PRINTER'S NO. 90
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
143
Session of
2015
INTRODUCED BY GREENLEAF, TARTAGLIONE, VULAKOVICH AND BOSCOLA,
JANUARY 14, 2015
REFERRED TO BANKING AND INSURANCE, JANUARY 14, 2015
AN ACT
Providing for the regulation of service contracts and for powers
and duties of the Insurance Commissioner; and imposing a
civil penalty.
TABLE OF CONTENTS
Section 1. Short title.
Section 2. Legislative intent.
Section 3. Definitions.
Section 4. Exemptions.
Section 5. Limited exemption.
Section 6. Requirements.
Section 7. Reimbursement insurance policies.
Section 8. Required disclosures.
Section 9. Prohibitions.
Section 10. Recordkeeping.
Section 11. Cancellation of reimbursement insurance policy.
Section 12. Obligation of reimbursement insurance policy
insurers.
Section 13. Enforcement.
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Section 14. Applicability.
Section 15. Effective date.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the Service
Contract Act.
Section 2. Legislative intent.
The purpose of this act is to create a legal framework within
which service contracts may be marketed, sold, offered for sale,
issued, made, proposed to be made and administered in this
Commonwealth.
Section 3. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Administrator." The person that is responsible for the
administration of service contracts or the service contracts
plan or is responsible for any submission required by this act.
"Commissioner." The Insurance Commissioner of the
Commonwealth.
"Consumer." A natural person who buys, other than for
purposes of resale, any tangible personal property that is
distributed in commerce and that is normally used for personal,
family or household purposes and not for business or research
purposes.
"Contractholder." A person that is the purchaser or holder
of a service contract.
"Maintenance agreement." A contract of limited duration that
provides for scheduled maintenance only and does not provide for
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repair or replacement.
"Motor vehicle." A motorized device designed to transport up
to 15 passengers. The term includes a self-propelled motor home
or recreational vehicle, non-self-propelled camping and
recreational trailer, off-road vehicle and trailer designed to
transport an off-road vehicle. The term also includes any
motorized watercraft and non-self-propelled trailer used to
transport such watercraft on land.
"Motor vehicle manufacturer." A person or entity that:
(1) manufactures or produces motor vehicles and sells
motor vehicles under its own name or label;
(2) is a wholly owned subsidiary of the person that
manufactures or produces motor vehicles;
(3) is a corporation which owns 100% of the person that
manufactures or produces motor vehicles;
(4) does not manufacture or produce motor vehicles but
sells motor vehicles under the trade name or label of another
person that manufactures or produces motor vehicles;
(5) manufactures or produces motor vehicles and sells
such motor vehicles under the trade name or label of another
person that manufactures or produces motor vehicles; or
(6) does not manufacture or produce motor vehicles but,
pursuant to a written contract, licenses the use of its trade
name or label to another person that manufactures or produces
motor vehicles and that sells motor vehicles under the
licensor's trade name or label.
"Nonoriginal manufacturer's parts." Replacement parts not
made for or by the original manufacturer of the part, commonly
referred to as after-market parts.
"Person." An individual, partnership, corporation,
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incorporated or unincorporated association, joint stock company,
reciprocal, syndicate or any similar entity or combination of
entities acting in concert.
"Premium." The consideration paid to an insurer for a
reimbursement insurance policy.
"Provider." A person that is contractually obligated to the
contractholder under the terms of the service contract.
"Provider fee." The consideration paid for a service
contract.
"Reimbursement insurance policy." A policy of insurance
issued to a provider to either provide reimbursement to the
provider under the terms of the insured service contracts issued
or sold by the provider or, in the event of the provider's
nonperformance, to pay on behalf of the provider all covered
contractual obligations incurred by the provider under the terms
of the insured service contracts issued or sold by the provider.
