SENATE BILL REPORT

SHB 2955

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Dellwo, Chandler, Zellinsky, Beck, Anderson, Baugher, Day, Crane and Dorn)

Pertaining to motor vehicle service contracts.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 22, 1990; February 23, 1990

Majority Report:  Do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McCaslin, Moore, Rasmussen, Smitherman, West.

Senate Staff:Benson Porter (786-7470)

                  February 28, 1990

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, FEBRUARY 23, 1990

BACKGROUND:

In 1987, the Legislature adopted legislation establishing 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 obligations 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 raised concerns about the management of funds paid by consumers for the services promised under the service contracts.  In the Consumers Indemnity situation, a large share of the money collected was distributed to the contract sellers and contract administration rather than to a reimbursement policy.

SUMMARY:

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.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Effective Date:January 1, 1991

Senate Committee - Testified: Mike Grant, Attorney General's office (pro); Scott Jarvis, Insurance Department (pro)