ARIZONA
HOUSE OF REPRESENTATIVES
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SB 1381: service contracts |
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PRIME SPONSOR: Senator Petersen, LD 12 BILL STATUS: Chaptered |
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Relating to service contracts.
Provisions
Service Companies & Contracts
1. Exempts service companies and related service contract sellers, administrators and other persons that market or sell service contracts from insurance licensing requirements. (Sec. 2)
2. Removes the requirement for the Director to adopt regulations for the issuance of permits. (Sec. 2)
3. Directs a provider to provide a consumer with a specimen copy of the service contract terms and conditions prior to the time of sale upon a request by the consumer.
a. States that a provider complies by providing or directing to a website that contains a complete sample copy of the terms and conditions. (Sec. 2)
4. Exempts motor vehicle dealer service contract programs from statutory service company requirements if the dealer has a financial responsibility to perform. (Sec. 3)
5. States that the agreement types exempted from service contract requirements are not considered insurance and are not required to comply with insurance laws unless stated otherwise. (Sec. 3)
6. Provides that the applicant for a service company permit be solvent and organized under the laws of Arizona or another US jurisdiction regardless if the applicant is a corporation. (Sec. 4)
7. Modifies filing requirements prior to issuance of a permit as follows:
a. Eliminates the option to use cash or cash alternatives to meet filing requirements.
b. Allows the filing of alternatives to surety bonds in the form of securities or US government bonds that meet certain criteria.
c. Allows an applicant to utilize a mechanical reimbursement insurance policy in lieu of filing a surety bond.
d. Prohibits the use of a cash deposit in lieu of filing a surety bond. (Sec. 4, 5)
8. Repeals statute relating to approval of motor vehicle service contracts programs. (Sec. 6)
9. Makes it a Class 2 misdemeanor (4 months/up to $750 plus surcharges) for a person to sell an unapproved service contract. (Sec. 8)
10. Removes the requirement that a motor vehicle service contract program offered by a motor vehicle dealer be approved by the Director. (Sec. 8)
11. Repeals the definition and applicable Director approval requirements for motor vehicle service contract programs. (Sec. 1, 3, 4, 8)
12. Requires each service company holding a permit to submit all service contract forms to the Director for approval at least 30 days before the proposed effective date of the form.
a. States that a form cannot be used until it is approved or has been on file more than 30 days. (Sec. 7)
13. Prohibits the Director from approving a service contract if:
a. The contract may be canceled or voided due to acts or omissions of the service company or its assignees or subcontractors for their failure to provide correct information or to perform the services or repairs provided in a timely, competent and workmanlike manner;
b. Parts or components repaired or replaced under the contract are excluded; or
c. The contract may be canceled or voided by the service company or its representative for certain reasons. (Sec. 7)
14. Prohibits service contracts from being issued, sold or offered for sale in Arizona unless the service company has provided:
a. A receipt for the purchase of the contract to the contract holder; and
b. A copy of the contract to the contract holder within a reasonable time period from the date of purchase. (Sec. 7)
15. Requires service contracts be written, printed or typed in clear, understandable language that is easy to read and discloses the following if applicable:
a. The method in which the contract is insured;
b. The name and address of an administrator;
c. The total purchase price;
d. The existence of a deductible amount;
e. The merchandise and services to be provided;
f. Any limits, exceptions or exclusions;
g. Whether the use of nonoriginal manufacturers' parts are allowed;
h. Any transferability restrictions;
i. The terms of early termination that met certain requirements;
j. All obligations and duties of the service contract holder; and
k. A service contract is prohibited from excluding preexisting conditions if reasonably known. (Sec. 7)
16. States that brochures and other advertising or marketing materials are not required to be filed with or approved by the Director. (Sec. 7)
Definitions
17. Adds an owner and lessor of residential property to the definition of consumer. (Sec. 1)
18. Redefines mechanical reimbursement to mean an insurance policy issued to an obligor to either:
a. Provide reimbursement to the obligor under the terms of the insured service contracts issued or sold by the obligor; or
b. Pay on behalf of the obligor all covered contractual obligations incurred by the obligor under the terms of the insured service contracts issued or sold by the obligor in the event of the obligor’s nonperformance. (Sec. 1)
19. Modifies the definition of residential property to include any habitable structures used principally as a residence rather than only habitable structures consisting of no more than four-units. (Sec. 1)
20. Redefines service company to mean any person that is contractually obligated to the contract holder under the terms of the service excluding a service contract administrator or seller without contractual obligations.
a. Defines obligor to have the same meaning. (Sec. 1)
21. Redefines service contract to mean a written contract or agreement for a separately stated consideration for any duration to perform the repair, replacement or maintenance of a consumer product, or the indemnification for repair, replacement or maintenance for operational or structural failure of a consumer product due to certain defects.
a. Includes a contract or agreement sold for a separately stated consideration for any duration that provides for the following:
i. The service, maintenance, repair and replacement of structural components, appliances, electrical, plumbing, heating, cooling or air conditioning systems of residential property;
ii. The repair or replacement of tires or wheels on a motor vehicle damaged as a result of coming into contact with road hazards;
iii. The removal of dents, dings or creases on a motor vehicle that can be repaired without replacing vehicle panels, sanding, bonding or painting;
iv. The replacement of a motor vehicle key or key fob; or
v. Other service or products approved by the Director. (Sec. 1)
22. Redefines service contract administrator to mean a person who is responsible for the administration of the service contracts or service contract plans or any submissions required by law. (Sec. 1)
Miscellaneous
23. Makes technical and conforming changes. (Sec. 1, 2, 5, 8)
Current Law
A.R.S. Title 20, Chapter 4, Article 11 governs service companies and the issuance of service contracts. A service company cannot offer or issue a service contract unless it has qualified for and been issued a permit by the Director. Rules and regulations must be adopted by the Director that provide for the permit application process (A.R.S. § 20-1095.01).
The Director is prohibited from issuing a permit to a service company unless the following conditions are met: 1) the applicant is a solvent corporation incorporated under the laws of Arizona or another US jurisdiction if the applicant is a corporation; 2) the applicant furnishes proof as necessary that the directors and management of the service company are competent and trustworthy and are capable of managing the company's affairs; and 3) files cash, cash alternatives or a surety bond with the Director (A.R.S § 20-1095.03).
A licensed motor vehicle dealer who acts through its regularly employed sales personnel can sell motor vehicle service contract programs that have been approved by the Director. Before the sale of any approved service contract program, the licensed motor vehicle dealer must inform the Director by certified mail of the intent to sell the program. The Director is required to maintain a file of all approved motor vehicle service contract programs and a list of the motor vehicle dealers selling a specific program. A person who sells an unapproved motor vehicle service contract program is guilty of a Class 2 misdemeanor (4 months/up to $750 plus surcharges) (A.R.S. § 20-1095.07).
Service contract is defined as a written contract to perform services related to the maintenance, repair or replacement of: 1) a consumer product or 2) the structural components, appliances or electrical, plumbing, heating, cooling or air conditioning systems of residential property (A.R.S. § 20-1095).
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Fifty-third Legislature SB 1381
Second Regular Session Version 4: Chaptered
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