GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1993

S	4 

SENATE BILL 1084
Insurance Committee Substitute Adopted 5/27/93
Finance Committee Substitute Adopted 6/24/93
Fourth Edition Engrossed 7/21/93

Short Title:  Service Agreement Changes.	(Public)
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Sponsors:
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Referred to:  
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May 10, 1993

A BILL TO BE ENTITLED
AN ACT TO MAKE SUBSTANTIVE AND TECHNICAL CHANGES AND IMPROVEMENTS IN THE LAWS REGULATING SERVICE AGREEMENTS.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 58-1-25 reads as rewritten:
"§ 58-1-25.  Motor vehicle service agreement companies.
(a)	This section applies to all motor vehicle service agreement companies soliciting business in this State, but it shall not apply to performance guarantees, warranties, or motor vehicle service agreements made by 
(1)	A manufacturer,
(2)	A distributor, or
(3)	A subsidiary or affiliate of a manufacturer or a distributor, where fifty-one percent (51%) or more of the subsidiary or affiliate is owned directly or indirectly by
a.	The manufacturer,
b.	The distributor, or
c.	The common owner of fifty-one percent (51%) or more of the manufacturer or distributor
in connection with the sale of motor vehicles.  This section does not apply to any motor vehicle dealer licensed to do business in this State (i) whose primary business is the retail sale and service of motor vehicles; (ii) who makes and administers its own service agreements with or without association with a third party administrator or who makes its own service agreements in association with a manufacturer, distributor, or their subsidiaries or affiliates; and (iii) whose service agreements cover only vehicles sold by the dealer to its retail customer; provided that the dealer complies with G.S. 58-1-35, 58-1-36, and 58-1-40.
(b)	The following definitions apply in this section and in G.S. 58-1-30 through G.S. 58-1-50:
(1)	Authorized insurer. – An insurance company licensed or authorized to write liability insurance under Article 7, 16, 21, or 22 of this Chapter.
(2)	Distributor. – Defined in G.S. 20-286(3).
(3)	Licensed insurer. – An insurance company licensed to write liability insurance under Article 7 or Article 16 of this Chapter.
(4)	Motor vehicle. – Defined in G.S. 20-4.01(23), but also including mopeds as defined in G.S. 20-4.01(27)d1.
(5)	Motor vehicle service agreement. – Any contract or agreement indemnifying the motor vehicle service agreement holder against loss caused by failure, arising out of the ownership, operation, or use of a motor vehicle, of a mechanical or other component part of the motor vehicle that is listed in the agreement.  The term does not mean a contract or agreement guaranteeing the performance of parts or lubricants manufactured by the guarantor and sold for use in connection with a motor vehicle where no additional consideration is paid or given to the guarantor for the contract or agreement beyond the price of the parts or lubricants.
(6)	Motor vehicle service agreement company. – Any person that issues motor vehicle service agreements and that is not a licensed insurer.
(c)	No motor vehicle service agreement company shall enter into a motor vehicle service agreement or transact business in this State unless it has registered with the Commissioner.  
(d)	Transacting motor vehicle service agreement business in this State includes any of the following:
			(1)	Issuing or delivering motor vehicle service agreements to persons residing in this State.
(2)	Soliciting applications for motor vehicle service agreements through mail addressed to persons residing in this State, through media, or through other means intended to reach persons in this State.
(3)	Collecting from persons residing in this State premiums, fees, assessments, or other considerations for motor vehicle service agreements.
(4)	Administering motor vehicle service agreements that have been issued or delivered to persons residing in this State.
(e)	Every motor vehicle service agreement company shall complete a registration form and file it with the Commissioner as provided in G.S. 58-1-40.  The company shall include a nonrefundable registration fee of two hundred fifty dollars ($250.00) with its application.  It is a misdemeanor for any person to knowingly make a fraudulent statement or representation in an application for registration.  The registration shall be renewed annually by payment of a nonrefundable renewal fee of five hundred dollars ($500.00).
(f)	Nothing in this section authorizes any motor vehicle service agreement company to transact any business other than motor vehicle service agreement business.
