BILL REQ. #: Z-1082.1
| State of Washington | 59th Legislature | 2006 Regular Session |
Read first time 01/10/2006. Referred to Committee on Financial Institutions & Insurance.
AN ACT Relating to regulating service contracts and guarantee protection products; amending RCW 48.110.010, 48.110.015, 48.110.020, 48.110.030, 48.110.040, 48.110.050, 48.110.060, 48.110.070, 48.110.080, 48.110.090, 48.110.100, 48.110.110, 48.110.120, 48.110.130, 48.110.140, and 48.110.900; adding new sections to chapter 48.110 RCW; repealing RCW 48.96.005, 48.96.010, 48.96.020, 48.96.025, 48.96.030, 48.96.040, 48.96.045, 48.96.047, 48.96.050, 48.96.060, 48.96.900, and 48.96.901; and prescribing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1 RCW 48.110.010 and 1999 c 112 s 1 are each amended to read
as follows:
The legislature finds that increasing numbers of businesses are
selling service contracts for repair, replacement, and maintenance of
motor vehicles, appliances, computers, electronic equipment, and other
consumer products. There are risks that contract obligors will close
or otherwise be unable to fulfill their contract obligations that could
result in unnecessary and preventable losses to citizens of this state.
The legislature declares that it is necessary to establish standards
that will safeguard the public from possible losses arising from the
conduct or cessation of the business of service contract obligors or
the mismanagement of funds paid for service contracts. The purpose of
this chapter is to create a legal framework within which service
contracts may be sold in this state and to set forth requirements for
conducting a service contract business.
Sec. 2 RCW 48.110.015 and 2000 c 208 s 1 are each amended to read
as follows:
(1) The following are exempt from this title:
(a) Warranties;
(b) Maintenance agreements; and
(c) Service contracts:
(i) Paid for with separate and additional consideration;
(ii) Issued at the point of sale, or within sixty days of the
original purchase date of the property; and
(iii) On tangible property when the tangible property for which the
service contract is sold has a purchase price of fifty dollars or less,
exclusive of sales tax.
(2) This chapter does not apply to:
(a) ((Vehicle service contracts which are governed under chapter
48.96 RCW;)) Vehicle mechanical breakdown insurance; and
(b)
(((c))) (b) Service contracts on tangible personal property
purchased by persons who are not consumers.
Sec. 3 RCW 48.110.020 and 2000 c 208 s 2 are each amended to read
as follows:
The definitions in this section apply throughout this chapter.
(1) "Administrator" means the person who is responsible for the
administration of the service contracts ((or)), the service contracts
plan, or the guarantee protection products.
(2) "Commissioner" means the insurance commissioner of this state.
(3) "Consumer" means an individual who buys any tangible personal
property that is primarily for personal, family, or household use.
(4) "Incidental costs" means expenses specified in the guarantee
incurred by the guarantee protection product purchaser related to
damages to other property directly and solely caused by the failure of
the guarantee protection product to perform as provided in the
guarantee. "Incidental costs" may include, without limitation,
insurance policy deductibles, rental vehicle charges, the difference
between the actual value of the stolen vehicle at the time of theft and
the cost of a replacement vehicle, sales taxes, registration fees,
transaction fees, and mechanical inspection fees.
(5) "Guarantee protection product" means any product for which a
significant element of that product is a guarantee to repair or replace
another product upon the failure of the guarantee product to perform as
desired by the parties.
(6) "Guarantee protection product provider" means a person who is
contractually obligated to the guarantee protection product purchaser
under the terms of the guarantee protections product sale.
(7) "Guarantee protection product purchaser" means a person who is
the purchaser of a guarantee protection product.
(8) "Guarantee protection product seller" means the person who
sells the guarantee protection product to the consumer.
(9) "Maintenance agreement" means a contract of limited duration
that provides for scheduled maintenance only.
(((5))) (10) "Motor vehicle" means any vehicle subject to
registration under chapter 46.16 RCW.
(11) "Person" means an individual, partnership, corporation,
incorporated or unincorporated association, joint stock company,
reciprocal insurer, syndicate, or any similar entity or combination of
entities acting in concert.
(((6))) (12) "Premium" means the consideration paid to an insurer
for a reimbursement insurance policy.
(((7))) (13) "Provider fee" means the consideration paid by a
consumer for a service contract.
(((8))) (14) "Reimbursement insurance policy" means a policy of
insurance that is issued to a service contract provider or a guarantee
protection product provider to provide reimbursement to the service
contract provider or the guarantee protection product provider or to
pay on behalf of the service contract provider or the guarantee
protection product provider all contractual obligations incurred by the
service contract provider or the guarantee protection product provider
under the terms of the insured service contracts or guarantee
protection products issued or sold by the service contract provider or
the guarantee protection product provider.
