1Providing for the regulation of service contracts and for powers
2and duties of the Insurance Commissioner; and imposing a
3civil penalty.

4TABLE OF CONTENTS

5Section 1. Short title.

6Section 2. Legislative intent.

7Section 3. Definitions.

8Section 4. Exemptions.

9Section 5. Limited exemption.

10Section 6. Requirements.

11Section 7. Reimbursement insurance policies.

12Section 8. Required disclosures.

13Section 9. Prohibitions.

14Section 10. Recordkeeping.

15Section 11. Cancellation of reimbursement insurance policy.

16Section 12. Obligation of reimbursement insurance policy
17insurers.

18Section 13. Enforcement.

1Section 14. Applicability.

2Section 15. Effective date.

3The General Assembly of the Commonwealth of Pennsylvania
4hereby enacts as follows:

5Section 1. Short title.

6This act shall be known and may be cited as the Service
7Contract Act.

8Section 2. Legislative intent.

9The purpose of this act is to create a legal framework within
10which service contracts may be marketed, sold, offered for sale,
11issued, made, proposed to be made and administered in this
12Commonwealth.

13Section 3. Definitions.

14The following words and phrases when used in this act shall
15have the meanings given to them in this section unless the
16context clearly indicates otherwise:

17"Administrator." The person that is responsible for the 
18administration of service contracts or the service contracts 
19plan or is responsible for any submission required by this act.

20"Commissioner." The Insurance Commissioner of the 
21Commonwealth.

22"Consumer." A natural person who buys, other than for 
23purposes of resale, any tangible personal property that is 
24distributed in commerce and that is normally used for personal, 
25family or household purposes and not for business or research 
26purposes.

27"Contractholder." A person that is the purchaser or holder 
28of a service contract.

29"Maintenance agreement." A contract of limited duration that 
30provides for scheduled maintenance only and does not provide for 

1repair or replacement.

2"Motor vehicle." A motorized device designed to transport up 
3to 15 passengers. The term includes a self-propelled motor home 
4or recreational vehicle, non-self-propelled camping and 
5recreational trailer, off-road vehicle and trailer designed to 
6transport an off-road vehicle. The term also includes any 
7motorized watercraft and non-self-propelled trailer used to 
8transport such watercraft on land.

9"Motor vehicle manufacturer." A person or entity that:

10(1) manufactures or produces motor vehicles and sells
11motor vehicles under its own name or label;

12(2) is a wholly owned subsidiary of the person that
13manufactures or produces motor vehicles;

14(3) is a corporation which owns 100% of the person that
15manufactures or produces motor vehicles;

16(4) does not manufacture or produce motor vehicles but
17sells motor vehicles under the trade name or label of another
18person that manufactures or produces motor vehicles;

19(5) manufactures or produces motor vehicles and sells
20such motor vehicles under the trade name or label of another
21person that manufactures or produces motor vehicles; or

22(6) does not manufacture or produce motor vehicles but,
23pursuant to a written contract, licenses the use of its trade
24name or label to another person that manufactures or produces
25motor vehicles and that sells motor vehicles under the
26licensor's trade name or label.

27"Nonoriginal manufacturer's parts." Replacement parts not
28made for or by the original manufacturer of the part, commonly
29referred to as after-market parts.

30"Person." An individual, partnership, corporation, 

1incorporated or unincorporated association, joint stock company, 
2reciprocal, syndicate or any similar entity or combination of 
3entities acting in concert.

4"Premium." The consideration paid to an insurer for a 
5reimbursement insurance policy.

6"Provider." A person that is contractually obligated to the 
7contractholder under the terms of the service contract.

8"Provider fee." The consideration paid for a service 
9contract.

10"Reimbursement insurance policy." A policy of insurance 
11issued to a provider to either provide reimbursement to the 
12provider under the terms of the insured service contracts issued 
13or sold by the provider or, in the event of the provider's 
14nonperformance, to pay on behalf of the provider all covered 
15contractual obligations incurred by the provider under the terms 
16of the insured service contracts issued or sold by the provider.