"Service contract." A contract or agreement for a separately
stated consideration for a specific duration to perform the
repair, replacement or maintenance of property or
indemnification for repair, replacement or maintenance, for the
operational or structural failure of any motor vehicle or
residential or other property due to a defect in materials,
workmanship, inherent defect or normal wear and tear, with or
without additional provisions for incidental payment of
indemnity under limited circumstances, including, but not
limited to, towing, rental and emergency road service and road
hazard protection. The term includes contracts that provide for
the repair, replacement or maintenance of property for damage
resulting from power surges or interruption and accidental
damage from handling. The term also includes a contract or
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agreement sold for a separately stated consideration for a
specific duration that provides for any of the following:
(1) the repair or replacement or indemnification for the
repair or replacement of a motor vehicle for the operational
or structural failure of one or more parts or systems of the
motor vehicle brought about by the failure of an additive
product to perform as represented;
(2) the repair or replacement of tires or wheels on a
motor vehicle damaged as a result of coming into contact with
road hazards, including, but not limited to, potholes, rocks,
wood debris, metal parts, glass, plastic, curbs or composite
scraps;
(3) the removal of dents, dings or creases on a motor
vehicle that can be repaired using the process of paintless
dent removal without affecting the existing paint finish and
without replacing vehicle body panels, sanding, bonding or
painting;
(4) the repair of small motor vehicle windshield chips
or cracks, but not the replacement of the entire windshield;
or
(5) the repair of damage to the interior components of a
motor vehicle caused by wear and tear, but not the
replacement of any part or component of a motor vehicle's
interior.
"Warranty." An agreement between the manufacturer, importer
or seller of property or services and the consumer that:
(1) Is made solely by the manufacturer, importer or
seller of property or services without consideration.
(2) Is not negotiated or separated from the sale of the
product.
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(3) Is incidental to the sale of the product.
(4) Guarantees indemnity for defective parts, mechanical
or electrical breakdown, labor or other remedial measures,
such as repair or replacement of the property or repetition
of services.
Section 4. Exemptions.
The following agreements are exempt from this act:
(1) Warranties.
(2) Maintenance agreements.
(3) Warranties, service contracts or maintenance
agreements offered by public utilities on their transmission
devices to the extent they are regulated by the Pennsylvania
Public Utility Commission.
(4) Service contracts sold or offered for sale to
persons other than consumers.
(5) Service contracts on tangible property where the
tangible property for which the service contract is sold has
a purchase price of $100 or less, exclusive of sales tax.
(6) Mechanical breakdown insurance policies issued by a
licensed insurer.
Section 5. Limited exemption.
Motor vehicle manufacturer's service contracts on the motor
vehicle manufacturer's products need only comply with sections
6(f), 8(a), (d), (e), (f), (g), (h), (i), (j), (k) and (l), 9
and 12, as applicable.
Section 6. Requirements.
(a) Issuance or sale of service contracts.--Service
contracts shall not be issued, sold or offered for sale by a
provider in this Commonwealth unless the provider has:
(1) Provided a receipt for or other written evidence of
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the purchase of the service contract to the contractholder.
(2) Provided a copy of the service contract to the
contractholder within a reasonable period of time from the
date of purchase.
(b) Administrator.--A provider may, but is not required to,
appoint an administrator or other designee to be responsible for
any or all of the administration of service contracts and
compliance with this act.
(c) Registration.--Each provider of service contracts sold
in this Commonwealth shall file a registration with the
commissioner consisting of the provider's full name, full
corporate address, telephone number and contact person and any
designated person located in this Commonwealth for service of
process. Each provider shall pay to the commissioner a fee in
the amount of $600 upon initial registration and every two years
thereafter. The registration need only be updated by written
notification to the commissioner if material changes occur in
the registration on file.
