Bill Text: IA SF619 | 2019-2020 | 88th General Assembly | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: A bill for an act modifying provisions applicable to certain service contract providers regulated by the commissioner of insurance, providing fees, making penalties applicable, making an appropriation, and including effective date provisions. (Formerly SSB 1223, SF 595.) Effective 5-16-19.

Spectrum: Committee Bill

Status: (Passed) 2019-05-16 - Signed by Governor. S.J. 1197. [SF619 Detail]

Download: Iowa-2019-SF619-Introduced.html
Senate File 619 - Introduced SENATE FILE 619 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SF 595) (SUCCESSOR TO SSB 1223) A BILL FOR An Act modifying provisions applicable to certain service 1 contract providers regulated by the commissioner of 2 insurance, providing fees, making penalties applicable, 3 making an appropriation, and including effective date 4 provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2469SZ (2) 88 gh/rn
S.F. 619 Section 1. Section 523C.1, Code 2019, is amended to read as 1 follows: 2 523C.1 Definitions. 3 As used in this chapter , unless the context otherwise 4 requires: 5 1. “Commissioner” means the commissioner of insurance. 6 2. “Custodial account” means an account established by 7 agreement between a licensed service company and a custodian 8 under section 523C.5 . 9 3. “Custodial agreement” means an agreement entered into 10 between a licensed service company and a custodian under 11 section 523C.5 . 12 4. “Custodian” means an institution meeting the requirements 13 established by the commissioner which institution has entered 14 into a custodial agreement or reserve account agreement with a 15 licensed service company. 16 5. “Depository” means an institution designated by the 17 commissioner as an authorized custodian for purposes of 18 sections 523C.5 and 523C.11 . 19 6. 2. “Licensed service company” means a service company 20 which is licensed by the commissioner pursuant to this chapter . 21 3. “Maintenance agreement” means a contract of any duration 22 that provides for scheduled maintenance to property. 23 4. “Motor vehicle” means any self-propelled vehicle subject 24 to registration under chapter 321. 25 5. “Motor vehicle manufacturer” means any of the following: 26 a. A person who manufactures or produces motor vehicles 27 and sells the motor vehicles under the person’s trade name or 28 label. 29 b. A person who is a wholly owned subsidiary of any person 30 who manufactures or produces motor vehicles. 31 c. A person who holds a one hundred percent ownership 32 interest in another person who manufactures or produces motor 33 vehicles. 34 d. A person who does not manufacture or produce motor 35 -1- LSB 2469SZ (2) 88 gh/rn 1/ 26
S.F. 619 vehicles, but for which motor vehicles are sold under the 1 person’s trade name or label. 2 e. A person who manufactures or produces motor vehicles, 3 but the motor vehicles are sold under the trade name or label 4 of another person. 5 f. A person who does not manufacture or produce motor 6 vehicles, but who licenses the use of the person’s trade name 7 or label to another person pursuant to a written contract, who 8 then sells motor vehicles under the trade name or label of the 9 licensor. 10 6. “Motor vehicle service contract” means a contract or 11 agreement given for consideration over and above the lease 12 or purchase price of a new or used motor vehicle having a 13 gross vehicle weight rating of less than sixteen thousand 14 pounds, that undertakes to perform the repair, replacement, 15 or maintenance of the motor vehicle, or indemnification for 16 such repair, replacement, or maintenance, for the operation 17 or structural failure of the motor vehicle due to a defect 18 in materials, workmanship, or normal wear and tear, with or 19 without additional provisions for the incidental payment 20 of indemnity under limited circumstances, including but 21 not limited to motor vehicle towing, rental, emergency road 22 service, and road hazard protection. “Motor vehicle service 23 contract” also includes a contract or agreement sold for 24 separate consideration for a specific duration that provides 25 for any of the following services or products: 26 a. The repair or replacement of motor vehicle tires or 27 wheels that are damaged as a result of contact with road 28 hazards, including but not limited to potholes, rocks, wood 29 debris, metal parts, glass, plastic, curbs, or composite 30 scraps. 31 b. The removal of dents or creases on a motor vehicle 32 under a process that does not use paint or affect the existing 33 paint finish, and without sanding, bonding, or replacing motor 34 vehicle body panels. 35 -2- LSB 2469SZ (2) 88 gh/rn 2/ 26
S.F. 619 c. The repair or replacement of motor vehicle windshields 1 that are damaged as a result of contact with road hazards. 2 d. The replacement of motor vehicle keys or key fobs in the 3 event that such device becomes inoperable, lost, or stolen. 4 e. Any other service or product approved by the 5 commissioner. 6 7. “Premium” means the consideration paid to an insurer for 7 a reimbursement insurance policy. 8 7. 8. “Record” means the same as defined in section 516E.1 9 information stored or preserved in any medium, including in 10 an electronic or paper format. A “record” includes but is 11 not limited to documents, books, publications, accounts, 12 correspondence, memoranda, agreements, computer files, film, 13 microfilm, photographs, and audio or visual tapes . 14 9. “Reimbursement insurance policy” means a contractual 15 liability insurance policy issued to a service company that 16 either provides reimbursement to a service company under the 17 terms of insured service contracts issued or sold by the 18 service company or, in the event of nonperformance by the 19 service company, pays, on behalf of the service company, all 20 covered contractual obligations incurred by the service company 21 under the terms of the insured service contracts issued or sold 22 by the service company. 23 8. “Reserve account agreement” means an agreement entered 24 into between a licensed service company and a depository under 25 section 523C.11 . 26 9. 10. “Residential service contract” means a contract or 27 agreement between a residential customer and a service company 28 which undertakes, for a predetermined fee and for a specified 29 any period of time, to service, maintain, repair, or replace , 30 or indemnify expenses for all or any part of the operational or 31 structural components, appliances, or electrical, mechanical, 32 plumbing, heating, cooling, or air-conditioning systems of 33 residential property containing not more than four dwelling 34 units in the state which fails due to normal wear or tear or 35 -3- LSB 2469SZ (2) 88 gh/rn 3/ 26
