AN ACT Relating to vehicle mechanical breakdown insurers; adding a new chapter to Title 48 RCW; and declaring an emergency.

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

NEW SECTION. Sec. 1. The definitions set forth in this section apply throughout this chapter:

(1) "Vehicle" means any vehicle that is required to be licensed pursuant to chapter 46.16 RCW.

(2) "Person" means any individual person, firm, company, corporation, partnership, or association.

(3) "Vehicle mechanical breakdown insurer" means any person or organization, whether domestic, foreign, or alien, issuing or attempting to issue vehicle mechanical breakdown policies.

(4) "Vehicle mechanical breakdown insurance policy" means any contract, agreement, or instrument whereby a person other than the owner, seller, or lessor of a vehicle, assumes the risk of or the expense or portion thereof for the mechanical breakdown or mechanical failure of a motor vehicle and includes those agreements commonly known as vehicle service agreements or extended warranty agreements.

(5) "Mechanical reimbursement insurance" means an insurance policy issued to a motor vehicle dealer or authorized representative of the dealer to insure the performance of a vehicle service contract issued to a consumer if the motor vehicle dealer or the issuer of a service contract becomes insolvent or ceases to do business, or a policy whereby the motor vehicle dealer or designee is fully reimbursed for any and all liability resulting from a service contract issued to a consumer, or an insurance policy whereby the insurance company shall reimburse the motor vehicle dealer after a defined deductible has been reached, or an insurance policy whereby the insurance company issues a policy directly to the consumer to insure for the mechanical breakdown or mechanical failure of a motor vehicle.

(6) "Credit disability insurance" means insurance on a debtor to provide indemnity for payment becoming due on a specified loan or other credit transaction while the debtor is disabled as defined in the insurance policy or certificate issued to the debtor.

(7) "Reinsurer" as used in this chapter only, means a person licensed under this chapter engaged in the reinsuring of mechanical reimbursement insurance, residual value insurance, or credit disability insurance policies, or any combination of kinds of insurance.

NEW SECTION. Sec. 2. (1) No person may act as or attempt to act as a vehicle mechanical breakdown insurer unless licensed to do so by the commissioner. Each application shall be submitted to the commissioner along with the fee for the license in the amount of one thousand five hundred dollars. Licenses shall be renewed annually upon payment of a fee of one thousand five hundred dollars, due on January 1st of each year. The renewal fee must be paid no later than March 15th of the year in which it is due.

(2) Each vehicle mechanical breakdown insurer may also act as a reinsurer in accordance with rules adopted by the commissioner. All reserves for credit disability insurance shall be retained and held by the credit disability insurer.

NEW SECTION. Sec. 3. Nothing in this chapter has any effect upon the giving of the customary manufacturer's warranty or guarantee, nor does this chapter apply to or affect the giving or selling of performance warranties or guarantees by sellers of motor vehicles.

NEW SECTION. Sec. 4. The commissioner shall not issue a license as a vehicle mechanical breakdown insurer unless all of the following conditions are met:

(1) If the applicant is a corporation, it shall be a solvent corporation, incorporated under the laws of a state, district, territory, or possession of the United States;

(2) The applicant shall furnish such proof as necessary to the commissioner that the directors and management of the company are competent and trustworthy and are capable of successfully managing its affairs in compliance with law;

(3) The applicant shall make the deposit or file such surety as required by section 5 of this act; and

(4) The applicant shall be in compliance with and continue to be in compliance with all applicable laws.

NEW SECTION. Sec. 5. (1) To assure faithful performance of its obligations to policyholders, every vehicle mechanical breakdown insurer shall, before the issuance of a license, deposit with or for the benefit of the insurance commissioner, securities which, at all times shall have a value of not less than one hundred fifty thousand dollars.

(2) Those securities that may be used as a deposit shall be cash, certificates of deposit purchased from a financial institution licensed to conduct business in this state, bonds of this state or any of its political subdivisions, or bonds of the United States government.

(3) Instead of the deposit of securities required by this section, the applicant may file with the commissioner a surety bond in the amount required by subsection (1) of this section. The bond shall be issued by a surety insurer licensed to do business in this state, and shall be for the same purpose as the deposit in place of which it is filed, and is subject to the approval of the commissioner. No bond may be canceled or subject to cancellation unless thirty days written notice is given to the commissioner.

