qualified small and disadvantaged contractors in obtaining the necessary financial backing.