17"Service contract." A contract or agreement for a separately 
18stated consideration for a specific duration to perform the 
19repair, replacement or maintenance of property or 
20indemnification for repair, replacement or maintenance, for the 
21operational or structural failure of any motor vehicle or 
22residential or other property due to a defect in materials, 
23workmanship, inherent defect or normal wear and tear, with or 
24without additional provisions for incidental payment of 
25indemnity under limited circumstances, including, but not 
26limited to, towing, rental and emergency road service and road 
27hazard protection. The term includes contracts that provide for 
28the repair, replacement or maintenance of property for damage 
29resulting from power surges or interruption and accidental 
30damage from handling. The term also includes a contract or 

1agreement sold for a separately stated consideration for a 
2specific duration that provides for any of the following:

3(1) the repair or replacement or indemnification for the
4repair or replacement of a motor vehicle for the operational
5or structural failure of one or more parts or systems of the
6motor vehicle brought about by the failure of an additive
7product to perform as represented;

8(2) the repair or replacement of tires or wheels on a
9motor vehicle damaged as a result of coming into contact with
10road hazards, including, but not limited to, potholes, rocks,
11wood debris, metal parts, glass, plastic, curbs or composite
12scraps;

13(3) the removal of dents, dings or creases on a motor
14vehicle that can be repaired using the process of paintless
15dent removal without affecting the existing paint finish and
16without replacing vehicle body panels, sanding, bonding or
17painting;

18(4) the repair of small motor vehicle windshield chips
19or cracks, but not the replacement of the entire windshield;
20or

21(5) the repair of damage to the interior components of a
22motor vehicle caused by wear and tear, but not the
23replacement of any part or component of a motor vehicle's
24interior.

25"Warranty." An agreement between the manufacturer, importer 
26or seller of property or services and the consumer that:

27(1) Is made solely by the manufacturer, importer or
28seller of property or services without consideration.

29(2) Is not negotiated or separated from the sale of the
30product.

1(3) Is incidental to the sale of the product.

2(4) Guarantees indemnity for defective parts, mechanical
3or electrical breakdown, labor or other remedial measures,
4such as repair or replacement of the property or repetition
5of services.

6Section 4. Exemptions.

7The following agreements are exempt from this act:

8(1) Warranties.

9(2) Maintenance agreements.

10(3) Warranties, service contracts or maintenance
11agreements offered by public utilities on their transmission
12devices to the extent they are regulated by the Pennsylvania
13Public Utility Commission.

14(4) Service contracts sold or offered for sale to
15persons other than consumers.

16(5) Service contracts on tangible property where the
17tangible property for which the service contract is sold has
18a purchase price of $100 or less, exclusive of sales tax.

19(6) Mechanical breakdown insurance policies issued by a
20licensed insurer.

21Section 5. Limited exemption.

22Motor vehicle manufacturer's service contracts on the motor
23vehicle manufacturer's products need only comply with sections
246(f), 8(a), (d), (e), (f), (g), (h), (i), (j), (k) and (l), 9
25and 12, as applicable.

26Section 6. Requirements.

27(a) Issuance or sale of service contracts.--Service
28contracts shall not be issued, sold or offered for sale by a
29provider in this Commonwealth unless the provider has:

30(1) Provided a receipt for or other written evidence of

1the purchase of the service contract to the contractholder.

2(2) Provided a copy of the service contract to the
3contractholder within a reasonable period of time from the
4date of purchase.

5(b) Administrator.--A provider may, but is not required to,
6appoint an administrator or other designee to be responsible for
7any or all of the administration of service contracts and
8compliance with this act.

9(c) Registration.--Each provider of service contracts sold
10in this Commonwealth shall file a registration with the
11commissioner consisting of the provider's full name, full
12corporate address, telephone number and contact person and any
13designated person located in this Commonwealth for service of
14process. Each provider shall pay to the commissioner a fee in
15the amount of $600 upon initial registration and every two years
16thereafter. The registration need only be updated by written
17notification to the commissioner if material changes occur in
18the registration on file.