S.F. 619 inherent defect. “Residential service contract” also includes 1 a contract which provides for the service, repair, replacement, 2 or maintenance of property for damage resulting from power 3 surges, roof leakage, and accidental damage from repair work . 4 10. 11. “Service company” means a person who issues and 5 performs, or arranges to perform, is contractually obligated to 6 perform services pursuant to a motor vehicle service contract 7 or residential service contract. 8 12. “Service contract” means a motor vehicle service 9 contract or residential service contract. 10 13. “Warranty” means a statement made solely by the 11 manufacturer, importer, or seller of property or services 12 without consideration, that is not negotiated or separated from 13 the sale of the product and is incidental to the sale of the 14 product, and that guarantees indemnity for defective parts, 15 mechanical or electrical breakdown, and labor or other remedial 16 measures, such as repair or replacement of the property or 17 repetition of services. 18 Sec. 2. Section 523C.2, Code 2019, is amended to read as 19 follows: 20 523C.2 License required. 21 1. A person shall not issue a , offer for sale, or sell a 22 motor vehicle service contract or residential service contract 23 or undertake or arrange to perform services pursuant to a 24 residential service contract in this state unless the person 25 is a corporation or other form of organization approved by the 26 commissioner by rule and is a licensed as a service company 27 under this chapter . 28 2. The licensure requirements of this chapter shall not 29 apply to any person who provides support services or works 30 under the direction of a licensed service company in connection 31 with the issuance, offer for sale, or sale of a service 32 contract in this state, including but not limited to a person 33 who provides marketing, administrative, or technical support. 34 Sec. 3. Section 523C.3, Code 2019, is amended to read as 35 -4- LSB 2469SZ (2) 88 gh/rn 4/ 26
S.F. 619 follows: 1 523C.3 Application for license. 2 1. Application for a license as a service company shall 3 be made to and filed with the commissioner on forms approved 4 by the commissioner and shall include all of the following 5 information: 6 a. The name and principal address of the applicant. 7 b. The state of incorporation of the applicant. 8 c. The name and address of the applicant’s registered agent 9 for service of process within Iowa. 10 d. A certificate of good standing for the applicant issued 11 by the secretary of state and dated not more than thirty days 12 prior to the date of the application. 13 e. Evidence of compliance with section 523C.5. 14 f. A copy of each motor vehicle service contract form to be 15 used or issued in this state, if applicable. 16 g. A copy of each residential service contract form to be 17 used or issued in this state, if applicable. 18 2. The application shall be accompanied by all of the 19 following: 20 a. A certificate of good standing for the applicant issued 21 by the secretary of state and dated not more than thirty days 22 prior to the date of the application. 23 b. A surety bond, a copy of the receipt from the treasurer 24 of state that a cash deposit has been made, or a copy of a 25 custodial agreement as provided in section 523C.5 . 26 c. A copy of the most recent financial statement, including 27 balance sheets and related statements of income, of the 28 applicant, prepared in accordance with generally accepted 29 accounting principles, audited by a certified public accountant 30 and dated not more than twelve months prior to the date of the 31 application. 32 d. An affidavit of an authorized officer of the service 33 company stating the number of contracts issued by the service 34 company in the preceding calendar year, and stating that the 35 -5- LSB 2469SZ (2) 88 gh/rn 5/ 26
S.F. 619 net worth of the service company satisfies the requirements of 1 section 523C.6 . 2 e. a. A license fee in the amount of two five hundred fifty 3 dollars. 4 b. If applicable, a fee in the amount of fifty dollars 5 for each motor vehicle service contract form submitted in an 6 application as provided in subsection 1, paragraph “f” . 7 3. If the application contains the required information and 8 is accompanied by the items set forth in subsection 2 , and if 9 the net worth requirements of section 523C.6 are satisfied, as 10 evidenced by the audited financial statements, the commissioner 11 shall issue the license. If the form of application is not 12 properly completed or if the required accompanying documents 13 are not furnished or in proper form, the commissioner shall 14 not issue the license and shall give the applicant written 15 notice of the grounds for not issuing the license. A notice 16 of license denial shall be accompanied by a refund of fifty 17 percent of the fee submitted with the application. 18 4. Fees collected under this section shall be deposited as 19 provided in section 505.7 523C.24 . 20 Sec. 4. Section 523C.4, Code 2019, is amended to read as 21 follows: 22 523C.4 License expiration and renewal. 23 1. Each license issued under this chapter shall expire 24 on June 30 next be valid for a period of one year and shall 25 be renewed by August 31 of each year following the date of 26 issuance. If the service company maintains in force the surety 27 bond described in section 523C.5 and if its license is not 28 subject to or under suspension or revocation under section 29 523C.9 , its license shall be renewed by the commissioner upon 30 receipt by the commissioner on or before the expiration date 31 of a renewal application accompanied by the items required by 32 section 523C.3, subsection 2 , paragraphs “b”, “c”, “d”, and “e” , 33 and section 523C.15 . 34 2. An application for renewal shall include the information 35 -6- LSB 2469SZ (2) 88 gh/rn 6/ 26
