HOUSE BILL REPORT

HB 2955

BYRepresentatives Dellwo, Chandler, Zellinsky, Beck, Anderson, Baugher, Day, Crane and Dorn

Pertaining to motor vehicle service contracts.

House Committe on Financial Institutions & Insurance

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (13)

      Signed by Representatives Dellwo, Chair; Chandler, Ranking Republican Member; Anderson, Baugher, Beck, Crane, Day, Dorn, Inslee, P. King, Nutley, K. Wilson and Winsley.

House Staff:John Conniff (786-7119)

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

JANUARY 30, 1990

BACKGROUND:

In 1987, the Legislature adopted legislation providing limited regulation of motor vehicle service contracts. Every motor vehicle service contract must be backed by a reimbursement insurance policy issued by an insurer authorized to do business in Washington.  The policy is intended to cover the obligations of a provider of contracts that promise repair or replacement services for the operational or structural failure of a motor vehicle.  The policy must pay these obligation if the provider is unable to perform under the contract. Since the enactment of the statute, the Consumers Indemnity Company, a service contract reimbursement insurer, became insolvent.

Information obtained in the process of resolving the Consumers Indemnity insolvency revealed problems in the management of funds paid by consumers for the services promised under the service contracts.  In that case, very little of the money collected went to pay for the statutorily required reimbursement policy. The bulk of the funds were distributed to sellers of the contracts and to contract administration.

SUMMARY:

SUBSTITUTE BILL:  The motor vehicle service contract statute is amended to require that the reimbursement insurance policy covering the obligations of the service contract provider insure all liabilities under the contract whether or not the provider is able to meet the contract obligations.

Every motor vehicle service contract must contain a disclosure statement that must be initialed by the contract purchaser at the time of sale. The contract must contain a disclosure of any material conditions for receiving benefits, of the work and parts covered by the contract, of any time or mileage limitations, of the provider's warranty of merchantability, of coverage exclusions, and of the purchaser's right to return the contract for a refund.

Every motor vehicle service contract provider must allow the purchaser to return the contract within 30 days of purchase for a full refund.  If the contract is returned after 10 days of sale, the provider may charge a cancellation fee of up to $25 If a refund is not made within 30 days of the return of the contract, a penalty of 10 percent is imposed. If the contract is returned, the contract is void from the beginning and the parties are in the same position as if no contract had been issued.

Contracts sold by manufacturers and import distributors covering vehicles manufactured or imported by the contract seller are exempt from the reimbursement policy provisions.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Technical amendments and clarifications are made.

Fiscal Note:      Not Requested.

Effective Date:January 1, 1991.

House Committee ‑ Testified For:    No one.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    None.

House Committee - Testimony Against:      None.