(((9))) (15) "Service contract" means a contract or agreement for
((a separately stated)) consideration over and above the lease or
purchase price of the property for a specific duration to perform the
repair, replacement, or maintenance of property or the indemnification
for repair, replacement, or maintenance for operational or structural
failure due to a defect in materials or workmanship, or normal wear and
tear. Service contracts may provide for the repair, replacement, or
maintenance of property for damage resulting from power surges and
accidental damage from handling, with or without additional provision
for indemnity payments for incidental damages to other property
directly and solely caused by the failure of the property which is the
subject of the service contract, provided the indemnity payment per
incident does not exceed the purchase price of the property that is the
subject of the service contract.
(((10))) (16) "Service contract holder" or "contract holder" means
a person who is the purchaser or holder of a service contract.
(((11))) (17) "Service contract provider" means a person who is
contractually obligated to the service contract holder under the terms
of the service contract.
(((12))) (18) "Service contract seller" means the person who sells
the service contract to the consumer.
(((13))) (19) "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.
Sec. 4 RCW 48.110.030 and 2005 c 223 s 33 are each amended to
read as follows:
(1) A person may not act as, or offer to act as, or hold himself or
herself out to be a service contract provider in this state, nor may a
service contract be sold to a consumer in this state, unless the
service contract provider has a valid registration as a service
contract provider issued by the commissioner.
(2) Applicants to be a service contract provider must make an
application to the commissioner upon a form to be furnished by the
commissioner. The application must include or be accompanied by the
following information and documents:
(a) All basic organizational documents of the service contract
provider, including any articles of incorporation, articles of
association, partnership agreement, trade name certificate, trust
agreement, shareholder agreement, bylaws, and other applicable
documents, and all amendments to those documents;
(b) The identities of the service contract provider's executive
officer or officers directly responsible for the service contract
provider's service contract business, and, if more than fifty percent
of the service contract provider's gross revenue is derived from the
sale of service contracts, the identities of the service contract
provider's directors and stockholders having beneficial ownership of
ten percent or more of any class of securities;
(c) Audited annual financial statements or other financial reports
acceptable to the commissioner for the two most recent years which
prove that the applicant is solvent and any information the
commissioner may require in order to review the current financial
condition of the applicant. If the service contract provider is
relying on RCW 48.110.050(2) (((a) or)) (c) to assure the faithful
performance of its obligations to service contract holders, then the
audited financial statements of the service contract provider's parent
company ((may be substituted for the audited financial statements of
the service contract provider)) must also be filed;
(d) An application fee of two hundred fifty dollars, which shall be
deposited into the general fund; and
(e) Any other pertinent information required by the commissioner.
(3) The applicant shall appoint the commissioner as its attorney to
receive service of legal process in any action, suit, or proceeding in
any court. This appointment is irrevocable and shall bind the service
contract provider or any successor in interest, shall remain in effect
as long as there is in force in this state any contract or any
obligation arising therefrom related to residents of this state, and
shall be processed in accordance with RCW 48.05.210.
(4) The commissioner may refuse to issue a registration if the
commissioner determines that the service contract provider, or any
individual responsible for the conduct of the affairs of the service
contract provider under subsection (2)(b) of this section, is not
competent, trustworthy, financially responsible, or has had a license
as a service contract provider or similar license denied or revoked for
cause by any state.
(5) A registration issued under this section is valid, unless
surrendered, suspended, or revoked by the commissioner, or not renewed
for so long as the service contract provider continues in business in
this state and remains in compliance with this chapter. A registration
is subject to renewal annually on the first day of July upon
application of the service contract provider and payment of a fee of
two hundred dollars, which shall be deposited into the general fund.
If not so renewed, the registration expires on the June 30th next
preceding.
(6) A service contract provider shall keep current the information
required to be disclosed in its registration under this section by
reporting all material changes or additions within thirty days after
the end of the month in which the change or addition occurs.
Sec. 5 RCW 48.110.040 and 2005 c 223 s 34 are each amended to
read as follows:
(1) Every registered service contract provider ((that is assuring
its faithful performance of its obligations to its service contract
holders by complying with RCW 48.110.050(2)(b))) must file an annual
report for the preceding calendar year with the commissioner on or
before March 1st of each year, or within any extension of time the
commissioner for good cause may grant. The report must be in the form
and contain those matters as the commissioner prescribes and shall be
verified by at least two officers of the service contract provider.
(2) At the time of filing the report, the service contract provider
must pay a filing fee of twenty dollars which shall be deposited into
the general fund.
(3) As part of any investigation by the commissioner, the
commissioner may require a service contract provider to file monthly
financial reports whenever, in the commissioner's discretion, there is
a need to more closely monitor the financial activities of the service
contract provider. Monthly financial statements must be filed in the
commissioner's office no later than the twenty-fifth day of the month
following the month for which the financial report is being filed.
These monthly financial reports are the internal financial statements
of the service contract provider. The monthly financial reports that
are filed with the commissioner constitute information that might be
damaging to the service contract provider if made available to its
competitors, and therefore shall be kept confidential by the
commissioner. This information may not be made public or be subject to
subpoena, other than by the commissioner and then only for the purpose
of enforcement actions taken by the commissioner.
Sec. 6 RCW 48.110.050 and 1999 c 112 s 6 are each amended to read
as follows:
(1) Service contracts shall not be issued, sold, or offered for
sale in this state or sold to consumers in this state unless the
service contract 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.