S.F. 619 required for an initial license as described in section 523C.3, 1 subsection 1. 2 3. The renewal application shall be accompanied by all of 3 the following: 4 a. A license renewal fee in the amount of five hundred 5 dollars. 6 b. If applicable, a fee in the amount of three percent of 7 the aggregate amount of payments the licensee received for the 8 sale or issuance of residential service contracts in this state 9 during the preceding fiscal year, provided that such fee shall 10 be no less than one hundred dollars and no greater than fifty 11 thousand dollars. 12 c. If applicable, a fee in the amount of fifty dollars 13 for each motor vehicle service contract form submitted in a 14 renewal application as provided in section 523C.3, subsection 15 1, paragraph “f” . 16 d. Information regarding the number of motor vehicle service 17 contracts or residential service contracts issued during the 18 preceding fiscal year, the number canceled or expired during 19 the preceding fiscal year, the number in effect at the end of 20 the preceding fiscal year, and the amount of service contract 21 fees received during the preceding fiscal year. 22 4. If the commissioner denies renewal of the license, the 23 denial shall be in writing setting forth the grounds for denial 24 and shall be accompanied by a refund of fifty percent of the 25 license renewal fee. 26 5. In addition to the annual license renewal requirements 27 as provided in this section, a licensee shall report to the 28 commissioner any material change in information submitted by 29 the licensee in its initial license application which has 30 not been reported to the commissioner, including a change in 31 contact information, a change in ownership, or any other change 32 which substantially affects the licensee’s operations in this 33 state. 34 Sec. 5. Section 523C.5, Code 2019, is amended by striking 35 -7- LSB 2469SZ (2) 88 gh/rn 7/ 26
S.F. 619 the section and inserting in lieu thereof the following: 1 523C.5 Financial responsibility —— demonstration 2 requirements. 3 In order to assure the faithful performance of a service 4 company’s obligations to its contract holders in this state, 5 a licensed service company shall demonstrate financial 6 responsibility to the commissioner by satisfying one of the 7 following, as evidenced by the service company: 8 1. Insuring all motor vehicle service contracts and 9 residential service contracts offered for sale in this state 10 under a reimbursement insurance policy that complies with 11 section 523C.6. 12 2. Doing both of the following: 13 a. Maintaining a funded reserve account for the service 14 company’s obligations under any issued and outstanding service 15 contracts in this state, in an amount no less than forty 16 percent of gross consideration received, less claims paid, for 17 the sale of all service contracts issued and in force in this 18 state. The reserve account shall be subject to examination and 19 review by the commissioner. 20 b. Placing in trust with the commissioner a financial 21 security deposit in an amount no less than five percent of 22 the gross consideration received by the service company, 23 less claims paid, for the sale of all motor vehicle service 24 contracts and residential service contracts issued and in force 25 in this state, but not less than twenty-five thousand dollars, 26 consisting of one of the following: 27 (1) Cash. 28 (2) Securities of the type eligible for deposit by insurers 29 authorized to transact business in this state. 30 (3) Certificates of deposit. 31 (4) A surety bond issued by an authorized surety company. 32 (5) Another form of security as prescribed by the 33 commissioner by rule. 34 3. Doing both of the following: 35 -8- LSB 2469SZ (2) 88 gh/rn 8/ 26
S.F. 619 a. Maintaining, on its own or together with a parent 1 company, a minimum net worth or stockholders’ equity of one 2 hundred million dollars or more. 3 b. Upon request from the commissioner, providing either: 4 (1) A copy of the service company’s financial statements. 5 (2) If the service company’s financial statements are 6 consolidated with those of its parent company, a copy of the 7 parent company’s most recent form 10-K or form 20-F filed with 8 the federal securities and exchange commission within the last 9 calendar year, or if the parent company does not file with 10 the federal securities and exchange commission, a copy of the 11 parent company’s audited financial statements showing a net 12 worth of at least one hundred million dollars. If the service 13 company’s financial statements are consolidated with those of 14 its parent company, the service company shall also provide a 15 copy of a written agreement by the parent company guaranteeing 16 the obligations of the service company under motor vehicle 17 service contracts and residential service contracts issued and 18 outstanding by the service company in this state. 19 Sec. 6. Section 523C.6, Code 2019, is amended by striking 20 the section and inserting in lieu thereof the following: 21 523C.6 Reimbursement insurance policy requirements —— insurer 22 qualifications. 23 1. Requirements. A reimbursement insurance policy insuring 24 a motor vehicle service contract or residential service 25 contract issued, sold, or offered for sale in this state shall 26 provide for all of the following: 27 a. The reimbursement insurance policy shall obligate the 28 insurer that issued such policy to reimburse or pay on behalf 29 of the service company any covered sums that the service 30 company is legally obligated to pay according to the terms of 31 the contract or, in the event of nonperformance by the service 32 company, provide the service which the service company is 33 legally obligated to perform according to the terms of the 34 service contract, which shall be conspicuously stated in the 35 -9- LSB 2469SZ (2) 88 gh/rn 9/ 26
