SENATE BILL REPORT

SB 5779

BYSenators Vognild, Bender, Sellar, Wojahn, McCaslin, Metcalf, Rasmussen, Zimmerman and Garrett

Regulating vehicle mechanical breakdown insurers.

Senate Committee on Financial Institutions

Senate Hearing Date(s):February 24, 1987; March 6, 1987

Majority Report:  That Substitute Senate Bill No. 5779 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Moore, Chairman; Bender, Vice Chairman; Bottiger, Fleming, McDermott, Metcalf, von Reichbauer.

Senate Staff:Phil Sorensen (786-7470)

                  March 9, 1987

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS, MARCH 6, 1987

BACKGROUND:

It is unlawful to engage in the business of insurance in this state without complying with Washington laws.  However, it is often difficult to determine whether a particular transaction constitutes an insurance contract.  Currently, vehicle warranties issued by either a manufacturer or a dealer in connection with a specific sale, for parts and workmanship, are not contracts for insurance.

Many dealers offer warranties developed and administered by third parties.  So long as these third party administrators do not commingle funds they receive from one dealer with those received from another, they do not qualify as insurers.  Therefore, they are not subject to the jurisdiction of the Commissioner and operate uninhibited by Washington's insurance code.

SUMMARY:

Any person, other than the owner of an automobile, who agrees to assume the risk of loss due to the mechanical breakdown of a vehicle is a vehicle breakdown insurer, and subject to: the jurisdiction of the Insurance Commissioner; the unfair practices portion of the insurance code; and, the treble damages provision of the Consumer Protection Act.

Mechanical breakdown insurance may only be sold by those licensed.  The Commissioner may issue a license when the applicant is solvent, competent, in compliance with all laws, and has posted a minimum $150,000 deposit with the Commissioner.  The Commissioner has the authority to revoke or suspend a license if specified grounds exist.  Upon 14 days notice the Commissioner has the authority to inspect the insurers records.  Additionally, the Commissioner may issue cease and desist orders under appropriate circumstances.

EFFECT OF PROPOSED SUBSTITUTE:

No motor vehicle service contract may be sold or offered in this state unless the provider of the service contract has a reimbursement insurance policy issued by an authorized insurer.

A cause of action against violators is established under the Consumer Protection Act, and the act provides for reasonable attorneys fees.

Fiscal Note:      none requested

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Senator Vognild; Janet Cunningham, Washington State Auto Dealers Association; Scott Jarvis, Legislative Liaison, Insurance Department