(2) In order to either demonstrate its financial responsibility or
assure the faithful performance of ((a)) the service contract
provider's obligations to its service contract holders, every service
contract provider shall ((be responsible for complying)) comply with
the requirements of one of the following:
(a) Insure all service contracts under a reimbursement insurance
policy issued by an insurer holding a certificate of authority from the
commissioner or a risk retention group, as defined in 15 U.S.C. Sec.
3901(a)(4), as long as that risk retention group is in full compliance
with the federal liability risk retention act of 1986 (15 U.S.C. Sec.
3901 et seq.), is in good standing in its domiciliary jurisdiction, and
is properly registered with the commissioner under chapter 48.92 RCW.
The insurance required by this subsection must meet the following
requirements:
(i) The insurer or risk retention group must, at the time the
policy is filed with the commissioner, and continuously thereafter, be
rated "B++" or better by A.M. Best Company, Inc., maintain surplus as
to policyholders and paid-in capital of at least fifteen million
dollars, and annually file audited financial statements with the
commissioner; and
(ii) The commissioner may authorize an insurer or risk retention
group that has surplus as to policyholders and paid-in capital of less
than fifteen million dollars, but at least equal to ten million
dollars, to issue the insurance required by this subsection if the
insurer or risk retention group demonstrates to the satisfaction of the
commissioner that the company maintains a ratio of direct written
premiums, wherever written, to surplus as to policyholders and paid-in
capital of not less than three to one;
(b)(i) Maintain a funded reserve account for its obligations under
its service contracts issued and outstanding in this state. The
reserves shall not be less than forty percent of the gross
consideration received, less claims paid, on the sale of the service
contract for all in-force contracts. The reserve account shall be
subject to examination and review by the commissioner; and
(ii) Place in trust with the commissioner a financial security
deposit, having a value of not less than five percent 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 twenty-five thousand dollars, consisting of one of the following:
(A) A surety bond issued by an insurer holding a certificate of
authority from the commissioner;
(B) Securities of the type eligible for deposit by authorized
insurers in this state;
(C) Cash;
(D) An evergreen letter of credit issued by a qualified financial
institution; or
(E) Another form of security prescribed by rule by the
commissioner; or
(c)(i) Maintain, or its parent company maintain, a net worth or
stockholder's equity of at least one hundred million dollars; and
(ii) Upon request, provide the commissioner with a copy of the
service contract provider's or the service contract provider's parent
company's most recent form 10-K or form 20-F filed with the securities
and exchange commission within the last calendar year, or if the
company does not file with the securities and exchange commission, a
copy of the service contract provider's or the service contract
provider's parent company's audited financial statements, which shows
a net worth of the service contract provider or its parent company of
at least one hundred million dollars. If the service contract
provider's parent company's form 10-K, form 20-F, or audited financial
statements are filed with the commissioner to meet the service contract
provider's financial stability requirement, then the parent company
shall agree to guarantee the obligations of the service contract
provider relating to service contracts sold by the service contract
provider in this state. A copy of the guarantee shall be filed with
the commissioner. The guarantee shall be irrevocable as long as there
is in force in this state any contract or any obligation arising from
service contracts guaranteed, unless the parent company has made
arrangements approved by the commissioner to satisfy its obligations
under the guarantee.
(3) Service contracts shall require the service contract provider
to permit the service contract holder to return the service contract
within twenty days of the date the service contract was mailed to the
service contract holder or within ten 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 service contract
provider within the applicable period, if no claim has been made under
the service contract prior to the return to the service contract
provider, the service contract is void and the service contract
provider shall refund to the service contract holder, or credit the
account of the service contract holder with the full purchase price of
the service contract. The right to void the service contract provided
in this subsection is not transferable and shall apply only to the
original service contract purchaser. A ten percent penalty per month
shall be added to a refund of the purchase price that is not paid or
credited within thirty days after return of the service contract to the
service contract provider.
(4) ((Except for service contract providers, persons marketing,
selling, or offering to sell service contracts for providers are exempt
from the registration requirements of RCW 48.110.030.)) This section does not
apply to service contracts on motor vehicles or to guarantee protection
products.
(5) The marketing, sale, offering for sale, issuance, making,
proposing to make, and administration of service contracts by service
contract providers and related service contract sellers,
administrators, and other persons complying with this chapter are
exempt from the other provisions of this title, except chapter 48.04
RCW and as otherwise provided in this chapter.
Sec. 7 RCW 48.110.060 and 1999 c 112 s 7 are each amended to read
as follows:
(1) Reimbursement insurance policies insuring service contracts or
guarantee protection products issued, sold, or offered for sale in this
state or sold to consumers in this state shall state that the insurer
that issued the reimbursement insurance policy shall reimburse or pay
on behalf of the service contract provider or the guarantee protection
product provider all sums the service contract provider or the
guarantee protection product provider is legally obligated to pay,
including but not limited to the refund of the full purchase price of
the service contract or guarantee protection product to the service
contract holder or guarantee protection product purchaser or shall
provide the service which the service contract provider or the
guarantee protection product provider is legally obligated to perform
according to the service contract provider's or guarantee protection
product provider's contractual obligations under the service contracts
or guarantee protection products issued or sold by the service contract
provider or the guarantee protection product provider.