S.F. 619 reimbursement insurance policy. 1 b. The reimbursement insurance policy shall entitle a 2 service contract holder to make a claim directly against the 3 insurance policy if the service company fails to pay or provide 4 service on a claim within sixty days after proof of loss is 5 filed with the service company. 6 c. The insurer that issued a reimbursement insurance policy 7 shall be deemed to have received the premiums upon the payment 8 of the total purchase price of the service contract by the 9 service contract holder. 10 2. Termination. As applicable, an insurer that issued a 11 reimbursement insurance policy shall not terminate the policy 12 unless a written notice has been received by the commissioner 13 and by each applicable service company. The notice shall 14 fix the date of termination at a date no earlier than ten 15 days after receipt of the notice by the commissioner. The 16 termination of a reimbursement insurance policy shall not 17 reduce the issuer’s responsibility for a service contract 18 issued by an insured service company prior to the date of 19 termination. 20 3. Indemnification or subrogation. This section does 21 not prevent or limit the right of an insurer that issued a 22 reimbursement insurance policy to seek indemnification from or 23 subrogation against a service company if the insurer pays or 24 is obligated to pay a service contract holder sums that the 25 service company was obligated to pay pursuant to the provisions 26 of a service contract or pursuant to a contractual agreement. 27 4. Premium tax liability. Payments for the purchase price 28 of a service contract by a service contract holder shall be 29 exempt from premium tax. However, premiums shall be subject 30 to premium tax. 31 5. Qualifications of insurer. An insurer issuing a 32 reimbursement insurance policy under this chapter shall be 33 authorized, registered, or otherwise permitted to transact 34 business in this state and shall meet one of the following 35 -10- LSB 2469SZ (2) 88 gh/rn 10/ 26
S.F. 619 requirements: 1 a. At the time the policy is filed with the commissioner, 2 and continuously thereafter, the insurer maintains surplus 3 as to policyholders and paid-in capital of at least fifteen 4 million dollars and annually files copies of the insurer’s 5 financial statements, national association of insurance 6 commissioners annual statement, and actuarial certification, if 7 required and filed in the insurer’s state of domicile. 8 b. At the time the policy is filed with the commissioner and 9 continuously thereafter, the insurer does all of the following: 10 (1) Maintains surplus as to policyholders and paid-in 11 capital of less than fifteen million dollars but at least ten 12 million dollars. 13 (2) Demonstrates to the satisfaction of the commissioner 14 that the insurer maintains a ratio of net written premiums, 15 wherever written, to surplus as to policyholders and paid-in 16 capital of not greater than three to one. 17 (3) Files copies annually of the insurer’s financial 18 statements, national association of insurance commissioners 19 annual statement, and actuarial certification, if required and 20 filed in the insurer’s state of domicile. 21 Sec. 7. Section 523C.7, Code 2019, is amended by striking 22 the section and inserting in lieu thereof the following: 23 523C.7 Disclosure to service contract holders —— contract 24 form —— required provisions. 25 1. A motor vehicle service contract or residential service 26 contract shall not be issued, sold, or offered for sale in this 27 state unless the service company does all of the following: 28 a. Provides a receipt for the purchase of the service 29 contract to the service contract holder. 30 b. Provides a copy of the service contract to the service 31 contract holder within a reasonable period of time after the 32 date of purchase of the service contract. 33 c. Provides a complete sample copy of the terms and 34 conditions of the service contract to the service contract 35 -11- LSB 2469SZ (2) 88 gh/rn 11/ 26
S.F. 619 holder prior to the date of purchase. A service company may 1 comply with this paragraph by providing the service contract 2 holder with a complete sample copy of the terms or conditions 3 of the service contract, or directing the service contract 4 holder to an internet site containing a complete sample copy of 5 the terms and conditions of the service contract. 6 2. A motor vehicle service contract or residential service 7 contract issued, sold, or offered for sale in this state shall 8 comply with all of the following, as applicable: 9 a. A service contract shall be written in clear, 10 understandable language in at least eight point font. 11 b. (1) A service contract insured by a reimbursement 12 insurance policy as provided in section 523C.5, subsection 1, 13 shall include a statement in substantially the following form: 14 Obligations of the service company under this service 15 contract are guaranteed under a reimbursement insurance policy. 16 If the service company fails to pay or provide service on a 17 claim within sixty days after proof of loss has been filed with 18 the service company, the service contract holder is entitled 19 to make a claim directly against the reimbursement insurance 20 policy. 21 (2) A service contract insured by a reimbursement insurance 22 policy shall conspicuously state the name and address of the 23 issuer of the reimbursement insurance policy for that service 24 contract. A claim against a reimbursement insurance policy 25 shall also include a claim for return of the unearned service 26 company fee paid for the service contract. 27 c. A service contract not insured under a reimbursement 28 insurance policy shall contain a statement in substantially the 29 following form: 30 Obligations of the service company under this service 31 contract are backed by the full faith and credit of the service 32 company and are not guaranteed under a reimbursement insurance 33 policy. 34 d. A service contract shall state the name and address of 35 -12- LSB 2469SZ (2) 88 gh/rn 12/ 26
S.F. 619 the service company obligated to perform services under the 1 contract, and shall conspicuously identify the service company, 2 any third-party administrator, and the service contract holder 3 to the extent that the name and address of the service contract 4 holder has been furnished. The identities of such parties are 5 not required to be printed on the contract in advance and may 6 be added to the contract at the time of sale. 7 e. A service contract shall clearly state the total purchase 8 price of the service contract and the terms under which the 9 service contract is sold. The total purchase price is not 10 required to be printed on the contract in advance and may be 11 added to the contract at the time of sale. 12 f. If prior approval of repair work is required, a service 13 contract shall conspicuously describe the procedure for 14 obtaining prior approval and for making a claim, including a 15 toll-free telephone number for claim service, and the procedure 16 for obtaining emergency repairs performed outside of normal 17 business hours. 18 g. A service contract shall clearly state the existence of 19 any deductible amount. 20 h. A service contract shall specify the merchandise 21 or services, or both, to be provided and any limitations, 22 exceptions, or exclusions. 23 i. A service contract shall clearly state the conditions on 24 which the use of substitute parts or services will be allowed. 25 Such conditions shall comply with applicable state and federal 26 laws. 27 j. A service contract shall clearly state any terms, 28 restrictions, or conditions governing the transferability of 29 the service contract. 30 k. A service contract shall clearly state the terms and 31 conditions governing the cancellation of the contract prior 32 to the termination or expiration date of the contract by the 33 service company or the service contract holder. If the service 34 company cancels the contract, the service company shall mail a 35 -13- LSB 2469SZ (2) 88 gh/rn 13/ 26