(d) Performance of obligations.--In order to assure the
faithful performance of a provider's obligations to its
contractholders, each provider shall satisfy one of the
following requirements:
(1) Insure all service contracts under a reimbursement
insurance policy issued by an insurer licensed, registered or
otherwise authorized to do business in this Commonwealth and
either:
(i) at the time the policy is filed with the
commissioner, and continuously thereafter:
(A) maintain surplus as to policyholders and
paid-in capital of at least $15,000,000; and
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(B) annually file copies of the insurer's
financial statements, its annual statement to the
National Association of Insurance Commissioners and
the actuarial certification required by and filed in
the insurer's state of domicile; or
(ii) at the time the policy is filed with the
commissioner, and continuously thereafter:
(A) maintain surplus as to policyholders and
paid-in capital of less than $15,000,000, but at
least equal to $10,000,000;
(B) demonstrate to the satisfaction of the
commissioner that the company maintains a ratio of
net written premiums, wherever written, to surplus as
to policyholders and paid-in capital of not greater
than 3 to 1; and
(C) annually file copies of the insurer's
audited financial statements, its annual statement to
the National Association of Insurance Commissioners
and actuarial certification required by and filed in
the insurer's state of domicile.
(2) (i) Maintain a funded reserve account for its
obligations under its contracts issued and outstanding in
this Commonwealth. The reserves shall not be less than
40% of gross consideration received, less claims paid, on
the sale of the service contract for all in-force
contracts ((Gross Consideration x 40%) - Claims Paid) in
this Commonwealth. The reserve account shall be subject
to examination and review by the commissioner.
(ii) Place in trust with the commissioner a
financial security deposit, having a value of not less
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than 5% of the gross consideration received, less claims
paid, on the sale of the service contract for all service
contracts issued and in force in this Commonwealth, but
not less than $25,000, consisting of one of the
following:
(A) A surety bond issued by an authorized
surety.
(B) Securities of the type eligible for deposit
by authorized insurers in this Commonwealth.
(C) Cash.
(D) A letter of credit issued by a qualified
financial institution.
(E) Another form of security prescribed by
regulations issued by the commissioner.
(3) (i) Maintain, or together with its parent company
maintain, a net worth or stockholders' equity of
$100,000,000.
(ii) Upon request, provide the commissioner with a
copy of the provider's or the provider's parent company's
most recent Form 10-K or Form 20-F filed with the
Securities and Exchange Commission (SEC) within the last
calendar year or, if the company does not file with the
SEC, a copy of the company's financial statements which
shows a net worth of the provider or its parent company
of at least $100,000,000. If the provider's parent
company's Form 10-K, Form 20-F or financial statements
are filed to meet the provider's financial stability
requirement, then the parent company shall agree to
guarantee the obligations of the provider relating to
service contracts sold by the provider in this
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Commonwealth.
(e) Financial security requirements.--Except for the
requirements specified in subsections (c) and (d), no other
financial security requirements shall be required by the
commissioner for service contract providers.
(f) Return.--
(1) Service contracts shall require the provider to
permit the contractholder to return the service contract
within 20 days of the date the service contract was mailed to
the contractholder or within 10 days of delivery if the
service contract is delivered to the contractholder at the
time of sale or within a longer time period permitted under
the service contract.
(2) (i) Upon return of the service contract to the
provider within the applicable time period, if no claim
has been made under the service contract prior to its
return to the provider, the service contract is void and
the provider shall refund the contractholder or credit
the account of the contractholder the full purchase price
of the service contract.
(ii) If a claim has been made under the service
contract within that time period, a service
contractholder may cancel the service contract and the
provider shall refund the contractholder 100% of the
unearned pro rata provider fee, less any claims paid. A
reasonable administrative fee may be charged by the
provider not to exceed 10% of the gross provider fee paid
by the service contractholder.
(3) The right to void the service contract provided in
this subsection is not transferable and shall apply only to
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the original service contract purchaser and only if no claim
has been made prior to its return to the provider.
(4) A 10% penalty per month shall be added to a refund
that is not paid or credited within 45 days after return of
the service contract to the provider.
(g) Premium taxes.--
(1) Provider fees collected on service contracts shall
not be subject to premium taxes.