(2) The reimbursement insurance policy shall fully insure the
obligations of the service contract provider or guarantee protection
product provider, rather than partially insure, or insure only in the
event of service contract provider or guarantee protection product
provider default.
(3) The reimbursement insurance policy shall state that the service
contract holder or guarantee protection product purchaser is entitled
to apply directly to the reimbursement insurance company.
Sec. 8 RCW 48.110.070 and 1999 c 112 s 8 are each amended to read
as follows:
(1) Service contracts marketed, sold, offered for sale, issued,
made, proposed to be made, or administered in this state or sold to
residents of this state shall be written, printed, or typed in clear,
understandable language that is easy to read, and disclose the
requirements set forth in this section, as applicable.
(2) Service contracts insured under a reimbursement insurance
policy under RCW 48.110.050(2)(a) and 48.110.060 shall not be issued,
sold, or offered for sale in this state or sold to residents of this
state unless the service contract conspicuously contains a statement in
substantially the following form: "Obligations of the service contract
provider under this service contract are insured under a service
contract reimbursement insurance policy." The service contract shall
also conspicuously state the name and address of the issuer of the
reimbursement (([insurance])) insurance policy and state that the
service contract holder is entitled to apply directly to the
reimbursement insurance company.
(3) Service contracts not insured under a reimbursement insurance
policy under RCW 48.110.050(2)(a) and 48.110.060 shall contain a
statement in substantially the following form: "Obligations of the
service contract provider under this contract are backed by the full
faith and credit of the service contract provider."
(4) Service contracts shall state the name and address of the
service contract provider and shall identify any administrator if
different from the service contract 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.
(5) Service contracts shall 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.
(6) Service contracts shall state the procedure to obtain service
or to file a claim, including but not limited to the procedures for
obtaining prior approval for repair work, the toll-free telephone
number if prior approval is necessary for service, and the procedure
for obtaining emergency repairs performed outside of normal business
hours or provide for twenty-four-hour telephone assistance.
(7) Service contracts shall state the existence of any deductible
amount, if applicable.
(8) Service contracts shall specify the merchandise, parts, and
services to be provided and any limitations, exceptions, or exclusions.
(9) Service contracts shall state any restrictions governing the
transferability of the service contract, if applicable.
(10) Service contracts shall state the terms, restrictions, or
conditions governing cancellation of the service contract prior to the
termination or expiration date of the service contract by either the
service contract provider or by the service contract holder, which
rights can be no more restrictive than provided in RCW 48.110.050(3).
The service contract 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 service
contract provider at least twenty-one days prior to cancellation by the
service contract provider. The notice shall state the effective date
of the cancellation and the true and actual reason for the
cancellation.
(11) Service contracts shall set forth the obligations and duties
of the service contract holder, including but not limited to the duty
to protect against any further damage and any requirement to follow
owner's manual instructions.
(12) Service contracts shall state whether or not the service
contract provides for or excludes consequential damages or preexisting
conditions.
(13) Service contracts shall state any exclusions of coverage.
(14) Service contracts shall not contain a provision which requires
that any civil action brought in connection with the service contract
must be brought in the courts of a jurisdiction other than this state.
Service contracts that authorize binding arbitration to resolve claims
or disputes ((may)) must allow for arbitration proceedings to be held
at a location in closest proximity to the service contract holder's
permanent residence.
This section does not apply to service contracts on motor vehicles
or to guarantee protection products.
Sec. 9 RCW 48.110.080 and 1999 c 112 s 9 are each amended to read
as follows:
(1) A service contract provider or guarantee protection product
provider shall not use in its name the words insurance, casualty,
guaranty, surety, mutual, or any other words descriptive of the
insurance, casualty, guaranty, 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 service contract
provider or guarantee protection product provider. This subsection
does not apply to a company that was using any of the prohibited
language in its name prior to January 1, 1999. However, a company
using the prohibited language in its name shall conspicuously disclose
in its service contracts or guarantee protection products the following
statement: "This agreement is not an insurance contract."
(2) Every service contract provider or guarantee protection product
provider shall conduct its business in its own legal name, unless the
commissioner has approved the use of another name.
(3) A service contract provider or guarantee protection product
provider or ((its)) their representatives shall not in ((its)) their
service contracts or guarantee protection products 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.
(4) A person, such as a bank, savings and loan association, lending
institution, manufacturer, or seller shall not require the purchase of
a service contract or guarantee protection product as a condition of a
loan or a condition for the sale of any property.
Sec. 10 RCW 48.110.090 and 1999 c 112 s 10 are each amended to
read as follows:
(1) The service contract provider or guarantee protection product
provider shall keep accurate accounts, books, and records concerning
transactions regulated under this chapter.
