1     
INTEREST RATE AMENDMENTS

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Kraig Powell

5     
Senate Sponsor: ____________

6     

7     LONG TITLE
8     General Description:
9          This bill modifies interest rate provisions.
10     Highlighted Provisions:
11          This bill:
12          ▸     establishes a legal interest rate based on the federal postjudgment interest rate for a
13     contract or other chose of action prior to judgment; and
14          ▸     makes technical changes.
15     Money Appropriated in this Bill:
16          None
17     Other Special Clauses:
18          This bill provides revisor instructions.
19     Utah Code Sections Affected:
20     AMENDS:
21          14-1-19, as last amended by Laws of Utah 2012, Chapter 330
22          14-2-1, as last amended by Laws of Utah 2012, Chapter 330
23          15-1-1, as last amended by Laws of Utah 1989, Chapter 79
24          31A-22-428, as last amended by Laws of Utah 2014, Chapters 290 and 300
25          31A-27a-512, as enacted by Laws of Utah 2007, Chapter 309
26          38-1a-309, as enacted by Laws of Utah 2012, Chapter 330
27          57-8-44, as last amended by Laws of Utah 2014, Chapter 116

28          57-8a-301, as last amended by Laws of Utah 2014, Chapter 116
29          63G-6a-1910, as last amended by Laws of Utah 2014, Chapter 196
30     Utah Code Sections Affected by Revisor Instructions:
31          15-1-1, as last amended by Laws of Utah 1989, Chapter 79
32     

33     Be it enacted by the Legislature of the state of Utah:
34          Section 1. Section 14-1-19 is amended to read:
35          14-1-19. Failure of government entity to obtain payment bond -- Right of action
36     -- Notice.
37          (1) If the state or a political subdivision fails to obtain a payment bond, it shall, upon
38     demand by a person who has furnished labor or supplied materials to the contractor or
39     subcontractor for the work provided for in a contract which is subject to Section 14-1-18,
40     promptly make payment to that person.
41          (2) A person described in Subsection (1):
42          (a) shall have a direct right of action against the state or the political subdivision in any
43     court having jurisdiction in any county in which the contract was to be performed, upon giving
44     written notice to the state or political subdivision within 90 days from the date on which such
45     person performed the last of the labor or supplied the last of the material for which claim is
46     made;
47          (b) shall state in the notice a designation of the construction project and its location, the
48     amount claimed, and the name of the party for whom the labor was performed or to whom the
49     material was supplied; and
50          (c) shall serve the notice by registered or certified mail, postage prepaid, on the state
51     agency or political subdivision that is a party to the contract.
52          (3) An action described in this section may not be commenced later than one year after
53     the day on which the last of the labor was performed or material was supplied by the person
54     bringing the action.
55          (4) Unless otherwise specified in a lawful contract between the state or the political
56     subdivision against which the claim is made and the person demanding payment, the interest
57     rate applicable to the payment or claim is the rate described in Subsection 15-1-1[(2)](3).
58          Section 2. Section 14-2-1 is amended to read:

59          14-2-1. Definitions -- Payment bond required -- Right of action -- Attorney fees.
60          (1) For purposes of this chapter:
61          (a) "Commercial contract" means a contract for the construction, alteration, or repair of
62     the following if it is not residential construction:
63          (i) a building;
64          (ii) a structure; or
65          (iii) an improvement upon land that is not associated with a single family detached
66     housing.
67          (b) "Contractor" means any person who is or may be awarded an original commercial
68     contract for the construction, alteration, or repair of any building, structure, or improvement
69     upon land.
70          (c) "Owner" means any person contracting with the original contractor for construction,
71     alteration, or repair of the following if it is not residential construction:
72          (i) a building;
73          (ii) a structure; or
74          (iii) an improvement upon land.
75          (d) (i) "Residential construction" means the construction, alteration, or repair of:
76          (A) single family detached housing; or
77          (B) multifamily attached housing up to and including a fourplex.
78          (ii) "Residential construction" includes rental housing.
79          (2) Before any original commercial contract exceeding $50,000 in amount for the
80     construction, alteration, or repair of any building, structure, or improvement upon land is
81     awarded to any contractor, the owner shall obtain from the contractor a payment bond:
82          (a) complying with Subsection (3); and
83          (b) that becomes binding upon the award of the original commercial contract to the
84     contractor.
85          (3) The payment bond shall be:
86          (a) with a surety or sureties satisfactory to the owner for the protection of all persons
87     supplying labor, services, equipment, or material in the prosecution of the work provided for in
88     the commercial contract; and
89          (b) in a sum equal to the original commercial contract price.

