Maryland Adjourns Without Extending the Individual Surety Law
Wednesday, April 9, 2014
The Maryland General Assembly adjourned its 2014 regular session around midnight Monday. Most important to sureties is that SB 377, which would have extended the existing individual surety law for five more years, was not enacted. Maryland has a unique law that permits individual sureties to pledge assets to bond contractors on state public works projects. The law is scheduled to sunset on September 30, 2014, and without any extension from the General Assembly in its 2014 session, the Maryland individual surety law now is on its way to expiration.
This authority for individual sureties has a long history and SFAA has worked closely over the years with other associations to defeat various attempts to expand the law and introduce legitimacy to these individuals. We are very pleased that our work together this year was successful once again and finally put an end to this law.
Senator Conway, the original bill sponsor in the Senate in 2006, introduced SB 377 this year to once again extend the individual surety law. SFAA testified in opposition to the bill both bills and supported instead the conclusions and recommendations of the Maryland Insurance Administration (MIA) from the study that the General Assembly had required of the corporate and individual surety markets. The MIA recommended that the individual surety law should be allowed to sunset this year so that all sureties in Maryland will be licensed and subjected to the same level of regulation under the Maryland Insurance Code.
The MIA found that there is a robust corporate surety market in Maryland, and adequate programs in place to help small and minority contractors obtain bonding. SFAA provided MIA with information on the success of its bonding education programs and the “rapid response” programs of its members, and testified about this information. SFAA also worked with its members to assure that there would be a robust response to MIA’s survey of corporate sureties in connection with the study.
There has been fraud in the individual market in Maryland and other states and that was documented in the MIA study. Since the individual surety law was enacted, SFAA produced victims of the individual surety’s fraud as witnesses in hearings in Maryland to document the abuses in the individual surety market.
The individual surety market has not achieved its intended purpose of helping small and minority contractors obtain bonds. As SFAA testified in the Senate this year, only 6 bid submissions were made with individual surety bonds since 2006, and only two actually were accepted. In that same time period, corporate sureties wrote approximately 15,000 bonds under $500,000 for a total of $4 billion in contract value, according to SFAA data.
Senator Conway also introduced SB 851, which would have created a registration process at the MIA in addition to extending the law for five more years. The Government Affairs Advisory Committee strongly opposed any such effort to further legitimize individual sureties as regulated entities under the insurance code. SFAA testified when SB 851 was heard in committee and again supported the recommendations of the MIA study. SFAA met with Senator Middleton, Chair of the Finance Committee, which heard SB 851 as Senator Middleton wanted more information on what the sureties were doing in Maryland to help small and emerging contactors obtain bonding. Attached is a letter we wrote to Senator Middleton afterwards with the information that we provided him. SB 851 was reported unfavorably from the Finance Committee.
For the first time since 2006, there were no proponents in support of the individual surety law, and no one other than the sponsor testified in favor of SB 377 or SB 851 when they were heard in committee. The one individual surety that was behind the law when it was enacted in 2006 was cited in the MIA study as the subject of several law enforcement actions and state regulatory sanctions. No agents appeared to support the need for the individual surety market for their clients.
SFAA member company representatives and lobbyists were very active on these bills and instrumental in the positive outcome. We pursued a strategy to keep these bills from being enacted and we are pleased that it was successful.
After hearings on these bills, Senator Middleton sent a letter to SFAA and NASBP requesting a program of outreach to increase bonds to small businesses in Maryland. He is requiring a report on these efforts in December of 2014. We believe that a joint program by SFAA and NASBP, coupled with our existing efforts and those already in the works, would provide significant benefit to the surety industry and small contractors. We have plans to meet with Senator Middleton in the near future to follow up on his request. We anticipate a progress meeting with him in August and a final meeting and report in December.
View PDF version | View SFAA Letter to Mr. Middleton RE SB 851 | navigate to Government
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