S.F. 619 written notice of termination to the service contract holder 1 at least fifteen days before the date of the termination. 2 Prior notice of cancellation by the service company is not 3 required if the reason for cancellation is nonpayment of the 4 purchase price, a material misrepresentation by the service 5 contract holder to the service company or its administrator, or 6 a substantial breach of duties by the service contract holder 7 relating to the covered product or its use. The notice of 8 cancellation shall state the effective date of the cancellation 9 and the reason for the cancellation. If a service contract 10 is canceled by the service company for any reason other than 11 nonpayment of the purchase price, the service company shall 12 refund the service contract holder in an amount equal to one 13 hundred percent of the unearned purchase price paid, less any 14 claims paid. The service company may also charge a reasonable 15 administrative fee in an amount no greater than ten percent of 16 the total purchase price. 17 l. (1) A service contract shall permit the original 18 service contract holder that purchased the contract to cancel 19 and return the service contract within at least twenty days 20 of the date of mailing the service contract to the service 21 contract holder or within at least ten days after delivery of 22 the service contract if the service contract is delivered at 23 the time of sale of the service contract, or within a longer 24 period of time as permitted under the service contract. If no 25 claim has been made under the service contract prior to its 26 return, the service contract is void and the full purchase 27 price of the service contract shall be refunded to the service 28 contract holder. A ten percent penalty shall be added each 29 month to a refund that is not paid to a service contract holder 30 within thirty days of the return of the service contract to the 31 service company. 32 (2) If the service contract holder cancels the service 33 contract outside of the applicable time as provided in 34 subparagraph (1) or after a claim is made under the service 35 -14- LSB 2469SZ (2) 88 gh/rn 14/ 26
S.F. 619 contract, the service company shall refund the service 1 contract holder in an amount equal to one hundred percent of 2 the unearned purchase price paid, less any claims paid. The 3 service company may also charge a reasonable administrative fee 4 in an amount no greater than ten percent of the total purchase 5 price. 6 m. A service contract shall set forth all of the obligations 7 and duties of the service contract holder, including but not 8 limited to the duty to protect against any further damage, 9 and the obligation to follow an owner’s manual or any other 10 required service or maintenance. 11 n. A service contract shall clearly state whether or not 12 the contract provides for or excludes consequential damages 13 or preexisting conditions, if applicable. A service contract 14 may, but is not required to, cover damage resulting from rust, 15 corrosion, or damage caused by a part or system which is not 16 covered under the service contract. 17 o. A service contract shall clearly state the fee, if any, 18 charged on the service contract holder for making a service 19 call. 20 p. A service contract shall state the name and address of 21 the commissioner. 22 Sec. 8. Section 523C.9, Code 2019, is amended to read as 23 follows: 24 523C.9 Suspension or revocation of license. 25 1. In addition to the license revocation provisions of 26 section 523C.5 , the The commissioner may suspend or revoke or 27 refuse to renew the license of a service company for any of the 28 following grounds: 29 a. 1. The service company violated a lawful order of the 30 commissioner or any provision of this chapter . 31 b. 2. The service company failed to pay any final judgment 32 rendered against it in this state within sixty days after the 33 judgment became final. 34 c. 3. The service company has without just cause refused 35 -15- LSB 2469SZ (2) 88 gh/rn 15/ 26
S.F. 619 to perform or negligently or incompetently performed services 1 required to be performed under its residential service 2 contracts and the refusal, or negligent or incompetent 3 performance has occurred with such frequency, as the 4 commissioner determines, as to indicate the general business 5 practices of the service company. 6 d. 4. The service company violated section 523C.13 . 7 e. 5. The service company failed to maintain the net worth 8 required by section 523C.6 demonstrate financial responsibility 9 pursuant to section 523C.5 . 10 f. The service company failed to maintain the reserve 11 account required by section 523C.11 . 12 g. 6. The service company failed to maintain its corporate 13 certificate of good standing with the secretary of state. 14 2. If the license of a service company is terminated 15 under section 523C.5 because of failure to maintain bond, the 16 commissioner shall give written notice of termination to the 17 service company. The notice shall include the effective date 18 of the termination. 19 Sec. 9. Section 523C.12, Code 2019, is amended to read as 20 follows: 21 523C.12 Optional examination. 22 The commissioner or a designee of the commissioner may 23 make an examination of the books and records of a service 24 company, including copies of contracts and records of claims 25 and expenditures, and verify its assets, liabilities, and 26 reserves. The actual costs of the examination shall be borne 27 by the service company. The costs of an examination under this 28 section shall not exceed an amount equal to ten percent of the 29 service company’s reported net income in the previous fiscal 30 year. 31 Sec. 10. Section 523C.13, Code 2019, is amended to read as 32 follows: 33 523C.13 Prohibited acts or practices —— penalty. 34 1. A licensed service company which offers motor 35 -16- LSB 2469SZ (2) 88 gh/rn 16/ 26