90          (4) A person shall have a right of action on a payment bond under this chapter for any
91     unpaid amount due that person if that person:
92          (a) has furnished labor, services, equipment, or material in the prosecution of the work
93     provided for in the commercial contract for which the payment bond is furnished under this
94     chapter; and
95          (b) has not been paid in full within 90 days after the last day on which that person:
96          (i) performed the labor or service for which a claim is made; or
97          (ii) supplied the equipment or material for which the claim is made.
98          (5) (a) An action under this section shall be brought in a court of competent jurisdiction
99     in the county where the commercial contract was to be performed and not elsewhere.
100          (b) An action under this section is barred if not commenced within one year after the
101     last day on which the claimant:
102          (i) performed the labor or service on which the claim is based; or
103          (ii) supplied the equipment or material on which the claim is based.
104          (c) The obligee named in the payment bond need not be joined as a party to an action
105     under this section.
106          (d) In any action upon a payment bond under this section, the court may award
107     reasonable attorney fees to the prevailing party, which attorney fees shall be taxed as costs in
108     the action.
109          (6) The payment bond shall be exhibited to any interested person upon request.
110          (7) In any suit upon a payment bond under this chapter, the court shall award
111     reasonable attorney fees to the prevailing party.
112          (8) Unless otherwise specified in a lawful contract between the owner and the person
113     making a claim under this section, the interest rate applicable to the claim is the rate described
114     in Subsection 15-1-1[(2)](3).
115          Section 3. Section 15-1-1 is amended to read:
116          15-1-1. Interest rates -- Contracted rate -- Legal rate.
117          (1) As used in this section, "federal postjudgment interest rate" means the interest rate
118     established for the federal court system under 28 U.S.C. Sec. 1961, as amended.
119          [(1)] (2) The parties to a lawful contract may agree upon any rate of interest for [the
120     loan or forbearance of any money, goods, or chose in action that is] the subject of their

121     contract.
122          [(2) Unless] (3) (a) If a right to interest exists as a matter of law, but parties to a lawful
123     contract [specify] have not specified a different rate of interest, the legal rate of interest for [the
124     loan or forbearance of any money, goods, or] the contract or other chose in action [shall be
125     10% per annum] prior to judgment is the federal postjudgment interest plus 2%, unless
126     otherwise provided by law.
127          (b) The federal postjudgment interest rate used for purposes of Subsection (3)(a) is the
128     rate as of January 1 for the year in which:
129          (i) a contract is made; or
130          (ii) when the chose in action other than one based on contract accrues.
131          (c) The legal rate under Subsection (3)(a) at the time that a contract is made or other
132     chose in action accrues, shall remain the interest rate for the duration of the contract or other
133     chose in action.
134          [(3)] (4) (a) Nothing in this section may be construed in any way to affect any penalty
135     or interest charge that by law applies to delinquent or other taxes or to any contract or
136     obligations made before May 14, 1981.
137          (b) The amendments to this section made by this bill, do not apply to any right to
138     interest as a matter of law for any contract made or chose in action accruing before May 10,
139     2016.
140          Section 4. Section 31A-22-428 is amended to read:
141          31A-22-428. Interest payable on life insurance proceeds.
142          (1) For a life insurance policy delivered or issued for delivery in this state on or after
143     May 5, 2008, the insurer shall pay interest on the death proceeds payable upon the death of the
144     insured.
145          (2) (a) Except as provided in Subsection (4), for the period beginning on the date of
146     death and ending the day before the day described in Subsection (3)(b), interest under
147     Subsection (1) shall accrue at a rate no less than the greater of:
148          (i) the rate applicable to policy funds left on deposit; and
149          (ii) the Two Year Treasury Constant Maturity Rate as published by the Federal Reserve.
150          (b) If there is no rate applicable to policy funds on deposit as stated in Subsection
151     (2)(a)(i), then the Two Year Treasury Constant Maturity Rates as published by the Federal

