HP1149, LD 1621, item 1, An Act To Increase Consumer Choice Regarding Service Contracts

An Act To Increase Consumer Choice Regarding Service Contracts

Be it enacted by the People of the State of Maine as follows:

Sec. 1. 24-A MRSA c. 89 is enacted to read:

CHAPTER 89

SERVICE CONTRACTS

§ 7001. Scope and purpose

1. Purpose. The purpose of this chapter is to create a legal framework within which service contracts may be sold in this State.

2. General exemptions. The following are exempt from the provisions of this Title, including the other provisions of this chapter:

A. Warranties;

B. Maintenance agreements;

C. Warranties, service contracts and maintenance agreements offered by public utilities on their transmission devices to the extent they are regulated by the Public Utilities Commission; and

D. Service contracts sold or offered for sale to persons other than consumers.

3. Service contract provider exemptions. 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 are subject to the provisions of this chapter and exempt from all other provisions of this Title.

§ 7002. Definitions

As used in this chapter, unless the context otherwise indicates, the following terms have the following meanings.

1. Administrator. "Administrator" means the person who is responsible for the administration of a service contract or who is responsible for a filing required by this chapter.

2. Consumer. "Consumer" means 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.

3. Maintenance agreement. "Maintenance agreement" means a contract of limited duration that provides for scheduled maintenance only.

4. Nonoriginal manufacturer's parts. "Nonoriginal manufacturer's parts" means replacement parts not made for or by the original manufacturer of the property, commonly referred to as "aftermarket parts."

5. Person. "Person" means an individual, partnership, corporation, incorporated or unincorporated association, joint stock company, reciprocal exchange, syndicate or any similar entity or combination of entities acting in concert.

6. Premium. "Premium" means the consideration paid to an insurer for a reimbursement insurance policy.

7. Provider. "Provider" means a person who is contractually obligated to a service contract holder under the terms of a service contract.

8. Provider fee. "Provider fee" means the consideration paid for a service contract.

9. Reimbursement insurance policy. "Reimbursement insurance policy" means a policy of insurance that is issued to a provider to reimburse the provider or 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.

10. Service contract. "Service contract" means a contract or agreement provided in exchange for a separately stated consideration for a specific duration to perform the repair, replacement or maintenance of property or provide indemnification for repair, replacement or maintenance for an operational or structural failure due to a defect in materials or workmanship or normal wear and tear, with or without additional provision for incidental payment or indemnity under limited circumstances, including, but not limited to, towing, rental and emergency road service. Service contracts may provide for the repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling.

11. Service contract holder or contract holder. "Service contract holder" or "contract holder" means a person who is the purchaser or holder of a service contract.

12. Warranty. "Warranty" means a warranty made solely by the manufacturer, importer or seller of property or services without consideration that is not negotiated or separated from the sale of the product and is incidental to the sale of the product and that 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.

§ 7003. Requirements for doing business

1. Administrator. A provider may, but is not required to, appoint an administrator or other designee to be responsible for the administration of service contracts and compliance with this chapter.

2. Service contract. A service contract may not be issued, sold or offered for sale in this State unless the provider has:

A. Provided a receipt for, or other written evidence of, the purchase of the service contract to the contract holder; and

B. Provided a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase.

3. Registration. A provider of service contracts sold in this State shall file a registration with the superintendent on a form prescribed by the superintendent. A provider shall pay to the superintendent a fee in the amount of $500 annually.

4. Performance. In order to ensure the faithful performance of the provider's obligations to its service contract holders, a provider shall:

A. Insure all service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in this State or issued pursuant to chapter 19;

B. Undertake to:

(1) Maintain a funded reserve account for its obligations under its service contracts issued and outstanding in this State. The reserves may not be less than 40% of the gross consideration received, less claims paid, on the sale of the service contract for all contracts in force. The reserve account is subject to examination and review by the superintendent; and

(2) Place in trust with the superintendent a financial security deposit, having a value of not less 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, but not less than $25,000, consisting of:

(a) A surety bond issued by an authorized surety;

(b) Securities of the type eligible for deposit by authorized insurers in this State;

(d) A letter of credit issued by a qualified financial institution; or

(e) Another form of security prescribed by rules adopted by the superintendent; or

C. Undertake to:

(1) Maintain, or have its parent company maintain, a net worth or stockholders' equity of at least $100,000,000; and

(2) Upon request, provide the superintendent with a copy of the provider's or its parent company's most recent Form 10-K or Form 20-F filed with the United States Securities and Exchange Commission within the last calendar year or, if the company does not file with the United States Securities and Exchange Commission, a copy of the provider's or its parent company's audited financial statements that show a net worth of the provider or its parent company of at least $100,000,000. If the parent company's Form 10-K, Form 20-F or audited 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 State.