(2) The service contract provider's or guarantee protection product
provider's accounts, books, and records shall include the following:
(a) Copies of each type of service contract or guarantee protection
product sold;
(b) The name and address of each service contract holder or
guarantee protection product purchaser, to the extent that the name and
address have been furnished by the service contract holder or guarantee
protection product purchaser;
(c) A list of the locations where the service contracts or
guarantee protection products are marketed, sold, or offered for sale;
and
(d) Written claim files that contain at least the dates, amounts,
and descriptions of claims related to the service contracts or
guarantee protection products.
(3) Except as provided in subsection (5) of this section, the
service contract provider or guarantee protection product provider
shall retain all records required to be maintained by subsection (1) of
this section for at least six years after the specified coverage has
expired.
(4) The records required under this chapter may be, but are not
required to 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.
(5) A service contract provider or guarantee protection product
provider discontinuing business in this state shall maintain its
records until it furnishes the commissioner satisfactory proof that it
has discharged all obligations to service contract holders or guarantee
protection product purchasers in this state.
Sec. 11 RCW 48.110.100 and 1999 c 112 s 11 are each amended to
read as follows:
As applicable, an insurer that issued a reimbursement insurance
policy shall not terminate the policy until a notice of termination in
accordance with RCW 48.18.290 has been given to the service contract
provider or guarantee product provider and has been delivered to the
commissioner. The termination of a reimbursement insurance policy does
not reduce the issuer's responsibility for service contracts or
guarantee products issued by service contract providers or guarantee
product providers prior to the effective date of the termination.
Sec. 12 RCW 48.110.110 and 1999 c 112 s 12 are each amended to
read as follows:
(1) Service contract providers or guarantee product providers are
considered to be the agent of the insurer which issued the
reimbursement insurance policy for purposes of obligating the insurer
to service contract holders or guarantee product providers in
accordance with the service contract or guarantee product and this
chapter. Payment of the provider fee by the consumer to the service
contract seller or guarantee product seller, service contract provider
or guarantee product provider, or administrator constitutes payment by
the consumer to the service contract provider or guarantee product
provider and to the insurer which issued the reimbursement insurance
policy. In cases where a service contract provider or guarantee
product provider is acting as an administrator and enlists other
service contract providers or guarantee product providers, the service
contract provider or guarantee product provider acting as the
administrator shall notify the insurer of the existence and identities
of the other service contract providers or guarantee product providers.
(2) ((Chapter 112, Laws of 1999)) This chapter does not prevent or
limit the right of an insurer which issued a reimbursement insurance
policy to seek indemnification or subrogation against a service
contract provider or guarantee product provider if the issuer pays or
is obligated to pay the service contract holder or guarantee product
purchaser sums that the service contract provider or guarantee product
provider was obligated to pay under the provisions of the service
contract or guarantee product.
Sec. 13 RCW 48.110.120 and 1999 c 112 s 13 are each amended to
read as follows:
(1) The commissioner may conduct investigations of service contract
providers or guarantee product providers, administrators, service
contract sellers or guarantee product sellers, insurers, and other
persons to enforce this chapter and protect service contract holders or
guarantee product purchasers in this state. Upon request of the
commissioner, the service contract provider or guarantee product
provider shall make all accounts, books, and records concerning service
contracts or guarantee products sold by the service contract provider
or guarantee product provider available to the commissioner which are
necessary to enable the commissioner to determine compliance or
noncompliance with this chapter.
(2) The commissioner may take actions under RCW 48.02.080 or
48.04.050 which are necessary or appropriate to enforce this chapter
and the commissioner's rules and orders, and to protect service
contract holders or guarantee product purchasers in this state.
Sec. 14 RCW 48.110.130 and 1999 c 112 s 14 are each amended to
read as follows:
(1) The commissioner may, subject to chapter 48.04 RCW, deny,
suspend, or revoke the registration of a service contract provider or
guarantee product provider if the commissioner finds that the service
contract provider or guarantee product provider:
(a) Has violated this chapter or the commissioner's rules and
orders;
(b) Has refused to be investigated or to produce its accounts,
records, and files for investigation, or if any of its officers have
refused to give information with respect to its affairs or refused to
perform any other legal obligation as to an investigation, when
required by the commissioner;
(c) Has, without just cause, refused to pay proper claims or
perform services arising under its contracts or has, without just
cause, caused service contract holders or guarantee product purchasers
to accept less than the amount due them or caused service contract
holders or guarantee product purchasers to employ attorneys or bring
suit against the service contract provider or guarantee product
provider to secure full payment or settlement of claims;
(d) Is affiliated with or under the same general management or
interlocking directorate or ownership as another service contract
provider or guarantee product provider which unlawfully transacts
business in this state without having a registration;
(e) At any time fails to meet any qualification for which issuance
of the registration could have been refused had such failure then
existed and been known to the commissioner;
(f) Has been convicted of, or has entered a plea of guilty or nolo
contendere to, a felony;
(g) Is under suspension or revocation in another state with respect
to its service contract business or guarantee product business;
(h) Has made a material misstatement in its application for
registration;
(i) Has obtained or attempted to obtain a registration through
misrepresentation or fraud;
(j) Has, in the transaction of business under its registration,
used fraudulent, coercive, or dishonest practices; ((or))
(k) Has failed to pay any judgment rendered against it in this
state regarding a service contract or guarantee product within sixty
days after the judgment has become final; or
(l) Has failed to respond promptly to any inquiry from the
insurance commissioner relative to service contract or guarantee
product business. A lack of response within fifteen business days from
receipt of an inquiry is untimely. A response must be in writing,
unless otherwise indicated in the inquiry.
