Effective January 1, 2002, California Code of Civil Procedure section 995.311 imposes additional duties on public entities relating to surety bonds on public works contracts. The new statute requires that all such bonds (e.g., payment and performance bonds) must be issued by an admitted surety insurer and that the public entity approving such bonds verify the bond is being issued by an admitted surety insurer.
The new law relates to an appellate court decision Rankin v. City of Murrieta (2000) 80 Cal. App. 4th 1255, sub. opn. (2000) 84 Cal. App. 4th 605 (Rankin) (see KMTG Legal Alert, July 2000), where the court held “the City had a mandatory duty . . . to determine that the surety on the bond was an admitted surety insurer.”
The new law modifies Rankin in three ways:
- Expands Rankin to apply to any bond on a public works contract;
- Allows a public entity to verify a surety’s status by either obtaining a certificate from the county clerk verifying that the surety is “admitted”1 or obtaining the same information from the Department of Insurance (“DOI”) website (www.insurance.ca.gov/docs/Insurer.htm);
- Requires that either a copy of the county clerk’s certificate or a printout of the DOI’s website be attached to the bond.
It is not clear if the new statute applies to a bid bond for a public works contract. However, its application to “any bond required on a public works contract” may be construed to include bid bonds. Therefore, we suggest that a public entity follow the same procedures for bid bonds as it does for payment and performance bonds.
1. “Admitted” means that a surety insurer is permitted, by the State Department of Insurance (DOI), to issue surety bonds in the State of California. To be an "admitted insurer" in the State, the surety must submit periodic financial audits and be subject to specific reserve requirements that meet the DOI standards.