19(d) Performance of obligations.--In order to assure the
20faithful performance of a provider's obligations to its
21contractholders, each provider shall satisfy one of the
22following requirements:

23(1) Insure all service contracts under a reimbursement
24insurance policy issued by an insurer licensed, registered or
25otherwise authorized to do business in this Commonwealth and
26either:

27(i) at the time the policy is filed with the
28commissioner, and continuously thereafter:

29(A) maintain surplus as to policyholders and
30paid-in capital of at least $15,000,000; and

1(B) annually file copies of the insurer's
2financial statements, its annual statement to the
3National Association of Insurance Commissioners and
4the actuarial certification required by and filed in
5the insurer's state of domicile; or

6(ii) at the time the policy is filed with the
7commissioner, and continuously thereafter:

8(A) maintain surplus as to policyholders and
9paid-in capital of less than $15,000,000, but at
10least equal to $10,000,000;

11(B) demonstrate to the satisfaction of the
12commissioner that the company maintains a ratio of
13net written premiums, wherever written, to surplus as
14to policyholders and paid-in capital of not greater
15than 3 to 1; and

16(C) annually file copies of the insurer's
17audited financial statements, its annual statement to
18the National Association of Insurance Commissioners
19and actuarial certification required by and filed in
20the insurer's state of domicile.

21(2) (i) Maintain a funded reserve account for its
22obligations under its contracts issued and outstanding in
23this Commonwealth. The reserves shall not be less than
2440% of gross consideration received, less claims paid, on
25the sale of the service contract for all in-force
26contracts ((Gross Consideration x 40%) - Claims Paid) in
27this Commonwealth. The reserve account shall be subject
28to examination and review by the commissioner.

29(ii) Place in trust with the commissioner a
30financial security deposit, having a value of not less

1than 5% of the gross consideration received, less claims
2paid, on the sale of the service contract for all service
3contracts issued and in force in this Commonwealth, but
4not less than $25,000, consisting of one of the
5following:

6(A) A surety bond issued by an authorized
7surety.

8(B) Securities of the type eligible for deposit
9by authorized insurers in this Commonwealth.

10(C) Cash.

11(D) A letter of credit issued by a qualified
12financial institution.

13(E) Another form of security prescribed by
14regulations issued by the commissioner.

15(3) (i) Maintain, or together with its parent company
16maintain, a net worth or stockholders' equity of
17$100,000,000.

18(ii) Upon request, provide the commissioner with a
19copy of the provider's or the provider's parent company's
20most recent Form 10-K or Form 20-F filed with the
21Securities and Exchange Commission (SEC) within the last
22calendar year or, if the company does not file with the
23SEC, a copy of the company's financial statements which
24shows a net worth of the provider or its parent company
25of at least $100,000,000. If the provider's parent
26company's Form 10-K, Form 20-F or financial statements
27are filed to meet the provider's financial stability
28requirement, then the parent company shall agree to
29guarantee the obligations of the provider relating to
30service contracts sold by the provider in this

1Commonwealth.

2(e) Financial security requirements.--Except for the
3requirements specified in subsections (c) and (d), no other
4financial security requirements shall be required by the
5commissioner for service contract providers.

6(f) Return.--

7(1) Service contracts shall require the provider to
8permit the contractholder to return the service contract
9within 20 days of the date the service contract was mailed to
10the contractholder or within ten days of delivery if the
11service contract is delivered to the contractholder at the
12time of sale or within a longer time period permitted under
13the service contract.

14(2) (i) Upon return of the service contract to the
15provider within the applicable time period, if no claim
16has been made under the service contract prior to its
17return to the provider, the service contract is void and
18the provider shall refund the contractholder or credit
19the account of the contractholder the full purchase price
20of the service contract.

21(ii) If a claim has been made under the service
22contract within that time period, a service
23contractholder may cancel the service contract and the
24provider shall refund the contractholder 100% of the
25unearned pro rata provider fee, less any claims paid. A
26reasonable administrative fee may be charged by the
27provider not to exceed 10% of the gross provider fee paid
28by the service contractholder.

29(3) The right to void the service contract provided in
30this subsection is not transferable and shall apply only to

1the original service contract purchaser and only if no claim
2has been made prior to its return to the provider.

3(4) A 10% penalty per month shall be added to a refund
4that is not paid or credited within 45 days after return of
5the service contract to the provider.