S.F. 619 vehicle service contracts for sale in this state, or its 1 representative, shall not, directly or indirectly, represent in 2 any manner, whether by written solicitation or telemarketing, a 3 false, deceptive, or misleading statement with respect to any 4 of the following: 5 a. Statements regarding the service company’s affiliation 6 with a motor vehicle manufacturer or importer. 7 b. Statements regarding the validity or expiration of a 8 warranty. 9 c. Statements regarding a motor vehicle service contract 10 holder’s coverage under a motor vehicle service contract, 11 including statements suggesting that the service contract 12 holder must purchase a new service contract in order to 13 maintain coverage under the existing service contract or 14 warranty. 15 2. The commissioner shall may adopt rules which regulate 16 motor vehicle service contracts and residential service 17 contracts to prohibit misrepresentation, false advertising, 18 defamation, boycotts, coercion, intimidation, false statements 19 and entries and unfair discrimination or practices. If the 20 commissioner finds that a person has violated the rules adopted 21 under this section , the commissioner may order any or all of 22 the following: 23 1. a. Payment of a civil penalty of not more than one 24 thousand dollars for each and every act or violation, but not 25 to exceed an aggregate of ten thousand dollars, unless the 26 person knew or reasonably should have known the person was in 27 violation of this section , in which case the penalty shall be 28 not more than five thousand dollars for each and every act or 29 violation, but not to exceed an aggregate penalty of fifty 30 thousand dollars in any one six-month period. The commissioner 31 shall, if it finds the violations of this section were 32 directed, encouraged, condoned, ignored, or ratified by the 33 employer of such person, assess such penalty to the employer 34 and not such person. Any civil penalties collected under this 35 -17- LSB 2469SZ (2) 88 gh/rn 17/ 26
S.F. 619 subsection shall be deposited as provided in section 505.7 . 1 2. b. Suspension or revocation of the license of a person, 2 if the person knew or reasonably should have known the person 3 was in violation of this section . 4 Sec. 11. Section 523C.15, Code 2019, is amended to read as 5 follows: 6 523C.15 Annual report. 7 A licensed service company that does not demonstrate 8 financial responsibility by insuring service contracts under a 9 reimbursement insurance policy as provided in section 523C.5, 10 subsection 1, shall file with the commissioner an annual 11 report within ninety days of the close of its fiscal no later 12 than August 31 of each year. The annual report shall be in 13 a form prescribed by the commissioner and contain all of the 14 following: 15 1. A current financial statement including a balance 16 sheet and statement of operations prepared in accordance with 17 generally accepted accounting principles and certified by an 18 independent certified public accountant. 19 2. The number of residential service contracts issued 20 during the preceding fiscal year, the number canceled or 21 expired during the year, the number in effect at year end and 22 the amount of residential service contract fees received. 23 3. 2. Any other information relating to the performance 24 and solvency of the residential service company required by the 25 commissioner. 26 Sec. 12. Section 523C.16, Code 2019, is amended to read as 27 follows: 28 523C.16 Exclusions. 29 This chapter does not apply to any of the following: 30 1. A performance guarantee given by a builder of a residence 31 or the manufacturer or seller or lessor of residential property 32 if no identifiable charge is made for the guarantee. 33 2. A residential service contract, guarantee or warranty 34 between a residential customer and a service company which will 35 -18- LSB 2469SZ (2) 88 gh/rn 18/ 26
S.F. 619 perform the work itself and not through subcontractors for 1 the service, repair or replacement of residential property, 2 appliances , or electrical, plumbing, heating, cooling or 3 air-conditioning systems. 4 3. A contract between a service company issuing residential 5 service contracts and a person who actually performs the 6 maintenance, repairs, or replacements of structural components, 7 or appliances, or electrical, plumbing, heating, cooling, or 8 air-conditioning systems, if someone other than the service 9 company actually performs these functions. 10 4. A residential service contract, guarantee or warranty 11 issued by a retail merchant to a retail customer, guaranteeing 12 or warranting the repair, service or replacement of appliances 13 or electrical, plumbing, heating, cooling or air-conditioning 14 systems sold by said retail merchant. 15 5. A residential service contract, guarantee, or warranty 16 issued by a manufacturer, third party, or retail company, 17 covering the repair, maintenance, or replacement of residential 18 property, individual appliances , and other individual items 19 of merchandise marketed and sold by a retail company, in the 20 ordinary course of business. 21 6. A motor vehicle service contract issued by the 22 manufacturer or importer of the motor vehicle covered by 23 the service contract or to any third party acting in an 24 administrative capacity on the manufacturer’s behalf in 25 connection with that service contract. 26 7. A residential service contract involving residential 27 property containing more than four dwelling units. 28 8. A warranty. 29 9. A motor vehicle service contract issued, offered for 30 sale, or sold to any person other than a consumer. 31 10. A maintenance agreement. 32 Sec. 13. Section 523C.17, Code 2019, is amended to read as 33 follows: 34 523C.17 Lending institutions , service companies, and 35 -19- LSB 2469SZ (2) 88 gh/rn 19/ 26