5. Right to void. A service contract must require the provider to permit the service contract holder to return the service contract within 20 days of the date the service contract is mailed to the service contract holder or within 10 days of delivery if the service contract is delivered to the service contract holder at the time of sale or within a longer time period permitted under the service contract. 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 to the service contract holder, or credit the account of the service contract holder, the full purchase price of the service contract. The right to void the service contract provided in this subsection is not transferable and applies only to the original service contract purchaser and only if no claim has been made prior to its return to the provider. A 10% penalty per month must be added to a refund that is not paid or credited within 45 days after return of the service contract to the provider.

6. Premium taxes. Provider fees collected on service contracts are not subject to premium taxes. Premiums for reimbursement insurance policies are subject to applicable taxes.

7. Licensing exemptions. Except for the registration requirement in subsection 3, providers and related service contract sellers, administrators and other persons marketing, selling or offering for sale service contracts are exempt from any licensing requirements of this State.

§ 7004. Required provisions; reimbursement insurance policy

1. Statement of policy. A reimbursement insurance policy insuring service contracts issued, sold or offered for sale in this State must state that the insurer that issued the reimbursement insurance policy shall reimburse or pay on behalf of the provider any covered sums the provider is legally obligated to pay or shall provide the service that the provider is legally obligated to perform according to the provider's contractual obligations under the insured service contracts issued or sold by the provider.

2. Application to reimbursement insurance company. In the event covered service is not provided by the service contract's provider within 60 days of proof of loss by the service contract holder, the contract holder may apply directly to the reimbursement insurance company.

§ 7005. Required disclosures; service contracts

1. Disclosures. A service contract marketed, sold, offered for sale, issued, made, proposed to be made or administered in this State must be written, printed or typed in clear, understandable language that is easy to read and must disclose the requirements set forth in this section, as applicable.

A. A service contract insured under a reimbursement insurance policy pursuant to section 7003, subsection 4, paragraph A must 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." The service contract must state the name and address of the insurer.

B. A service contract not issued under a reimbursement insurance policy pursuant to section 7003, subsection 4, paragraph A must 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."

C. A service contract must state the name and address of the provider and must identify any administrator other than the provider, the service contract seller and the service contract holder to the extent that the name of the service contract holder has been furnished by the service contract holder. 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.

D. A service contract must state the purchase price of the service contract and the terms under which the 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 service contract holder.

E. A service contract must state the existence of any deductible amount, if applicable.

F. A service contract must specify the merchandise and services to be provided and any limitations, exceptions or exclusions.

G. A service contract covering automobiles must state whether the use of nonoriginal manufacturer's parts is allowed.

H. A service contract must state any restrictions governing the transferability of the service contract, if applicable.

I. A service contract must state the terms, restrictions and conditions governing cancellation of the service contract prior to the termination or expiration date of the service contract by either the provider or the service contract holder. The provider of the service contract shall mail a written notice to the service contract holder at the last known address of the service contract holder contained in the records of the provider at least 5 days prior to cancellation by the provider. Prior notice is not required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation by the service contract holder to the provider or a substantial breach of contractual duties by the service contract holder relating to the covered product or its use. The notice must state the effective date of the cancellation and the reason for the cancellation.

J. A service contract must set forth the obligations and duties of the service contract holder, such as the duty to protect against any further damage and any requirement to follow instructions in an owner's manual.

K. A service contract must state whether or not the service contract provides for or excludes consequential damages or preexisting conditions, if applicable.

§ 7006. Prohibited acts

1. Prohibited names. A provider may not use in its name the words "insurance," "casualty," "surety," "mutual" or any other words descriptive of the insurance, casualty or surety business and may not use 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. This section does not apply to a company that was using any of the prohibited language in its name prior to the effective date of this chapter; 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."

2. Misleading statements. A provider or its representative may 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 the omission of which would be considered misleading.

3. Prohibited conditions of sale. A person, including but not limited to a bank, savings and loan association, lending institution, manufacturer or seller of any product, may not require the purchase of a service contract as a condition of a loan or a condition for the sale of any property.

§ 7007. Record-keeping requirements

1. Books and records. A provider shall keep books and records in accordance with this section.

A. The provider shall keep accurate accounts, books and records concerning transactions regulated under this chapter.

B. The provider's accounts, books and records must include:

(1) Copies of each type of service contract sold;

(2) The name and address of each service contract holder, to the extent that the name and address have been furnished by the service contract holder;

(3) A list of the locations where service contracts are marketed, sold or offered for sale; and

(4) Written claims files, which must contain at least the dates and descriptions of claims related to the service contracts.

C. Except as provided in subsection 2, the provider shall retain all records required to be maintained by this subsection for at least one year after the specified period of coverage has expired.

D. The records required under this chapter may be, but are not required to be, maintained in an electronic format or other record-keeping medium. If the records are maintained in other than hard copy, the records must be capable of being transferred to legible hard copy at the request of the superintendent.

