Assigned to COMPS AS
PASSED BY COW
Assigned to COMPS AS
PASSED BY COW
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
AMENDED
Purpose
Exempts service contracts from Arizona Department of Insurance licensure requirements.
Background
The Arizona Department of Insurance (DOI) provides consumer protection and financial regulation for contracts in which an insurer indemnifies another or agrees to pay a specified amount upon determinable contingencies (A.R.S. § 20-103). A person may not sell, solicit or negotiate insurance for any class of insurance without a line of authority issued by DOI (A.R.S. § 20-282). Service contracts are defined as agreements for the maintenance, repair or replacement of a consumer product or structural component of a residential property. To offer service contracts, a service company must be issued a permit by DOI, but is exempt from DOI licensure requirements (A.R.S. § 20-1095). To qualify for a permit, a service company must furnish proof of competent management and file a cash or surety bond with DOI (A.R.S. § 20-1095.03).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Service Contract Regulation
1. Exempts service contracts and service companies from DOI licensure.
2. Requires a company offering service contracts to obtain a permit from DOI.
3. Declares that every type of agreement explicitly exempted from DOI service contract permit requirements, including builder warranties, non-consumer service agreements or limited duration maintenance agreements, are not insurance and not required to comply with insurance laws unless expressly stated otherwise within statute relating to service companies.
4. Repeals, from the designation as a residential property eligible for a service contract, the four‑unit limitation on the number of houses, townhouses, condominiums or other habitable structures on the property.
5. Requires a service company to submit all service contract forms to DOI at least 30 days before the proposed effective date of the contract.
6. Allows a service company, in lieu of filing cash or a surety bond, to obtain a DOI permit with a mechanical reimbursement insurance policy issued by a DOI-approved insurer or a bond alternative in the form of United States government securities or bonds.
7. Prohibits a service company from using a cash deposit in lieu of a surety bond.
8. Repeals the DOI Director's authority to adopt regulations for service company permits.
9. Exempts, from DOI permit, notification and recordkeeping requirements, service contracts issued by any financially responsible motor vehicle dealer, rather than only dealers licensed by the Department of Transportation.
10. Stipulates that brochures and other advertising or marketing materials are not required to be filed with DOI.
11. Designates the sale of an unapproved service contract as a class 2 misdemeanor.
Service Contract Provisions
12. Requires a service contract to use clear, understandable language and disclose:
a) the service company's form of insurance;
b) administrator contact information;
c) the total purchase price;
d) any applicable deductibles;
e) the merchandise and services provided;
f) any limits or exceptions;
g) any exclusions, in bold-faced type;
h) in automobile service contracts, whether nonoriginal manufacturers' parts are allowable;
i) any transferability restrictions;
j) terms of early cancellation, providing at least a pro rate refund, minus benefits paid and up to 10 percent of the contract total for administrative expenses;
k) all obligations and duties of the holder; and
l) treatment of consequential damages or preexisting conditions, but the contract may not exclude conditions that were known or should reasonably have been known by the contract seller.
13. Requires the service company to provide a consumer, upon request, with a copy of contract terms and conditions prior to the time of sale.
14. Stipulates that a service contract is not required to cover damage caused by rust, corrosion or damage caused by a noncovered part or system unless explicitly stated in the contract.
15. Requires DOI to deny service contract approval if:
a) the contract may be cancelled or voided due to the acts or omissions of the service company or its assignees;
b) parts or components repaired or replaced under the service contract are excluded; or
c) the contract may be cancelled by the service company for known preexisting conditions, prior use or unlawful acts relating to the product or misrepresentation by the seller.
Definitions
16. Redefines service contract as a contract or agreement for a stated consideration and duration to perform the repair, replacement or maintenance of a consumer product, or indemnification for the operational or structural failure of the consumer product due to defects, normal wear or otherwise, with or without additional provisions for incidental payment of indemnity under limited circumstances such as towing, rental, emergency road service and road hazard protection, including contracts or agreements of a specific duration sold separately for:
a) maintenance, repair or replacement of residential property appliances or electrical, plumbing, heating, cooling or air conditioning systems;
b) repair or replacement of vehicle tires or wheels damaged by road hazards;
c) vehicle dent removal without sanding, bonding, painting, replacing vehicle panels or otherwise affecting the existing paint finish;
d) replacement of a vehicle key or key fob; or
e) other services or products approved by DOI.
17. Redefines service company as a person contractually obligated to the contract holder under service contract terms, excluding a service contract administrator or a person without contractual obligation.
18. Redefines service contract administrator as a person responsible for the administration of service contracts and any submissions required by DOI.
19. Redefines mechanical reimbursement insurance as an insurance policy issued to an obligor for service contract reimbursements by the provider or another payer, rather than an insurance policy issued to a motor vehicle dealer to insure vehicle performance.
20. Repeals the definition, prescribed surety bond amounts and DOI approval requirements for a motor vehicle service contract program.
Miscellaneous
21. Makes technical and conforming changes.
22. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Exempts advertising materials from documents requiring submission to DOI.
2. Requires the service company to provide a consumer with a copy of contract terms on request.
3. Makes technical corrections.
Amendments Adopted by Committee of the Whole
· Allows paid benefits to be deducted from a refund issued upon early cancellation of a service contract.
Senate Action
COMPS 2/12/18 DPA 7-0-2-0
Prepared by Senate Research
February 22, 2018
GH/lb