S.F. 619 insurance companies . 1 A bank, savings association, insurance company, or other 2 lending institution shall not require the purchase of a motor 3 vehicle service contract or residential service contract as a 4 condition of a loan or the sale of any property . A service 5 company or an insurer, either directly or indirectly, as a 6 part of any real property transaction in which a residential 7 service contract will be issued, purchased, or acquired, shall 8 not require that a residential service contract be issued, 9 purchased, or acquired in conjunction with or as a condition 10 precedent to the issuance, purchase, or acquisition, by any 11 person, of a policy of insurance. A lending institution shall 12 not sell a residential service contract to a borrower unless 13 the borrower signs an affidavit acknowledging that the purchase 14 is not required. Violation of this section is punishable as 15 provided in section 523C.13 . 16 Sec. 14. Section 523C.22, Code 2019, is amended to read as 17 follows: 18 523C.22 Claim procedures. 19 A licensed service company shall promptly provide a written 20 explanation to the residential customer service contract 21 holder , describing the reasons for denying a claim or for the 22 offer of a compromise settlement, based on all relevant facts 23 or legal requirements and referring to applicable provisions of 24 the residential service contract. 25 Sec. 15. NEW SECTION . 523C.24 Service company oversight 26 fund. 27 1. A service company oversight fund is created in the 28 state treasury as a separate fund under the control of the 29 commissioner. The fund shall consist of all moneys deposited 30 in the fund pursuant to subsection 2. 31 2. The commissioner shall deposit in the service company 32 oversight fund an amount equal to one-third of all licensing, 33 examination, renewal, and inspection fees collected under this 34 chapter, provided that the maximum amount of fees deposited 35 -20- LSB 2469SZ (2) 88 gh/rn 20/ 26
S.F. 619 in the fund each fiscal year shall not exceed five hundred 1 thousand dollars. Any remaining fees collected under this 2 chapter and not deposited in the service company oversight fund 3 shall be deposited as provided in section 505.7. 4 3. Moneys in the service company oversight fund are 5 appropriated to the commissioner for the administration and 6 enforcement of this chapter, and for establishing service 7 contract consumer complaint, education, and outreach programs. 8 4. Notwithstanding section 12C.7, subsection 2, interest or 9 earnings on moneys deposited in the service company oversight 10 fund shall be credited to the fund. Notwithstanding section 11 8.33, moneys credited to the fund shall not revert at the close 12 of a fiscal year. 13 Sec. 16. REPEAL. Chapter 516E, Code 2019, is repealed. 14 Sec. 17. REPEAL. Sections 523C.8, 523C.8A, 523C.11, 15 523C.14, and 523C.18, Code 2019, are repealed. 16 Sec. 18. EMERGENCY RULES. The commissioner of insurance 17 may adopt emergency rules under section 17A.4, subsection 3, 18 and section 17A.5, subsection 2, paragraph “b”, to implement 19 the provisions of this Act and the rules shall be effective 20 immediately upon filing unless a later date is specified in the 21 rules. Any rules adopted in accordance with this section shall 22 also be published as a notice of intended action as provided 23 in section 17A.4. 24 Sec. 19. EFFECTIVE DATE. This Act, being deemed of 25 immediate importance, takes effect upon enactment. 26 EXPLANATION 27 The inclusion of this explanation does not constitute agreement with 28 the explanation’s substance by the members of the general assembly. 29 This bill modifies provisions applicable to certain service 30 contract providers regulated by the commissioner of insurance. 31 Current Code chapter 516E requires service contract 32 providers, or service companies, that offer motor vehicle 33 service contracts for sale in Iowa to register annually 34 with the commissioner, whereas service companies that offer 35 -21- LSB 2469SZ (2) 88 gh/rn 21/ 26
S.F. 619 residential service contracts must become licensed annually by 1 the commissioner under Code chapter 523C. 2 The bill repeals Code chapter 516E, incorporates certain 3 provisions regarding service companies offering motor vehicle 4 service contracts in Code chapter 523C, thereby requiring any 5 service company that sells motor vehicle service contracts 6 or residential service contracts in Iowa to obtain an annual 7 license from the commissioner under Code chapter 523C, and 8 makes other changes to provisions in Code chapter 523C. 9 The bill makes several changes to the definitions in Code 10 section 523C.1. The bill removes definitions for “custodial 11 account”, “custodial agreement”, “custodian”, “depository”, 12 and “reserve account agreement”. The bill adds definitions 13 for “maintenance agreement”, “motor vehicle”, “motor vehicle 14 manufacturer”, “motor vehicle service contract”, “premium”, 15 “reimbursement insurance policy”, “service contract”, and 16 “warranty”, and modifies existing definitions for “residential 17 service contract” and “service contract”, as described in the 18 bill. 19 The bill provides that a person shall not issue, offer for 20 sale, or sell a motor vehicle service contract or residential 21 service contract in Iowa unless the person is licensed as 22 a service company under Code chapter 523C. The licensure 23 requirements do not apply to any person who provides support 24 services or works under the direction of a licensed service 25 company, including but not limited to a person who provides 26 marketing, administrative, or technical support. 27 The bill specifies the information required in an 28 application for a license under Code chapter 523C. In addition 29 to such information, an application shall be accompanied 30 by a license fee of $500 and a fee of $50 for each motor 31 vehicle service contract form submitted in an application, 32 if applicable. The commissioner shall issue a license if 33 an application contains the required information and is 34 accompanied by the required fees. 35 -22- LSB 2469SZ (2) 88 gh/rn 22/ 26