(2) The commissioner may, without advance notice or hearing
thereon, immediately suspend the registration of a service contract
provider or guarantee product provider if the commissioner finds that
any of the following circumstances exist:
(a) The provider is insolvent;
(b) A proceeding for receivership, conservatorship, rehabilitation,
or other delinquency proceeding regarding the service contract provider
or guarantee product provider has been commenced in any state; or
(c) The financial condition or business practices of the service
contract provider or guarantee product provider otherwise pose an
imminent threat to the public health, safety, or welfare of the
residents of this state.
(3) If the commissioner finds that grounds exist for the suspension
or revocation of a registration issued under this chapter, the
commissioner may, in lieu of suspension or revocation, impose a fine
upon the service contract provider or guarantee product provider in an
amount not more than two thousand dollars per violation.
Sec. 15 RCW 48.110.140 and 1999 c 112 s 15 are each amended to
read as follows:
The legislature finds that the practices covered by this chapter
are matters vitally affecting the public interest for the purpose of
applying the consumer protection act, chapter 19.86 RCW. Violations of
this chapter are not reasonable in relation to the development and
preservation of business. A violation of this chapter is an unfair or
deceptive act or practice in the conduct of trade or commerce and an
unfair method of competition, as specifically contemplated by RCW
19.86.020, and is a violation of the consumer protection act, chapter
19.86 RCW. Any service contract holder or guarantee product purchaser
injured as a result of a violation of a provision of this chapter shall
be entitled to maintain an action pursuant to chapter 19.86 RCW against
the service contract provider or guarantee product provider and the
insurer issuing the applicable service contract or guarantee product
reimbursement (([insurance])) insurance policy and shall be entitled to
all of the rights and remedies afforded by that chapter.
Sec. 16 RCW 48.110.900 and 1999 c 112 s 17 are each amended to
read as follows:
This chapter applies to all service contracts, other than on motor
vehicles, sold or offered for sale ninety or more days after July 25,
1999. This chapter applies to all service contracts on motor vehicles
and guarantee products sold or offered for sale after September 30,
2006.
NEW SECTION. Sec. 17 A new section is added to chapter 48.110
RCW to read as follows:
(1) This section applies to guarantee product providers.
(2) A person shall not act as, or offer to act as, or hold himself
or herself out to be a guarantee protection product provider in this
state, nor may a guarantee protection product be sold to a consumer in
this state, unless the guarantee protection product provider has:
(a) A valid registration as a guarantee protection product provider
issued by the commissioner; and
(b) Either demonstrated its financial responsibility or assured the
faithful performance of the guarantee protection provider's obligations
to its guarantee protection product holders by insuring all guarantee
protection products under a reimbursement insurance policy issued by an
insurer holding a certificate of authority from the commissioner or a
risk retention group, as defined in 15 U.S.C. Sec. 3901(a)(4), as long
as that risk retention group is in full compliance with the federal
liability risk retention act of 1986 (15 U.S.C. Sec. 3901 et seq.), is
in good standing in its domiciliary jurisdiction, and properly
registered with the commissioner under chapter 48.92 RCW. The
insurance required by this subsection must meet the following
requirements:
(i) The insurer or risk retention group must, at the time the
policy is filed with the commissioner, and continuously thereafter, be
rated "B++" or better by A.M. Best Company, Inc., maintain surplus as
to policyholders and paid-in capital of at least fifteen million
dollars, and annually file audited financial statements with the
commissioner; and
(ii) The commissioner may authorize an insurer or risk retention
group that has surplus as to policyholders and paid-in capital of less
than fifteen million dollars, but at least equal to ten million
dollars, to issue the insurance required by this subsection if the
insurer or risk retention group demonstrates to the satisfaction of the
commissioner that the company maintains a ratio of direct written
premiums, wherever written, to surplus as to policyholders and paid-in
capital of not less than three to one.
(3) Applicants to be a guarantee protection product provider shall
make an application to the commissioner upon a form to be furnished by
the commissioner. The application shall include or be accompanied by
the following information and documents:
(a) The names of the guarantee protection product provider's
executive officer or officers directly responsible for the guarantee
protection product provider's guarantee protection product business and
their biographical affidavits on a form prescribed by the commissioner;
(b) The name, address, and telephone number of any administrators
designated by the guarantee protection product provider to be
responsible for the administration of guarantee protection products in
this state;
(c) A copy of the guarantee protection product reimbursement
insurance policy or policies;
(d) A copy of each guarantee protection product the guarantee
protection product provider proposes to use in this state;
(e) Any other pertinent information required by the commissioner;
and
(f) A nonrefundable application fee of two hundred fifty dollars.