(2) Premiums for reimbursement insurance policies shall
be subject to applicable taxes.
(h) Licensing requirement exemption.--
(1) Except for the registration requirements in
subsection (c), providers and related service contract
sellers, administrators and other persons marketing, selling
or offering to sell service contracts are exempt from any
licensing requirements of this Commonwealth.
(2) The marketing, sale, offering for sale, issuance,
making, proposing to make and administration of service
contracts by providers and related service contract sellers,
administrators and other persons shall be exempt from
provisions of law of this Commonwealth pertaining to
insurance.
(i) Sample copy.--A provider shall provide a consumer with a
complete sample copy of the service contract terms and
conditions prior to the time of sale upon a request for the same
by the consumer. A provider may comply with this provision by
providing the consumer with a complete sample copy of the terms
and conditions or by directing the consumer to an Internet
website containing a complete sample copy of the terms and
conditions of the service contract.
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Section 7. Reimbursement insurance policies.
(a) Requirements.--Reimbursement insurance policies insuring
service contracts issued, sold or offered for sale in this
Commonwealth shall state that the insurer that issued the
reimbursement insurance policy shall either reimburse or pay on
behalf of the provider any covered sums the provider is legally
obligated to pay or, in the event of the provider's
nonperformance, shall provide the service which the provider is
legally obligated to perform according to the provider's
contractual obligations under the service contracts issued or
sold by the provider.
(b) Direct reimbursement.--In the event covered service is
not provided by the service contract provider within 60 days of
proof of loss by the contractholder, the contractholder is
entitled to apply directly to the reimbursement insurance
company.
Section 8. Required disclosures.
(a) General rule.--Service contracts marketed, sold, offered
for sale, issued, made, proposed to be made or administered in
this Commonwealth shall be written, printed or typed in clear,
understandable language and shall disclose the requirements set
forth in this section, as applicable.
(b) Insured service contracts.--All service contracts shall
state the name and address of the insurer. Service contracts
insured under a reimbursement insurance policy under section
6(d)(1) shall contain a statement in substantially the following
form: Obligations of the provider under this service contract
are insured under a service contract reimbursement insurance
policy.
(c) Uninsured service contracts.--Service contracts not
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insured under a reimbursement insurance policy under section
6(d)(1) shall contain a statement in substantially the following
form: Obligations of the provider under this service contract
are backed by the full faith and credit of the provider.
(d) Name and address.--Service contracts shall state the
name and address of the provider and shall identify any
administrator if different from the provider, the service
contract seller and the contractholder to the extent that the
name of the contractholder has been furnished by the
contractholder. The identities of such parties are not required
to be preprinted on the service contract and may be added to the
service contract at the time of sale.
(e) Total purchase price and terms.--Service contracts shall
state the total purchase price and the terms under which a
service contract is sold. The purchase price is not required to
be preprinted on the service contract and may be negotiated at
the time of sale with the contractholder.
(f) Deductible amounts.--Service contracts shall state the
existence of any deductible amount, if applicable.
(g) Identification of merchandise and services.--Service
contracts shall specify the merchandise and services to be
provided and any limitations, exceptions or exclusions.
(h) Nonoriginal manufacturer's parts.--Service contracts
covering motor vehicles shall state whether the use of the
nonoriginal manufacturer's parts is allowed.
(i) Transferability.--Service contracts shall state any
restrictions governing the transferability of the service
contract, if applicable.
(j) Cancellation.--
(1) (i) Service contracts shall state the terms,
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restrictions or conditions governing cancellation of the
service contract prior to the termination or expiration
date of the service contract by either the provider or
the contractholder.
(ii) The provider of the service contract shall mail
a written notice to the contractholder at the last known
address of the contractholder contained in the records of
the provider at least 20 days prior to cancellation by
the provider.
(2) Prior notice is not required if the reason for
cancellation is any of the following:
(i) Nonpayment of the provider fee.