152     Reserve applies.
153          (c) The rate described in Subsection (2)(a) or (b) is the rate in effect on the day on
154     which the death occurs.
155          (d) Interest is payable until the day on which the claim is paid.
156          (3) (a) Unless the claim is paid and except as provided in Subsection (4), beginning on
157     the day described in Subsection (3)(b) and ending the day on which the claim is paid, interest
158     shall accrue at the rate in Subsection (2) plus additional interest at the rate of 10% annually.
159          (b) Interest accrues under Subsection (3)(a) beginning with the day that is 31 days from
160     the latest of:
161          (i) the day on which the insurer receives proof of death;
162          (ii) the day on which the insurer receives sufficient information to determine:
163          (A) liability;
164          (B) the extent of the liability; and
165          (C) the appropriate payee legally entitled to the proceeds; and
166          (iii) the day on which:
167          (A) legal impediments to payment of proceeds that depend on the action of parties
168     other than the insurer are resolved; and
169          (B) the insurer receives sufficient evidence of the resolution of the legal impediments
170     described in Subsection (3)(b)(iii)(A).
171          (4) A court of competent jurisdiction may require payment of interest from the date of
172     death to the day on which a claim is paid at a rate equal to the sum of:
173          (a) the rate specified in Subsection (2); and
174          (b) the legal rate identified in Subsection 15-1-1[(2)](3).
175          Section 5. Section 31A-27a-512 is amended to read:
176          31A-27a-512. Reinsurer's liability.
177          (1) (a) Except as otherwise provided in this chapter, the amount recoverable by the
178     receiver from a reinsurer may not be reduced as a result of a delinquency proceeding with a
179     finding of insolvency, regardless of any provision in the reinsurance contract or other
180     agreement.
181          (b) An agreement, written, oral, or otherwise, may not be enforced to the extent it is in
182     conflict, or not in strict compliance with this section.

183          (c) Except as expressly provided in this section, a person other than the receiver
184     whether as a creditor, third party beneficiary, or otherwise does not have a direct right to
185     reinsurance proceeds from any reinsurer of the insolvent insurer:
186          (i) on the basis of any written or oral agreement; or
187          (ii) pursuant to an action or cause of action seeking any equitable or legal remedy.
188          (d) This section applies to all the insurer's reinsurance contracts including:
189          (i) treaty reinsurance;
190          (ii) quota share reinsurance;
191          (iii) facultative reinsurance; or
192          (iv) a fronting or captive reinsurance arrangement.
193          (2) Except as otherwise provided in Subsection (9), the amount recoverable by the
194     liquidator from a reinsurer is payable under one or more contracts reinsured by the reinsurer on
195     the basis of:
196          (a) proof of payment of the insured claim by an affected guaranty association, the
197     insurer, or the receiver, to the extent of the payment; or
198          (b) the allowance of the claim pursuant to:
199          (i) Section 31A-27a-608;
200          (ii) an order of the receivership court; or
201          (iii) a plan of rehabilitation.
202          (3) If the insurer takes credit for a reinsurance contract in a filing or submission made
203     to the commissioner and the reinsurance contract does not contain the provisions required with
204     respect to the obligations of reinsurers in the event of insolvency of the reinsured, the
205     reinsurance contract is considered to contain the provisions required with respect to:
206          (a) the obligations of reinsurers in the event of insolvency of the reinsured in order to
207     obtain credit for reinsurance; or
208          (b) other applicable statutes.
209          (4) A reinsurance contract that under Subsection (3) is considered to contain certain
210     provisions, is considered to contain a provision that:
211          (a) in the event of insolvency and the appointment of a receiver, the reinsurance
212     obligation is payable to the ceding insurer or to its receiver without diminution because of the
213     insolvency or because the receiver fails to pay all or a portion of the claim;

214          (b) payment shall be made upon either:
215          (i) to the extent of the payment, proof of payment of the insured claim by an affected
216     guaranty association, the insurer, or the receiver; or
217          (ii) the allowance of the claim pursuant to:
218          (A) Section 31A-27a-608;
219          (B) an order of the receivership court; or
220          (C) a plan of rehabilitation; and
221          (c) if a reinsurer does not pay the amount billed by the receiver within 60 days after the
222     mailing by the receiver, interest on the unpaid billed amount will begin to accrue at the
223     statutory legal rate provided in Subsection 15-1-1[(2)](3), except that all or a portion of the
224     interest may be waived as part of an arbitration proceeding.
225          (5) (a) The receiver shall notify in writing, in accordance with the terms of the contract,
226     each reinsurer obligated in relation to the claim or the pendency of a claim against the reinsured
227     company.
228          (b) The receiver's failure to give notice of a pending claim pursuant to a provision in a
229     reinsurance contract:
230          (i) does not excuse the obligation of the reinsurer unless the reinsurer is prejudiced by
231     the receiver's failure; and
232          (ii) if the reinsurer is prejudiced, reduces the reinsurer's obligations only to the extent
233     of the prejudice.
234          (c) A reinsurer may interpose, at its own expense, in a proceeding in which a claim is
235     to be adjudicated, any one or more defenses that the reinsurer considers available to the
236     reinsured company or its receiver.
237          (6) The entry of an order of rehabilitation or liquidation:
238          (a) may not be considered a breach or an anticipatory breach of a reinsurance contract;
239     and
240          (b) is not grounds for retroactive revocation or retroactive cancellation of a reinsurance
241     contract by the reinsurer.
242          (7) (a) If a reinsurance payment to a receiver of a ceding insurer is later determined to
243     be a payment in excess of the amounts actually due to the receiver, the excess shall be:
244          (i) credited against future payments due to the receiver; or