S.F. 619 The bill provides that each license issued under Code 1 chapter 523C shall be valid for a period of one year and shall 2 be renewed by August 31 of each year following the date of 3 issuance. An application for renewal shall require the same 4 information required in an initial application, a $500 license 5 renewal fee, other fees described in the bill that apply to 6 certain service companies, and other information described in 7 the bill regarding a service company’s operations during the 8 preceding fiscal year. In addition to such requirements, a 9 service company must report to the commissioner any material 10 change in information provided in the initial application which 11 has not been reported to the commissioner. 12 The bill replaces Code section 523C.5, which provides a 13 surety bond requirement, with a new Code section which requires 14 a service company to demonstrate financial responsibility to 15 the commissioner. The service company shall satisfy this 16 requirement by either insuring all of its service contracts 17 offered for sale in Iowa under a reimbursement insurance 18 policy that complies with the bill, maintaining a funded 19 reserve account and placing in trust with the commissioner a 20 financial security deposit, or maintaining a minimum net worth 21 or stockholders’ equity and providing certain information to 22 the commissioner upon request, as described in the bill. 23 The bill replaces Code section 523C.6, which provides a net 24 worth requirement, with a new Code section which establishes 25 certain requirements for reimbursement insurance policies 26 that insure service contracts offered for sale in Iowa. The 27 requirements include provisions regarding insurer obligations, 28 service contract holder rights, termination, indemnification 29 or subrogation, insurance premium tax liability, and insurer 30 qualifications, as described in the bill. 31 The bill replaces Code section 523C.7, which provides 32 service contract filing and form requirements, with a new 33 Code section which establishes certain requirements regarding 34 disclosure to service contract holders, service contract forms, 35 -23- LSB 2469SZ (2) 88 gh/rn 23/ 26
S.F. 619 and provisions included in service contracts, as described in 1 the bill. 2 The bill provides that the commissioner may suspend or 3 revoke or refuse to renew the license of a service company if 4 the service company violates a lawful order of the commissioner 5 or any provision of Code chapter 523C, fails to pay a final 6 judgment in Iowa within 60 days, indicates negligence, 7 incompetence, or a refusal to perform services, performs any 8 prohibited acts or practices described in the bill, fails to 9 demonstrate financial responsibility as provided in the bill, 10 or fails to maintain its corporate certificate of good standing 11 with the secretary of state. 12 The bill provides that the costs of a service company 13 examination conducted at the discretion of the commissioner, 14 which is paid by the service company, shall not exceed an 15 amount equal to 10 percent of the service company’s reported 16 net income in the previous fiscal year. 17 The bill prohibits a licensed service company offering 18 for sale in Iowa motor vehicle service contracts, or its 19 representatives, from directly or indirectly representing a 20 false, deceptive, or misleading statement with respect to 21 certain statements regarding its affiliation with a motor 22 vehicle manufacturer or importer, the validity or expiration 23 of a warranty, or a service contract holder’s coverage 24 under a service contract, as described in the bill. The 25 bill also allows the commissioner to adopt rules regulating 26 service contract practices, any violation of which allows the 27 commissioner to assess certain civil penalties or suspend or 28 revoke a license, as described in the bill. 29 The bill provides that annual reporting requirements 30 shall apply only to licensed service companies which do not 31 demonstrate financial responsibility by insuring their service 32 contracts under a reimbursement insurance policy. The annual 33 report shall be filed with the commissioner no later than 34 August 31 of each year and shall contain certain information 35 -24- LSB 2469SZ (2) 88 gh/rn 24/ 26
S.F. 619 described in the bill. 1 The bill excludes from regulation under Code chapter 523C, 2 in addition to residential service contracts currently excluded 3 under Code section 523C.16, certain motor vehicle service 4 contracts currently excluded from regulation under Code chapter 5 516E, residential service contracts involving residential 6 property containing more than four dwelling units, warranties, 7 motor vehicle service contracts issued or sold to any person 8 other than a consumer, and maintenance agreements. 9 The bill prohibits a lending institution from requiring the 10 purchase of a motor vehicle service contract or residential 11 service contract as a condition of a loan or the sale of 12 any property. A violation of this provision allows the 13 commissioner to assess certain civil penalties or suspend or 14 revoke a license, as described in the bill. 15 The bill establishes new Code section 523C.24, which 16 creates a service company oversight fund under the control 17 of the commissioner. The fund shall consist of all moneys 18 deposited in the fund pursuant to the bill. The bill directs 19 the commissioner to deposit in the fund an amount equal 20 to one-third of all licensing, examination, renewal, and 21 inspection fees collected under Code chapter 523C, provided 22 that the maximum amount deposited each fiscal year shall 23 not exceed $500,000. Any remaining fees collected and not 24 deposited in the fund shall be deposited in the department 25 of commerce revolving fund, pursuant to Code section 26 505.7. Moneys in the oversight fund are appropriated to the 27 commissioner for the administration and enforcement of Code 28 chapter 523C, and for establishing service contract consumer 29 complaint, education, and outreach programs. Interest or 30 earnings on moneys deposited in the fund shall be credited to 31 the fund. Moneys deposited in the fund shall not revert at the 32 close of a fiscal year. 33 In addition to repealing Code chapter 516E, the bill 34 repeals the following Code sections: 523C.8 (provisions 35 -25- LSB 2469SZ (2) 88 gh/rn 25/ 26
S.F. 619 regarding rebates and commissions), 523C.8A (prohibition 1 against the issuance of residential service contracts without 2 consideration), 523C.11 (reserve account requirements), 523C.14 3 (provisions regarding rate review), and 523C.18 (criminal 4 penalty no longer applicable). The bill makes conforming 5 changes throughout Code chapter 523C. 6 The bill allows the commissioner to adopt emergency rules 7 to implement the provisions of the bill. Any such rules shall 8 be effective immediately upon filing unless a later date is 9 specified and shall be published as a notice of intended 10 action. 11 The bill takes effect upon enactment. 12 -26- LSB 2469SZ (2) 88 gh/rn 26/ 26
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