(g)	Each motor vehicle service agreement company issuing motor vehicle service agreements shall file a financial statement as provided in G.S. 58-1-45.  The Commissioner shall impose on a company a late penalty of fifty dollars ($50.00) for each day that the company does not file its statement.  The company shall not do business in the State until it files its statement.
(h)	A motor vehicle dealer who sells a motor vehicle service agreement to a consumer, as defined in 15 U.S.C. § 2301(3), shall not be deemed to have made a written warranty, as defined in 15 U.S.C. § 2301(6), to the consumer with respect to the motor vehicle sold or to have entered into a service contract with the consumer that applies to the motor vehicle, as provided in 15 U.S.C. § 2308(a), if:
(1)	The motor vehicle dealer acts as a mere agent of a third party in selling the motor vehicle service agreement, and
(2)	The motor vehicle dealer would, after the sale of the motor vehicle service agreement, have no further obligation under the motor vehicle service agreement to the consumer to service or repair the vehicle sold to the consumer at or within 90 days before the dealer sold the motor vehicle service agreement to the consumer."
Sec. 2.  G.S. 58-1-30 reads as rewritten:
"§ 58-1-30.  Home appliance service agreement companies.
(a)	This section applies to all home appliance service agreement companies soliciting business in this State, but it shall not apply to performance guarantees or warranties made by manufacturers in connection with the sale of new home appliances.  This section does not apply to any home appliance dealer licensed to do business in this State (i) whose primary business is the retail sale and service of home appliances; (ii) who makes and administers its own service agreements without association with any other entity; and (iii) whose service agreements cover only appliances sold by the dealer to its retail customers.  This section does not apply to any warranty made by a builder or seller of real property relating to home appliances that are sold along with real property.  This section does not apply to any issuer of credit cards or charge cards that markets home appliance service agreements as an ancillary part of its business; provided, however, that such issuer maintains contractual liability insurance in accordance with G.S. 58-1-36.
(b)	The following definitions apply in this section and in G.S. 58-1-35 through G.S. 58-1-50:
(1)	Home appliance. – Includes a clothes washing machine or dryer; kitchen appliance; vacuum cleaner; sewing machine; home audio or video electronic equipment; home electronic data processing equipment; or heater or air conditioner, other than a permanently installed unit using internal ductwork.
(2)	Home appliance service agreement. – Any contract or agreement indemnifying the home appliance service agreement holder against loss caused by failure, arising out of the ownership, operation, or use of a home appliance, of a mechanical or other component part of the home appliance that is listed in the agreement.
(3)	Home appliance service agreement company. – Any person that issues home appliance service agreements and that is not a licensed insurer.
(c)	No home appliance service agreement company shall enter into a home appliance service agreement or transact business in this State unless it has registered with the Commissioner.  
(d)	Transacting home appliance service agreement business in this State includes any of the following:
			(1)	Issuing or delivering home appliance service agreements to persons residing in this State.
(2)	Soliciting applications for home appliance service agreements through mail addressed to persons residing in this State, through media, or through other means intended to reach persons in this State.
(3)	Collecting from persons residing in this State premiums, fees, assessments, or other considerations for home appliance service agreements.
(4)	Administering home appliance service agreements that have been issued or delivered to persons residing in this State.
(e)	Every home appliance service agreement company shall complete a registration form and file it with the Commissioner as provided in G.S. 58-1-40.  The company shall include a nonrefundable registration fee of two hundred fifty dollars ($250.00) with its application.  It is a misdemeanor for any person to knowingly make a fraudulent statement or representation in an application for registration.  The registration shall be renewed annually by payment of a nonrefundable renewal fee of five hundred dollars ($500.00).
(f)	Nothing in this section authorizes any home appliance service agreement company to transact any business other than home appliance service agreement business.
(g)	Each home appliance service agreement company issuing home appliance service agreements shall file a financial statement as provided in G.S. 58-1-45.  The Commissioner shall impose on a company a late penalty of fifty dollars ($50.00) for each day that the company does not file its statement.  The company shall not do business in the State until it files its statement."