245          (ii) repaid to the reinsurer as an administrative expense of the estate pursuant to
246     Subsection 31A-27a-701(2)(g).
247          (b) A repayment under this Subsection (7) may be limited on the basis of the property
248     remaining in the estate.
249          (8) (a) Subject to Subsection (1):
250          (i) except as provided in Subsection (8)(a)(ii):
251          (A) a payment made by the reinsurer directly to an insured or other creditor does not
252     diminish the reinsurer's obligation to the insurer's estate; and
253          (B) a payment made by the reinsurer shall be made directly to the ceding insurer or its
254     receiver;
255          (ii) Subsection (8)(a)(i) does not apply when:
256          (A) the reinsurance contract or other written agreement to which the insured, ceding
257     insurer, and reinsurer are all parties:
258          (I) specifically provides another payee, other than an affiliate of the ceding insurer or
259     reinsurer, of the reinsurance in the event of the insolvency or receivership of the ceding insurer;
260     and
261          (II) the provision described in this Subsection (8)(a)(ii)(A) is contained in:
262          (Aa) the reinsurance contract as it is written on the day on which the reinsurance
263     contract is initially executed; or
264          (Bb) the other written agreement as it is written on the day on which the initial policy is
265     issued;
266          (B) the reinsurance contract, as it is written on the day on which the reinsurance
267     contract is initially executed, contains a provision where the assuming insurer with the consent
268     of the direct insured and the ceding insurer assumes all policy obligations of the ceding insurer:
269          (I) as a direct obligation of the assuming insurer to the payees under the policies; and
270          (II) in substitution for the entire obligations of the ceding insurer to the payees; or
271          (C) a life and health insurance guaranty association makes the election to succeed to
272     the rights and obligations of the insolvent insurer under a contract of reinsurance:
273          (I) in accordance with:
274          (Aa) Section 31A-27a-513; or
275          (Bb) the life and health guaranty association laws of its domiciliary state; or

276          (II) pursuant to other applicable law, rule, order, or assignment contract; and
277          (iii) in the circumstances described in Subsection (8)(a)(ii)(C), a payment shall be
278     made directly to or at the direction of the guaranty association.
279          (b) Both the receiver and the reinsurer are entitled to recover from a person, other than
280     the receiver or a guaranty association, who unsuccessfully makes a claim directly against the
281     reinsurer the following incurred in preventing any collection by that person:
282          (i) the person's attorney fees; and
283          (ii) expenses.
284          (9) This chapter may not be construed to authorize the liquidator or any other entity to
285     compel payment from a nonlife reinsurer:
286          (a) on the basis of estimated incurred but not reported losses, loss expenses, or case
287     reserves for unpaid losses and loss expenses, except under Sections 31A-27a-515 and
288     31A-27a-516; and
289          (b) with respect to a claim allowed in accordance with Section 31A-27a-605.
290          Section 6. Section 38-1a-309 is amended to read:
291          38-1a-309. Interest rate on lien.
292          Unless otherwise specified in a lawful contract between the owner-builder and the
293     person claiming a lien under this chapter, the interest rate applicable to the lien is the rate
294     described in Subsection 15-1-1[(2)](3).
295          Section 7. Section 57-8-44 is amended to read:
296          57-8-44. Lien in favor of association of unit owners for assessments and costs of
297     collection.
298          (1) (a) Except as provided in Section 57-8-13.1, an association of unit owners has a
299     lien on a unit for:
300          (i) an assessment;
301          (ii) except as provided in the declaration, fees, charges, and costs associated with
302     collecting an unpaid assessment, including:
303          (A) court costs and reasonable attorney fees;
304          (B) late charges;
305          (C) interest; and
306          (D) any other amount that the association of unit owners is entitled to recover under the