6(g) Premium taxes.--

7(1) Provider fees collected on service contracts shall
8not be subject to premium taxes.

9(2) Premiums for reimbursement insurance policies shall
10be subject to applicable taxes.

11(h) Licensing requirement exemption.--

12(1) Except for the registration requirements in
13subsection (c), providers and related service contract
14sellers, administrators and other persons marketing, selling
15or offering to sell service contracts are exempt from any
16licensing requirements of this Commonwealth.

17(2) The marketing, sale, offering for sale, issuance,
18making, proposing to make and administration of service
19contracts by providers and related service contract sellers,
20administrators and other persons shall be exempt from
21provisions of law of this Commonwealth pertaining to
22insurance.

23(i) Sample copy.--A provider shall provide a consumer with a
24complete sample copy of the service contract terms and
25conditions prior to the time of sale upon a request for the same
26by the consumer. A provider may comply with this provision by
27providing the consumer with a complete sample copy of the terms
28and conditions or by directing the consumer to a website
29containing a complete sample copy of the terms and conditions of
30the service contract.

1Section 7. Reimbursement insurance policies.

2(a) Requirements.--Reimbursement insurance policies insuring
3service contracts issued, sold or offered for sale in this
4Commonwealth shall state that the insurer that issued the
5reimbursement insurance policy shall either reimburse or pay on
6behalf of the provider any covered sums the provider is legally
7obligated to pay or, in the event of the provider's
8nonperformance, shall provide the service which the provider is
9legally obligated to perform according to the provider's
10contractual obligations under the service contracts issued or
11sold by the provider.

12(b) Direct reimbursement.--In the event covered service is
13not provided by the service contract provider within 60 days of
14proof of loss by the contractholder, the contractholder is
15entitled to apply directly to the reimbursement insurance
16company.

17Section 8. Required disclosures.

18(a) General rule.--Service contracts marketed, sold, offered
19for sale, issued, made, proposed to be made or administered in
20this Commonwealth shall be written, printed or typed in clear,
21understandable language and shall disclose the requirements set
22forth in this section, as applicable.

23(b) Insured service contracts.--All service contracts shall
24state the name and address of the insurer. Service contracts
25insured under a reimbursement insurance policy under section
266(d)(1) shall contain a statement in substantially the following
27form: Obligations of the provider under this service contract
28are insured under a service contract reimbursement insurance
29policy.

30(c) Uninsured service contracts.--Service contracts not

1insured under a reimbursement insurance policy under section
26(d)(1) shall contain a statement in substantially the following
3form: Obligations of the provider under this service contract
4are backed by the full faith and credit of the provider.

5(d) Name and address.--Service contracts shall state the
6name and address of the provider and shall identify any
7administrator if different from the provider, the service
8contract seller and the contractholder to the extent that the
9name of the contractholder has been furnished by the
10contractholder. The identities of such parties are not required
11to be preprinted on the service contract and may be added to the
12service contract at the time of sale.

13(e) Total purchase price and terms.--Service contracts shall
14state the total purchase price and the terms under which a
15service contract is sold. The purchase price is not required to
16be preprinted on the service contract and may be negotiated at
17the time of sale with the contractholder.

18(f) Deductible amounts.--Service contracts shall state the
19existence of any deductible amount, if applicable.

20(g) Identification of merchandise and services.--Service
21contracts shall specify the merchandise and services to be
22provided and any limitations, exceptions or exclusions.

23(h) Nonoriginal manufacturer's parts.--Service contracts
24covering motor vehicles shall state whether the use of the
25nonoriginal manufacturer's parts is allowed.

26(i) Transferability.--Service contracts shall state any
27restrictions governing the transferability of the service
28contract, if applicable.

29(j) Cancellation.--

30(1) (i) Service contracts shall state the terms,

1restrictions or conditions governing cancellation of the
2service contract prior to the termination or expiration
3date of the service contract by either the provider or
4the contractholder.

5(ii) The provider of the service contract shall mail
6a written notice to the contractholder at the last known
7address of the contractholder contained in the records of
8the provider at least 20 days prior to cancellation by
9the provider.

10(2) Prior notice is not required if the reason for
11cancellation is any of the following:

12(i) Nonpayment of the provider fee.