(ii) A material misrepresentation by the
contractholder to the provider.
(iii) A substantial breach of duties by the
contractholder relating to the covered product or its
use.
(3) The notice shall state the effective date of the
cancellation and the reason for the cancellation.
(k) Obligations and duties.--Service contracts shall set
forth all the obligations and duties of the contractholder, such
as the duty to protect against any further damages and any
requirements to follow the owner's manual.
(l) Consequential damages.--Service contracts shall state
whether or not the service contract provides for or excludes
consequential damages, if applicable. Service contracts shall
also state whether the agreement accounts for preexisting
conditions. Service contracts may, but are not required to,
cover damage resulting from rust, corrosion or damage caused by
a noncovered part or system.
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(m) Approval of repair work.--If prior approval of repair
work is required, a service contract shall state the procedure
for obtaining prior approval and for making a claim, including a
toll-free telephone number for claim service and a procedure for
obtaining emergency repairs performed outside normal business
hours.
Section 9. Prohibitions.
(a) Descriptions.--
(1) A provider shall not use in its name the words
"insurance," "casualty," "surety," "mutual" or any other
words descriptive of the insurance, casualty or surety
business or a name deceptively similar to the name or
description of any insurance or surety corporation or to the
name of any other provider. The word "guaranty" or similar
word may be used by a provider.
(2) This subsection shall not apply to a company that
was using any of the prohibited language in its name prior to
the effective date of this act. However, a company using the
prohibited language in its name shall include in its service
contracts a statement in substantially the following form:
This agreement is not an insurance contract.
(b) False or misleading statements.--A provider or its
representative shall not in its service contracts or literature
make, permit or cause to be made any false or misleading
statement or deliberately omit any material statement that would
be considered misleading if omitted.
(c) Purchase not required.--A person shall not require the
purchase of a service contract as a condition of a loan or a
condition for the sale of any property.
(d) Motor vehicle service contract.--A motor vehicle service
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contract provider or its representative shall not, directly or
indirectly, represent in any manner, whether by written
solicitation or telemarketing, a false, deceptive or misleading
statement with respect to:
(1) the provider's affiliation with a motor vehicle
manufacturer;
(2) the provider's possession of information regarding a
motor vehicle owner's current motor vehicle manufacturer's
original equipment warranty;
(3) the expiration of a motor vehicle owner's current
motor vehicle manufacturer's original equipment warranty; or
(4) a requirement that a motor vehicle owner register
for a new motor vehicle service contract with the provider in
order to maintain coverage under the motor vehicle owner's
current motor vehicle service contract or manufacturer's
original equipment warranty.
Section 10. Recordkeeping.
(a) Books and records.--The provider shall keep accurate
accounts, books and records concerning transactions regulated
under this act.
(b) Requirements.--The provider's accounts, books and
records shall include the following:
(1) Copies of each type of service contract sold.
(2) The name and address of each contractholder to the
extent that the name and address have been furnished by the
contractholder.
(3) A list of the locations where service contracts are
marketed, sold or offered for sale.
(4) Written claims files which shall contain at least
the dates and descriptions of claims related to the service
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contracts.
(c) Retaining records.--Except as provided in subsection
(d), the provider shall retain all records required to be
maintained by this section for at least two years after the
specified period of coverage has expired.
(d) Recordkeeping technology.--The records required under
this act may be maintained on a computer disk or other
recordkeeping technology. If the records are maintained in other
than hard copy, the records shall be capable of duplication to
legible hard copy at the request of the commissioner.
(e) Providers discontinuing business.--A provider
discontinuing business in this Commonwealth shall maintain its
records until it furnishes the commissioner satisfactory proof
that it has discharged all obligations to contractholders in
this Commonwealth.
Section 11. Cancellation of reimbursement insurance policy.