2. Discontinuance of business. A provider discontinuing business in this State shall maintain its records until it furnishes the superintendent satisfactory proof that it has discharged all obligations to service contract holders in this State.

§ 7008. Cancellation of reimbursement insurance policy

An insurer that issues a reimbursement insurance policy may not terminate the policy until a notice of cancellation has been mailed or delivered to the superintendent. This notice of cancellation must be mailed or delivered to the superintendent at least 5 days prior to cancellation. The cancellation of a reimbursement insurance policy does not reduce the insurer's responsibility for service contracts issued by providers prior to the date of the cancellation.

§ 7009. Obligations of reimbursement insurance policy insurers

1. Agency. A provider is considered the agent of the insurer that issued the reimbursement insurance policy for purposes of obligating the insurer to service contract holders in accordance with the service contract and this chapter. When a provider is acting as an administrator and enlists other providers, the provider acting as the administrator shall notify the insurer of the existence and identities of the other providers.

2. Other rights. This chapter does not negate or limit the right of an insurer that issued a reimbursement insurance policy to seek indemnification or subrogation against a provider if the insurer pays or is obligated to pay the service contract holder sums that the provider was obligated to pay pursuant to the provisions of the service contract.

§ 7010. Enforcement provisions

1. Examinations. The superintendent may conduct examinations of providers, administrators, insurers or other persons to enforce this chapter and protect service contract holders in this State. Upon request of the superintendent, a provider shall make available to the superintendent all accounts, books and records concerning service contracts sold by the provider that are necessary to enable the superintendent to reasonably determine compliance or noncompliance with this chapter.

2. Enforcement. The superintendent may take action as necessary or appropriate to enforce the provisions of this chapter and the superintendent's rules and orders adopted pursuant to this chapter and to protect service contract holders in this State.

A. If a provider has violated this chapter or the superintendent's rules or orders, the superintendent may:

(1) Issue an order directed to that provider to cease and desist from committing violations of this chapter or the superintendent's rules or orders;

(2) Issue an order prohibiting that provider from selling or offering for sale service contracts in violation of this chapter;

(3) Issue an order imposing a civil penalty on that provider; or

(4) Issue any combination of orders, as applicable.

B. A person aggrieved by an order issued under this section may request a hearing before the superintendent. The hearing request must be filed with the superintendent within 20 days of the date the superintendent's order is effective.

C. If a hearing is requested pursuant to paragraph B, an order issued by the superintendent under this section must be suspended from the original effective date of the order until completion of the hearing and final decision of the superintendent.

D. At a hearing held pursuant to this subsection, the burden is on the superintendent to show why the order issued pursuant to this section is justified. The provisions of the Maine Administrative Procedure Act apply to a hearing under this section.

3. Civil action. The superintendent 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 chapter or of the superintendent's rules. An action filed under this section also may seek restitution on behalf of persons aggrieved by a violation of this chapter or rules of the superintendent.

4. Penalties. A person who is found to have violated this chapter or rules of the superintendent commits a civil violation and may be ordered in an adjudicatory proceeding to pay to the superintendent a fine in an amount determined by the superintendent of not more than $500 per violation and not more than $10,000 in the aggregate for all violations of a similar nature. For purposes of this subsection, violations are of a similar nature if the violations consist of the same or a similar course of conduct, action or practice, irrespective of the number of times the act, conduct or practice that is determined to be a violation of this chapter occurred.

§ 7011. Authority to adopt rules

The superintendent may adopt rules necessary to implement this chapter. Rules adopted pursuant to this section are routine technical rules as defined in Title 5, chapter 375, subchapter 2-A.

§ 7012. Application

Service contracts entered into prior to January 1, 2011 and renewals of those contracts may, but are not required to, comply with this chapter. Providers and other persons are not required to comply with this chapter until January 1, 2011. A provider or other person may, but is not required to, implement the requirements of this chapter prior to January 1, 2011. The failure of a provider or other person to comply with this chapter or otherwise to administer a service contract in the manner required by this chapter prior to January 1, 2011 is not admissible in any court, arbitration or alternative dispute resolution proceedings and that failure may not be otherwise used to prove that the action of any person or the service contract was unlawful or otherwise improper.

summary

This bill establishes standards for providers of service contracts and exempts these contracts from all other provisions of the Maine Insurance Code. It also exempts from the Maine Insurance Code:

1. Warranties;

2. Maintenance agreements;

3. Warranties, service contracts and maintenance agreements offered by public utilities on their transmission devices to the extent they are regulated by the Public Utilities Commission; and

4. Service contracts sold or offered for sale to persons other than consumers.

HP1149 LD 1621	Second Regular Session - 124th Maine Legislature Text: MS-Word, RTF or PDF		LR 2167 Item 1
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