13(ii) A material misrepresentation by the
14contractholder to the provider.

15(iii) A substantial breach of duties by the
16contractholder relating to the covered product or its
17use.

18(3) The notice shall state the effective date of the
19cancellation and the reason for the cancellation.

20(k) Obligations and duties.--Service contracts shall set
21forth all the obligations and duties of the contractholder, such
22as the duty to protect against any further damages and any
23requirements to follow the owner's manual.

24(l) Consequential damages.--Service contracts shall state
25whether or not the service contract provides for or excludes
26consequential damages, if applicable. Service contracts shall
27also state whether the agreement accounts for preexisting
28conditions. Service contracts may, but are not required to,
29cover damage resulting from rust, corrosion or damage caused by
30a noncovered part or system.

1(m) Approval of repair work.--If prior approval of repair
2work is required, a service contract shall state the procedure
3for obtaining prior approval and for making a claim, including a
4toll-free telephone number for claim service and a procedure for
5obtaining emergency repairs performed outside normal business
6hours.

7Section 9. Prohibitions.

8(a) Descriptions.--

9(1) A provider shall not use in its name the words
10"insurance," "casualty," "surety," "mutual" or any other
11words descriptive of the insurance, casualty or surety
12business or a name deceptively similar to the name or
13description of any insurance or surety corporation or to the
14name of any other provider. The word "guaranty" or similar
15word may be used by a provider.

16(2) This subsection shall not apply to a company that
17was using any of the prohibited language in its name prior to
18the effective date of this act. However, a company using the
19prohibited language in its name shall include in its service
20contracts a statement in substantially the following form:
21This agreement is not an insurance contract.

22(b) False or misleading statements.--A provider or its
23representative shall not in its service contracts or literature
24make, permit or cause to be made any false or misleading
25statement or deliberately omit any material statement that would
26be considered misleading if omitted.

27(c) Purchase not required.--A person shall not require the
28purchase of a service contract as a condition of a loan or a
29condition for the sale of any property.

30(d) Motor vehicle service contract.--A motor vehicle service

1contract provider or its representative shall not, directly or
2indirectly, represent in any manner, whether by written
3solicitation or telemarketing, a false, deceptive or misleading
4statement with respect to:

5(1) the provider's affiliation with a motor vehicle
6manufacturer;

7(2) the provider's possession of information regarding a
8motor vehicle owner's current motor vehicle manufacturer's
9original equipment warranty;

10(3) the expiration of a motor vehicle owner's current
11motor vehicle manufacturer's original equipment warranty; or

12(4) a requirement that a motor vehicle owner register
13for a new motor vehicle service contract with the provider in
14order to maintain coverage under the motor vehicle owner's
15current motor vehicle service contract or manufacturer's
16original equipment warranty.

17Section 10. Recordkeeping.

18(a) Books and records.--The provider shall keep accurate
19accounts, books and records concerning transactions regulated
20under this act.

21(b) Requirements.--The provider's accounts, books and
22records shall include the following:

23(1) Copies of each type of service contract sold.

24(2) The name and address of each contractholder to the
25extent that the name and address have been furnished by the
26contractholder.

27(3) A list of the locations where service contracts are
28marketed, sold or offered for sale.

29(4) Written claims files which shall contain at least
30the dates and descriptions of claims related to the service

1contracts.

2(c) Retaining records.--Except as provided in subsection
3(d), the provider shall retain all records required to be
4maintained by this section for at least two years after the
5specified period of coverage has expired.

6(d) Recordkeeping technology.--The records required under
7this act may be maintained on a computer disk or other
8recordkeeping technology. If the records are maintained in other
9than hard copy, the records shall be capable of duplication to
10legible hard copy at the request of the commissioner.

11(e) Providers discontinuing business.--A provider
12discontinuing business in this Commonwealth shall maintain its
13records until it furnishes the commissioner satisfactory proof
14that it has discharged all obligations to contractholders in
15this Commonwealth.

16Section 11. Cancellation of reimbursement insurance policy.