(4) The applicant shall appoint the commissioner as its attorney to
receive service of legal process in any action, suit, or proceeding in
any court. This appointment is irrevocable and shall bind the
guarantee protection product provider or any successor in interest,
shall remain in effect as long as there is in force in this state any
guarantee protection product or any obligation arising therefrom
related to residents of this state, and shall be processed in
accordance with RCW 48.05.210.
(5) The commissioner may refuse to issue a registration if the
commissioner determines that the guarantee protection product provider,
or any individual responsible for the conduct of the affairs of the
guarantee protection product provider under subsection (3)(a) of this
section, is not competent, trustworthy, financially responsible, or has
had a license as a guarantee protection product provider or similar
license denied or revoked for cause by any state.
(6) A registration issued under this section is valid, unless
surrendered, suspended, or revoked by the commissioner, or not renewed
for so long as the guarantee protection product provider continues in
business in this state and remains in compliance with this chapter. A
registration is subject to renewal annually on the first day of July
upon application of the guarantee protection product provider and
payment of a fee of two hundred fifty dollars. If not so renewed, the
registration expires on the June 30th next preceding.
(7) A guarantee protection product provider shall keep current the
information required to be disclosed in its registration under this
section by reporting all material changes or additions within thirty
days after the end of the month in which the change or addition occurs.
NEW SECTION. Sec. 18 A new section is added to chapter 48.110
RCW to read as follows:
(1) This section applies to service contracts on motor vehicles.
(2) Service contracts shall not be issued, sold, or offered for
sale in this state or sold to consumers in this state unless:
(a) The service contract provider has either demonstrated its
financial responsibility or assured the faithful performance of the
service contract provider's obligations to its service contract holders
by insuring all service contracts under a reimbursement insurance
policy issued by an insurer holding a certificate of authority from the
commissioner or a risk retention group, as defined in 15 U.S.C. Sec.
3901(a)(4), as long as that risk retention group is in full compliance
with the federal liability risk retention act of 1986 (15 U.S.C. Sec.
3901 et seq.), is in good standing in its domiciliary jurisdiction, and
properly registered with the commissioner under chapter 48.92 RCW. The
insurance required by this subsection must meet the following
requirements:
(i) The insurer or risk retention group must, at the time the
policy is filed with the commissioner, and continuously thereafter, be
rated "B++" or better by A.M. Best Company, Inc., maintain surplus as
to policyholders and paid-in capital of at least fifteen million
dollars, and annually file audited financial statements with the
commissioner; and
(ii) The commissioner may authorize an insurer or risk retention
group that has surplus as to policyholders and paid-in capital of less
than fifteen million dollars, but at least equal to ten million
dollars, to issue the insurance required by this subsection if the
insurer or risk retention group demonstrates to the satisfaction of the
commissioner that the company maintains a ratio of direct written
premiums, wherever written, to surplus as to policyholders and paid-in
capital of not less than three to one;
(b) The service contract conspicuously states that the obligations
of the provider to the service contract holder are guaranteed under the
reimbursement insurance policy, the name and address of the issuer of
the reimbursement insurance policy, the applicable policy number, and
the means by which a service contract holder may file a claim under the
policy;
(c) The service contract conspicuously and unambiguously states the
name and address of the service contract provider and identifies any
administrator if different from the service contract provider, the
service contract seller, and the service contract holder. The identity
of the service contract seller and the service contract holder are not
required to be preprinted on the service contract and may be added to
the service contract at the time of sale;
(d) The service contract states 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;
(e) The contract contains a conspicuous statement that has been
initialed by the service contract holder and discloses:
(i) Any material conditions that the service contract holder must
meet to maintain coverage under the contract including, but not limited
to, any maintenance schedule to which the service contract holder must
adhere, any requirement placed on the service contract holder for
documenting repair or maintenance work, any duty to protect against any
further damage, and any procedure to which the service contract holder
must adhere for filing claims;
(ii) The work and parts covered by the contract;
(iii) Any time or mileage limitations;
(iv) That the implied warranty of merchantability on the motor
vehicle is not waived if the contract has been purchased within ninety
days of the purchase date of the motor vehicle from a provider who also
sold the motor vehicle covered by the contract;
(v) Any exclusions of coverage; and
(vi) The contract holder's right to return the contract for a
refund, which right can be no more restrictive than provided for in
subsection (4) of this section;
(f) The service contract states the procedure to obtain service or
to file a claim, including but not limited to the procedures for
obtaining prior approval for repair work, the toll-free telephone
number if prior approval is necessary for service, and the procedure
for obtaining emergency repairs performed outside of normal business
hours or for obtaining twenty-four-hour telephone assistance;
(g) The service contract states the existence of any deductible
amount, if applicable;
(h) The service contract states any restrictions governing the
transferability of the service contract, if applicable; and
(i) The service contract states whether or not the service contract
provides for or excludes consequential damages or preexisting
conditions.
(3) Service contracts shall not contain a provision which requires
that any civil action brought in connection with the service contract
must be brought in the courts of a jurisdiction other than this state.
Service contracts that authorize binding arbitration to resolve claims
or disputes must allow for arbitration proceedings to be held at a
location in closest proximity to the service contract holder's
permanent residence.