(4) If deposit is made in the form of bonds or certificates of deposit, they shall be irrevocably pledged to the commissioner. However, any interest earned on the securities is the property of the applicant.

(5) Each deposit or surety shall be maintained unimpaired, unencumbered, and pledged to the commissioner until such time as all outstanding policies or agreements within this state have run their full term and expired. It is the intent of this subsection that the deposit or surety remain fully in force until such time as all of the insurer's obligations to the policy holders are fulfilled.

(6) The deposit or surety required by this section may from time to time be substituted for with other acceptable securities, or surety bond, subject to the approval of the commissioner.

NEW SECTION. Sec. 6. Each vehicle mechanical breakdown insurer shall, on or before the 15th day of March of each year, submit to the commissioner a report signed by the president and secretary certifying the premiums received by the insurer on risks located in this state for the preceding year. At the same time an annual report shall be submitted to the commissioner that clearly indicates the method being used to reserve for future losses and the amount in the reserve for the future losses. Each annual report shall be audited by a certified public accounting firm acceptable to the commissioner.

NEW SECTION. Sec. 7. Each vehicle mechanical breakdown insurer shall maintain loss reserves in such amounts as the commissioner deems sufficient.

NEW SECTION. Sec. 8. Any vehicle mechanical breakdown insurance policy issued in violation of any provision of this chapter shall be an enforceable and valid contract unless otherwise invalid.

NEW SECTION. Sec. 9. The commissioner may revoke or suspend any license required by this chapter after a hearing duly called for that purpose and conducted pursuant to the Administrative Procedure Act, chapter 34.04 RCW. Causes for revocation or suspension shall be the following:

(1) If any judgment in favor of a policyholder or his heir or assignees has become final and has not been paid in full within sixty days;

(2) If, in the opinion of the commissioner, the reserve for losses maintained by the insurer are insufficient to cover future losses;

(3) If, in the opinion of the commissioner, the insurer is insolvent;

(4) If the insurer refuses to allow inspection provided by section 10 of this act.

NEW SECTION. Sec. 10. After furnishing fourteen days written notice, the commissioner or any representative may inspect the records and reserves of any insurer licensed under this chapter. The reasonable expense for inspection of records not available in this state shall be borne by the insurer.

NEW SECTION. Sec. 11. (1) If a hearing is held under the Administrative Procedure Act, chapter 34.04 RCW, and if the commissioner determines that this chapter has been violated, the commissioner may, in addition to the authority to revoke or suspend a license as provided in section 9 of this act, issue an order requiring the person or insurer violating this chapter to cease and desist from the method, act, or practice. A written record shall be made of the commissioner's findings.

(2) If, after issuing a cease and desist order, the person or insurer continues to violate this chapter, the commissioner may seek the enforcement of the order by civil legal action filed in the superior court of Thurston county. Any person who violates a cease and desist order of the commissioner after it has become final and while the order is in effect, shall, upon proof of the violation to the satisfaction of the court, forfeit and pay to the state of Washington a sum not to exceed five hundred dollars. If the violation is found to be willful, the amount of the penalty shall be a sum not to exceed five thousand dollars.

NEW SECTION. Sec. 12. Every vehicle mechanical breakdown insurer authorized to do business in this state is subject to the provisions of chapter 48.30 RCW relating to unfair trade practices. Additionally, violation of this chapter subjects the violater to the treble damage provision of RCW 19.86.090.

NEW SECTION. Sec. 13. The commissioner may adopt such administrative rules as are necessary to implement this chapter.

NEW SECTION. Sec. 14. (1) It is not the purpose of this chapter to alter or diminish any right, privilege, or authority granted to any insurance company under any other provision of this title.

(2) All vehicle mechanical breakdown insurers operating pursuant to a license as required by this chapter are exempt from the applicability of all other insurance laws of this state, except where such laws are specifically incorporated into this chapter by reference.

NEW SECTION. Sec. 15. Sections 1 through 14 of this act shall constitute a new chapter in Title 48 RCW.

NEW SECTION. Sec. 16. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect immediately.