As applicable, an insurer that issued a reimbursement
insurance policy shall not terminate the policy until a notice
of termination in accordance with 40 Pa.C.S. ยง 6124(c) (relating
to rates and contracts) has been mailed or delivered to the
commissioner. The termination of a reimbursement insurance
policy shall not reduce the issuer's responsibility for service
contracts issued by providers prior to the date of the
termination.
Section 12. Obligation of reimbursement insurance policy
insurers.
(a) Payment of provider fees.--Insurers issuing
reimbursement insurance to providers are deemed to have received
the premiums for such insurance upon the payment of provider
fees by consumers for service contracts issued by such insured
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providers.
(b) Indemnification and subrogation.--This act shall not
prevent or limit the right of an insurer which issued a
reimbursement insurance policy to seek indemnification or
subrogation against a provider if the issuer pays or is
obligated to pay the contractholder sums that the provider was
obligated to pay pursuant to the provisions of the service
contract.
Section 13. Enforcement.
(a) Examination.--
(1) The commissioner may conduct examinations of
providers, administrators, insurers or other persons to
enforce the provisions of this act and protect
contractholders in this Commonwealth.
(2) Upon request of the commissioner, the provider shall
make all accounts, books and records concerning service
contracts sold by the provider available to the commissioner
which are necessary to enable the commissioner to reasonably
determine compliance or noncompliance with this act.
(b) Other action.--The commissioner may take action
authorized by law which is necessary or appropriate to enforce
this act and the commissioner's regulations and orders and to
protect contractholders in this Commonwealth.
(c) Orders.--The commissioner may issue any of the following
orders to a provider that violates this act or the
commissioner's regulations or orders:
(1) An order to cease and desist from committing
violations of this act or the commissioner's regulations or
orders.
(2) An order prohibiting the provider from selling or
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offering for sale service contracts in violation of this act.
(3) An order imposing a civil penalty on the provider.
(d) Aggrieved persons.--A person aggrieved by an order
issued under this section may request a hearing before the
commissioner. The hearing request must be filed with the
commissioner within 20 days of the date the commissioner's order
is effective.
(e) Order pending hearing outcome.--If a hearing is
requested under subsection (d), an order issued by the
commissioner under this section shall be suspended from the
original effective date of the order until completion of the
hearing and final decision of the commissioner.
(f) Justification of order.--At the hearing, the burden
shall be on the commissioner to show why the order issued under
this section is justified. The procedural provisions of the act
of May 17, 1921 (P.L.682, No.284), known as The Insurance
Company Law of 1921, shall apply to a hearing requested under
this section.
(g) Actions initiated by commissioner.--
(1) The commissioner may bring an action in any court of
competent jurisdiction for an injunction or other appropriate
relief to enjoin threatened or existing violations of this
act or of the commissioner's orders or regulations.
(2) An action filed under this subsection may also seek
restitution on behalf of persons aggrieved by a violation of
this act or orders or regulations of the commissioner.
(h) Penalty.--
(1) A person that is found to have violated this act or
orders or regulations of the commissioner may be assessed a
civil penalty in an amount determined by the commissioner of
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not more than $500 per violation and no more than $10,000 in
the aggregate for all violations of a similar nature.
(2) For purposes of this section, violations shall be of
a similar nature if the violation consists of the same or
similar course of conduct, action or practice, irrespective
of the number of times the act, conduct or practice which is
determined to be a violation of this act occurred.
Section 14. Applicability.
(a) General rule.--This act shall apply to service contracts
issued on or after the effective date of this section.
(b) Limited grandfather provision.--A person engaged in the
service contract business, as a provider or otherwise, in this
Commonwealth on or before the effective date of this section,
that submits an application for registration as a provider under
this act within 30 days after the commissioner makes the
application available, may continue to engage in business as a
provider in this Commonwealth until final agency action is taken
by the commissioner regarding the registration application and
all rights to administrative and judicial review related to that
final agency action have been exhausted or have expired.
Section 15. Effective date.
This act shall take effect in 60 days.
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