307     declaration, this chapter, or an administrative or judicial decision; and
308          (iii) a fine that the association of unit owners imposes against a unit owner in
309     accordance with Section 57-8-37, if:
310          (A) the time for appeal described in Subsection 57-8-37(5) has expired and the unit
311     owner did not file an appeal; or
312          (B) the unit owner timely filed an appeal under Subsection 57-8-37(5) and the district
313     court issued a final order upholding a fine imposed under Subsection 57-8-37(1).
314          (b) The recording of a declaration constitutes record notice and perfection of a lien
315     described in Subsection (1)(a).
316          (2) If an assessment is payable in installments, a lien described in Subsection (1)(a)(i)
317     is for the full amount of the assessment from the time the first installment is due, unless the
318     association of unit owners otherwise provides in a notice of assessment.
319          (3) An unpaid assessment or fine accrues interest at the rate provided:
320          (a) in Subsection 15-1-1[(2)](3); or
321          (b) in the governing documents, if the governing documents provide for a different
322     interest rate.
323          (4) A lien under this section has priority over each other lien and encumbrance on a
324     unit except:
325          (a) a lien or encumbrance recorded before the declaration is recorded;
326          (b) a first or second security interest on the unit secured by a mortgage or deed of trust
327     that is recorded before a recorded notice of lien by or on behalf of the association of unit
328     owners; or
329          (c) a lien for real estate taxes or other governmental assessments or charges against the
330     unit.
331          (5) A lien under this section is not subject to Title 78B, Chapter 5, Part 5, Utah
332     Exemptions Act.
333          (6) Unless the declaration provides otherwise, if two or more associations of unit
334     owners have liens for assessments on the same unit, the liens have equal priority, regardless of
335     when the liens are created.
336          Section 8. Section 57-8a-301 is amended to read:
337          57-8a-301. Lien in favor of association for assessments and costs of collection.

338          (1) (a) Except as provided in Section 57-8a-105, an association has a lien on a lot for:
339          (i) an assessment;
340          (ii) except as provided in the declaration, fees, charges, and costs associated with
341     collecting an unpaid assessment, including:
342          (A) court costs and reasonable attorney fees;
343          (B) late charges;
344          (C) interest; and
345          (D) any other amount that the association is entitled to recover under the declaration,
346     this chapter, or an administrative or judicial decision; and
347          (iii) a fine that the association imposes against a lot owner in accordance with Section
348     57-8a-208, if:
349          (A) the time for appeal described in Subsection 57-8a-208(5) has expired and the lot
350     owner did not file an appeal; or
351          (B) the lot owner timely filed an appeal under Subsection 57-8a-208(5) and the district
352     court issued a final order upholding a fine imposed under Subsection 57-8a-208(1).
353          (b) The recording of a declaration constitutes record notice and perfection of a lien
354     described in Subsection (1)(a).
355          (2) If an assessment is payable in installments, a lien described in Subsection (1)(a)(i)
356     is for the full amount of the assessment from the time the first installment is due, unless the
357     association otherwise provides in a notice of assessment.
358          (3) An unpaid assessment or fine accrues interest at the rate provided:
359          (a) in Subsection 15-1-1[(2)](3); or
360          (b) in the declaration, if the declaration provides for a different interest rate.
361          (4) A lien under this section has priority over each other lien and encumbrance on a lot
362     except:
363          (a) a lien or encumbrance recorded before the declaration is recorded;
364          (b) a first or second security interest on the lot secured by a mortgage or trust deed that
365     is recorded before a recorded notice of lien by or on behalf of the association; or
366          (c) a lien for real estate taxes or other governmental assessments or charges against the
367     lot.
368          (5) A lien under this section is not subject to Title 78B, Chapter 5, Part 5, Utah

369     Exemptions Act.
370          (6) Unless the declaration provides otherwise, if two or more associations have liens
371     for assessments on the same lot, the liens have equal priority, regardless of when the liens are
372     created.
373          Section 9. Section 63G-6a-1910 is amended to read:
374          63G-6a-1910. Interest rates.
375          (1) In controversies between a procurement unit and a contractor under this chapter,
376     interest on amounts ultimately determined to be due to a contractor or the procurement unit are
377     payable at the rate applicable to judgments from the date the claim arose through the date of
378     decision or judgment, whichever is later.
379          (2) Unless otherwise specified in a lawful contract between a procurement unit and the
380     person making a bond claim against the procurement unit, the interest rate applicable to the
381     bond claim is the rate described in Subsection 15-1-1[(2)](3).
382          (3) This section does not apply to public assistance benefits programs.
383          Section 10. Revisor instructions.
384          The Legislature intends that the Office of Legislative Research and General Counsel, in
385     preparing the Utah Code database for publication, replace the language in Subsection
386     15-1-1(4)(b) from "this bill" to the bill's designated chapter number in the Laws of Utah.






Legislative Review Note
Office of Legislative Research and General Counsel