5714-S

AN ACT Relating to vendor single-interest insurance coverage; adding new sections to chapter 48.22 RCW; creating a new section; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. Unless the context clearly requires otherwise, the definitions in this section apply throughout sections 1 through 5 of this act.

(1) "Borrower" means a person who receives a loan to purchase a motor vehicle or vessel in which the secured party holds an interest.

(2) "Motor vehicle" means a motor vehicle in this state subject to registration under chapter 46.16 RCW, except motor vehicles governed by RCW 46.16.020 or registered with the Washington utilities and transportation commission as common or contract carriers.

(3) "Secured party" means a person, corporation, association, partnership, or venture that possesses a bona fide security interest in a motor vehicle or vessel.

(4) "Vendor single-interest coverage" means insurance coverage insuring primarily the interest of a secured party in a motor vehicle or vessel serving as collateral and obtained by the secured party or its agent after the borrower has failed to obtain or maintain insurance coverage required by the financing agreement for the motor vehicle or vessel. Vendor single-interest coverage does not include insurance coverage purchased by a secured party for which the borrower is not charged.

(5) "Vessel" means a vessel as defined in RCW 88.02.010 and includes personal watercraft as defined in RCW 88.12.010.

NEW SECTION. Sec. 2. In a contract or loan agreement, or on a separate document accompanying the contract or loan agreement and signed by the borrower, that provides financing for a motor vehicle or vessel that authorizes a secured party to purchase vendor single-interest coverage, the following or substantially similar warning must be set forth in ten-point print:

WARNING

UNLESS YOU PROVIDE US WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY OUR LOAN AGREEMENT, WE WILL PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST ONLY. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU. YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPER COVERAGE ELSEWHERE.

YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US. THE COST OF THIS INSURANCE MAY BE ADDED TO YOUR LOAN BALANCE. IF THE COST IS ADDED TO THE LOAN BALANCE, THE INTEREST RATE ON THE UNDERLYING LOAN WILL APPLY TO THIS ADDED AMOUNT.

THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE THAN INSURANCE YOU CAN OBTAIN ON YOUR OWN.

NEW SECTION. Sec. 3. (1) A secured party shall not impose charges on a borrower for vendor single-interest coverage for the motor vehicle or vessel as provided in subsection (2) of this section until the following or a substantially similar warning printed in ten-point type is sent to the borrower:

FINAL NOTICE AND WARNING

UNLESS YOU PROVIDE US WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY OUR LOAN AGREEMENT WITHIN SEVENTY-TWO HOURS OF RECEIPT OF THIS LETTER, WE WILL PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST ONLY. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU. YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPER COVERAGE ELSEWHERE OR HAVE PAID OFF THE LOAN ON THE COLLATERAL IN ITS ENTIRETY.

YOU ARE RESPONSIBLE FOR THE COST OF THE INSURANCE PURCHASED BY US. THE COST OF THIS INSURANCE MAY BE ADDED TO YOUR LOAN BALANCE. IF THE COST IS ADDED TO THE LOAN BALANCE, THE INTEREST RATE ON THE UNDERLYING LOAN WILL APPLY TO THIS ADDED AMOUNT.

THE COVERAGE WE PURCHASE WILL COST YOU A TOTAL OF APPROXIMATELY $ ______ AND MAY BE CONSIDERABLY MORE EXPENSIVE THAN INSURANCE YOU CAN OBTAIN ON YOUR OWN.

(2) If reasonable efforts to provide the borrower with the notice required under subsection (1) of this section fail to produce evidence of the required insurance, the secured party may proceed to impose charges for vendor single-interest coverage no sooner than three business days after giving the notice by certified letter. Reasonable efforts to provide notice under this section must include:

(a) The secured party sending a certified letter to the borrower's last known address as contained in the secured party's records at least three business days before the insurance is charged to the borrower by the insurer; and

(b) Within fourteen business days before the secured party is required to send a certified letter, the secured party shall mail a notice by first class mail to the borrower's last known address as contained in the secured party's records. The notice must state that the secured party intends to charge the borrower for vendor single-interest coverage on the collateral if the borrower fails to provide evidence of proper insurance to the lender.

(c) The secured party is responsible for complying with (a) and (b) of this subsection. However, a secured party may seek the services of other entities to fulfill the requirements of (a) and (b) of this subsection.

NEW SECTION. Sec. 4. (1) The secured party shall cancel vendor single-interest coverage charged to the borrower effective the date of receipt of proper evidence from the borrower that the borrower has obtained insurance to protect the secured party's interest. Proper evidence includes an insurance binder that is no older than ninety days from the date of issuance and that contains physical damage coverage sufficient to cover the secured party's interest.

(2) If the underlying loan or extension of credit for the underlying loan is satisfied, the secured party may not require the borrower to maintain a vendor single-interest coverage that has been purchased.

(3) The interest rate for financing the cost of vendor single-interest coverage may not exceed the interest rate applied to the underlying loan obligation.

NEW SECTION. Sec. 5. If a vendor single-interest coverage is canceled or discontinued under section 4 (1) or (2) of this act, the pro rata amount of unearned premium must be refunded to the borrower. No part of the value of this refund shall be charged to the borrower.

NEW SECTION. Sec. 6. The insurance commissioner shall perform a study of vendor single-interest insurance coverage for various categories of collateral including vessels, vehicles, and real estate. The study must provide an analysis of the following:

(1) The number of companies in 1993 and for each of the preceding four years offering vendor single-interest insurance coverage for vessels, vehicles, or real estate;

(2) For the year 1993 and for each of the preceding four years, for each category of collateral and for each company:

(a) A breakdown of actual premiums collected by insurance companies for vendor single-interest insurance coverage;

(b) A breakdown of claims paid experience for vendor single-interest insurance coverage;

(d) A breakdown of commissions paid for the sale of vendor single-interest insurance coverage;

(e) A breakdown of other overhead costs including fixed and administrative costs apportioned to each category of collateral; and

(f) A breakdown of actual profits apportioned to each category of collateral;

(3) The total number of variations of vendor single-interest insurance products sold in Washington in 1993 and for each of the preceding four years for each category of collateral;

(4) The number of secured parties using vendor single-interest insurance in 1993 and for each of the preceding four years for each category of collateral;

(5) The general terms and conditions of vendor single-interest insurance contracts for each category of collateral between secured parties and insurance companies, including but not limited to industry practices between the secured party and the insurance company, commissions, and any costs or other payments made by the insurance company to the lender and the lender to the insurance company;

(6) For each category of collateral, the methods by which the secured party charges the borrower for vendor single-interest coverage; the extent to which the rule of 78 applies to the policy between the insurance company and the secured party and the policy between the secured party and the borrower; and the justification for any retroactive application of the insurance to the collateral;

(7) For each company offering vendor single-interest insurance and for each category of collateral, the underwriting criteria for vendor single-interest insurance coverage;

(8) A list of the types and costs of alternative insurance that a lender may purchase as a replacement for vendor single-interest coverage;

(9) Any other information that the insurance commissioner deems relevant for this study regarding vendor single-interest insurance coverage; and

(10) Any recommendations to the legislature that the insurance commissioner feels are in the public interest.

NEW SECTION. Sec. 7. Sections 1 through 5 of this act are added to chapter 48.22 RCW.

NEW SECTION. Sec. 8. Sections 1 through 5 of this act take effect January 1, 1995.