17As applicable, an insurer that issued a reimbursement 
18insurance policy shall not terminate the policy until a notice 
19of termination in accordance with 40 Pa.C.S. § 6124(c) (relating 
20to rates and contracts) has been mailed or delivered to the 
21commissioner. The termination of a reimbursement insurance 
22policy shall not reduce the issuer's responsibility for service 
23contracts issued by providers prior to the date of the 
24termination.

25Section 12. Obligation of reimbursement insurance policy
26insurers.

27(a) Payment of provider fees.--Insurers issuing
28reimbursement insurance to providers are deemed to have received
29the premiums for such insurance upon the payment of provider
30fees by consumers for service contracts issued by such insured

1providers.

2(b) Indemnification and subrogation.--This act shall not
3prevent or limit the right of an insurer which issued a
4reimbursement insurance policy to seek indemnification or
5subrogation against a provider if the issuer pays or is
6obligated to pay the contractholder sums that the provider was
7obligated to pay pursuant to the provisions of the service
8contract.

9Section 13. Enforcement.

10(a) Examination.--

11(1) The commissioner may conduct examinations of
12providers, administrators, insurers or other persons to
13enforce the provisions of this act and protect
14contractholders in this Commonwealth.

15(2) Upon request of the commissioner, the provider shall
16make all accounts, books and records concerning service
17contracts sold by the provider available to the commissioner
18which are necessary to enable the commissioner to reasonably
19determine compliance or noncompliance with this act.

20(b) Other action.--The commissioner may take action
21authorized by law which is necessary or appropriate to enforce
22this act and the commissioner's regulations and orders and to
23protect contractholders in this Commonwealth.

24(c) Orders.--The commissioner may issue any of the following
25orders to a provider that violates this act or the
26commissioner's regulations or orders:

27(1) An order to cease and desist from committing
28violations of this act or the commissioner's regulations or
29orders.

30(2) An order prohibiting the provider from selling or

1offering for sale service contracts in violation of this act.

2(3) An order imposing a civil penalty on the provider.

3(d) Aggrieved persons.--A person aggrieved by an order
4issued under this section may request a hearing before the
5commissioner. The hearing request must be filed with the
6commissioner within 20 days of the date the commissioner's order
7is effective.

8(e) Order pending hearing outcome.--If a hearing is
9requested under subsection (d), an order issued by the
10commissioner under this section shall be suspended from the
11original effective date of the order until completion of the
12hearing and final decision of the commissioner.

13(f) Justification of order.--At the hearing, the burden 
14shall be on the commissioner to show why the order issued under 
15this section is justified. The procedural provisions of the act 
16of May 17, 1921 (P.L.682, No.284), known as The Insurance 
17Company Law of 1921, shall apply to a hearing requested under 
18this section.

19(g) Actions initiated by commissioner.--

20(1) The commissioner may bring an action in any court of
21competent jurisdiction for an injunction or other appropriate
22relief to enjoin threatened or existing violations of this
23act or of the commissioner's orders or regulations.

24(2) An action filed under this subsection may also seek
25restitution on behalf of persons aggrieved by a violation of
26this act or orders or regulations of the commissioner.

27(h) Penalty.--

28(1) A person that is found to have violated this act or
29orders or regulations of the commissioner may be assessed a
30civil penalty in an amount determined by the commissioner of

1not more than $500 per violation and no more than $10,000 in
2the aggregate for all violations of a similar nature.

3(2) For purposes of this section, violations shall be of
4a similar nature if the violation consists of the same or
5similar course of conduct, action or practice, irrespective
6of the number of times the act, conduct or practice which is
7determined to be a violation of this act occurred.

8Section 14. Applicability.

9(a) General rule.--This act shall apply to service contracts
10issued on or after the effective date of this section.

11(b) Limited grandfather provision.--A person engaged in the
12service contract business, as a provider or otherwise, in this
13Commonwealth on or before the effective date of this section,
14that submits an application for registration as a provider under
15this act within 30 days after the commissioner makes the
16application available, may continue to engage in business as a
17provider in this Commonwealth until final agency action is taken
18by the commissioner regarding the registration application and
19all rights to administrative and judicial review related to that
20final agency action have been exhausted or have expired.

21Section 15. Effective date.

22This act shall take effect in 60 days.