(4)(a) At a minimum, every provider shall permit the service
contract holder to return the contract within thirty days of its
purchase if no claim has been made under the contract, and shall refund
to the holder the full purchase price of the contract unless the
service contract holder returns the contract ten or more days after its
purchase, in which case the provider may charge a cancellation fee not
exceeding twenty-five dollars.
(b) If no claim has been made and a contract holder returns the
contract after thirty days, the provider shall refund the purchase
price pro rata based upon either elapsed time or mileage computed from
the date the contract was purchased and the mileage on that date, less
a cancellation fee not exceeding twenty-five dollars.
(c) A ten percent penalty shall be added to any refund that is not
paid within thirty days of return of the contract to the provider.
(d) If a contract holder returns the contract under this
subsection, the contract is void from the beginning and the parties are
in the same position as if no contract had been issued.
(e) If a service contract holder returns the contract in accordance
with this section, the insurer issuing the reimbursement insurance
policy covering the contract shall refund to the provider the full
premium by the provider for the contract if canceled within thirty days
or a pro rata refund if canceled after thirty days.
(5) Service contracts shall not contain a provision which excludes
coverage for nonmanufacturer parts which were on the motor vehicle at
the date of the purchase of the service contract.
(6) A service contract provider shall not deny a claim for coverage
based upon the service contract holder's failure to properly maintain
the vehicle, unless the failure to maintain the vehicle involved the
failed part or parts.
(7) A contract provider has only sixty days from the date of the
sale of the service contract to the holder to determine whether or not
the vehicle qualifies under the provider's program for that vehicle.
After sixty days the vehicle qualifies for the service contract that
was issued and the service contract provider may not cancel the
contract and is fully obligated under the terms of the contract sold to
the service contract holder.
NEW SECTION. Sec. 19 A new section is added to chapter 48.110
RCW to read as follows:
(1) Except for service contract providers or guarantee product
providers, persons marketing, selling, or offering to sell service
contracts or guarantee products for providers are exempt from the
registration requirements of RCW 48.110.030.
(2) The marketing, sale, offering for sale, issuance, making,
proposing to make, and administration of service contracts or guarantee
products by service contract providers or guarantee products providers
and related service contract or guarantee product sellers,
administrators, and other persons complying with this chapter are
exempt from the other provisions of this title, except chapters 48.04
and 48.30 RCW and as otherwise provided in this chapter.
NEW SECTION. Sec. 20 A new section is added to chapter 48.110
RCW to read as follows:
(1) If the service contract provider or guarantee product provider
is using reimbursement insurance policy to satisfy the requirements of
RCW 48.110.050(2)(a) or section 17(2)(b) or 18(2)(a) of this act, then
the reimbursement insurance policy shall be filed with and approved by
the commissioner in accordance with and pursuant to the requirements of
chapter 48.18 RCW.
(2) All service contracts forms covering motor vehicles must be
filed with and approved by the commissioner prior to the service
contract forms being used, issued, delivered, sold, or marketed in this
state or to residents of this state.
(3) The commissioner shall disapprove any motor vehicle service
contract form if:
(a) The form is in any respect in violation of, or does not comply
with, this chapter or any applicable order or regulation of the
commissioner issued under this chapter;
(b) The form contains or incorporates by reference any
inconsistent, ambiguous, or misleading clauses, or exceptions and
conditions;
(c) The form has any title, heading, or other indication of its
provisions that is misleading; or
(d) The purchase of the contract is being solicited by deceptive
advertising.
NEW SECTION. Sec. 21 If any provision of this act or its
application to any person or circumstance is held invalid, the
remainder of the act or the application of the provision to other
persons or circumstances is not affected.
NEW SECTION. Sec. 22 The following acts or parts of acts are
each repealed:
(1) RCW 48.96.005 (Purpose) and 1990 c 239 s 2;
(2) RCW 48.96.010 (Definitions) and 1987 c 99 s 1;
(3) RCW 48.96.020 (Reimbursement policy required for sale of
service contract) and 1987 c 99 s 2;
(4) RCW 48.96.025 (Reimbursement policy -- Insurer's responsibility)
and 1990 c 239 s 3;
(5) RCW 48.96.030 (Reimbursement policy -- Required provisions) and
1990 c 239 s 6 & 1987 c 99 s 3;
(6) RCW 48.96.040 (Service contract -- Required statements) and 1990
c 239 s 7 & 1987 c 99 s 4;
(7) RCW 48.96.045 (Service contract -- Notice to holder) and 1990 c
239 s 4;
(8) RCW 48.96.047 (Service contract -- Holder's right to return) and
1990 c 239 s 5;
(9) RCW 48.96.050 (Service contracts -- Excluded parties) and 1990 c
239 s 8 & 1987 c 99 s 5;
(10) RCW 48.96.060 (Noncompliance as unfair competition, trade
practice -- Remedies) and 1990 c 239 s 9 & 1987 c 99 s 6;
(11) RCW 48.96.900 (Application of chapter -- Date) and 1987 c 99 s
7; and
(12) RCW 48.96.901 (Effective date -- 1990 c 239 §§ 2-10) and 1990 c
239 s 11.