Service Contracts and Protection Product Guarantees.

The regulation of service contracts and protection product guarantees is governed by the Insurance Code (Code).  Service contract providers, protection product guarantee providers, and providers of service contracts on motor vehicles (Providers) are required to be registered with the Office of the Insurance Commissioner (Commissioner) and meet requirements under the Code, including demonstrating financial responsibility or otherwise assuring the faithful performance of their obligations to contract and guarantee holders. 

Service Contracts.
A service contract is an agreement over and above the lease or purchase price of property, for any specific duration, for the repair, replacement, or maintenance of property.  A service contract includes various service agreements for, among other things:  the removal of certain dents, dings, or creases on a motor vehicle; the repair or replacement of tires and/or wheels as a result of damage caused by road hazards; and the replacement of a motor vehicle key or key fob.  The holder of a service contract may return and void the contract within specified time periods and obtain a refund. 

Providers of service contracts specifically relating to motor vehicles are subject to similar requirements as other service contract providers, with some variations.

Protection Product Guarantees. 

A protection product guarantee is a written agreement to replace or repair the product that the protection product was designed to protect or pay incidental costs resulting from its damage.  A "protection product" is a substance, device, or system that is designed to protect another product from damage, such as a coating intended to protect paint from sun damage. 

Financial Responsibility.
Providers are required to register with the Commissioner, who may refuse a registration upon a determination that the provider has not, among other things, met the Code's financial responsibility requirements.  The Code specifies ways different providers may demonstrate financial responsibility or otherwise assure the faithful performance of their obligations:  

Reimbursement Insurance Policies.
A reimbursement insurance policy is a policy of insurance issued to a provider to reimburse or pay on behalf of the provider all contractual obligations incurred by the provider under the terms of a service contract or protection product guarantee issued or sold by the provider.  A policy must be filed with and approved by the Commissioner.

The following requirements apply to reimbursement insurance policies:

1. Policies issued, sold, or offered for sale in Washington must state that the insurer issuing the policy will reimburse or pay on behalf of the provider all sums the provider is legally obligated to pay, or provide the service the provider is legally obligated to perform under the contract or guarantee. 
2. Policies must fully insure the provider's obligations under a service contract or protection product guarantee, rather than partially insure or insure only in the event a provider defaults and is unable to perform its obligations under a contract or guarantee.
3. Policies must also state that the holder is entitled to apply directly to the reimbursement insurance company for payment or performance. 

Financial Responsibility. 

The following changes are made to financial responsibility requirements under the Code: 

• Separate financial responsibility requirements for protection product guarantee providers and providers of service contracts on motor vehicles are stricken. 
• Protection product guarantee providers and providers of service contracts on motor vehicles are made subject to the same options for demonstrating financial responsibility as the general service contract providers. 
• The option to satisfy financial responsibility with a reimbursement insurance policy is modified to allow for insuring each service contract or protection product guarantee under a reimbursement insurance policy. 

A motor vehicle service contract that is not insured under a reimbursement insurance policy must state: "Obligations of the service contract provider under this contract are backed by the full faith and credit of the service contract provider." 

Reimbursement Insurance Policies.

The following changes are made to reimbursement insurance policy requirements:

1. Policies issued, sold, or offered for sale in Washington must state that the issuing insurer will either:  (a) reimburse the provider; or (b) in the event of nonperformance by the provider or the provider is unable to fulfill its contractual obligations to the consumer, the insurer will pay on behalf of the provider all sums the provider is legally obligated to pay, or provide the service the provider is legally obligated to perform. 
2. Providers may use one or more reimbursement insurance policies, and reimbursement insurance policy or policies must either:  (a) fully insure a provider's obligations; or (b) insure only in the event of a provider's default or failure to perform. 
3. A policy or policies must state that the holder of a service contract or protection product guarantee is entitled to apply directly to the reimbursement insurance company for payment or performance due in the event the covered service or product is not provided by the provider within 60 days of proof of loss by the holder.

Additional Revisions. 

Providers must file with the Commissioner each reimbursement insurance policy if using one or more reimbursement insurance policies to satisfy its financial responsibility requirements. 

Service contract providers and protection product guarantee providers are considered to be the agent of each insurer who issues a reimbursement insurance policy or policies, and a consumer's payment of the provider fee constitutes the consumer's payment to the provider and to each insurer who issued the reimbursement insurance policy or policies.