Sec. 3.  G.S. 58-1-35(b) reads as rewritten:
"(b)	The following definitions apply in this section and in G.S. 58-1-40 through G.S. 58-1-50:
(1)	Service agreement. –A motor vehicle service agreement or a home appliance service agreement.
(2)	Service agreement company. –A motor vehicle service agreement company or a home appliance service agreement company."
Sec. 4.  G.S. 58-1-35(e) reads as rewritten:
"(e)	All service agreements used in this State by a service agreement company shall:
(1)	Not contain provisions that allow the company to cancel the agreement in its discretion other than for nonpayment of premiums or for a direct violation of the agreement by the consumer where the service agreement states that violation of the agreement would subject the agreement to cancellation;
(2)	With respect to a motor vehicle service agreement, provide for a right of assignability by the consumer to a subsequent purchaser before expiration of coverage if the subsequent purchaser meets the same criteria for motor vehicle service agreement acceptability as the original purchaser; and
(3)	Contain a cancellation provision allowing the consumer to cancel at any time after purchase and receive a pro rata refund less any claims paid on the agreement and a reasonable administrative fee, not to exceed ten percent (10%) of the amount of the pro rata refund."
Sec. 5.  G.S. 58-1-35(j) reads as rewritten:
"(j)	Any person who knowingly offers for sale or sells a service agreement for a company that has failed to comply with the provisions of this section is guilty of a misdemeanor.  All service agreement companies and individuals selling service agreements are subject to G.S. 75-1 through G.S. 75-19.  Any service agreement company operating in this State without a valid registration is an unauthorized insurer."
Sec. 6.  G.S. 58-1-35(k) is repealed.
Sec. 7.  Article 1 of Chapter 58 of the General Statutes is amended by adding a new section to read:
"§ 58-1-36.  Contractual liability insurance policy requirements.
(a)	Each service agreement company shall maintain contractual liability insurance with an authorized insurer for one hundred percent (100%) of claims exposure, including reported and incurred but not reported claims and claims expenses, on gross written premiums in this State.  Each service agreement company must demonstrate to the Commissioner's satisfaction that one hundred percent (100%) of its claims exposure is covered by the policy.
(b)	As used in this section and in G.S. 58-1-41, 'gross written premiums' means the total amount of premiums, paid or to be paid by the customer for the entire period of the service agreement inclusive of commissions, for which the service agreement company is obligated under service agreements issued and currently in force.
(c)	The policy shall contain the following provisions:
(1)	If the service agreement company does not fulfill its obligations under service agreements issued in this State for any reason, the insurer will pay losses and unearned premium refunds directly to any person making the claim under the service agreement.
(2)	The insurer shall assume full responsibility for the administration of claims if the service agreement company is unable to do so.
(3)	The policy may not be cancelled or nonrenewed by either the insurer or the service agreement company unless the insurer gives 60 days' written notice of cancellation or nonrenewal to the Commissioner before the date of cancellation or nonrenewal.
(4)	The policy shall insure all service agreements that were issued while the policy was in effect, regardless of whether the insurer remitted the premium.
(5)	If the insurer is fulfilling any service agreement covered by the policy and if the service agreement holder cancels the service agreement, the insurer shall make a full refund of the unearned premium to the consumer according to G.S. 58-1-35(e)(3).
(d)	The service agreement company shall submit a certified copy of the policy to the Commissioner for review.  The insurer shall submit any change in the policy to the Commissioner no later than 30 days before its effective date."
Sec. 8.  G.S. 58-1-41 reads as rewritten:
"§ 58-1-41.  Required deposit.
(a)	To ensure the faithful performance of its obligations in this State, each service agreement company shall, before issuance of its registration by the Commissioner and during the time the service agreement company has premiums in force or claims outstanding, including incurred but not reported claims, in this State, comply with the applicable provisions of Article 5 of this Chapter.  The deposit shall maintain a market value of not less than fifty thousand dollars ($50,000) or twenty-five percent (25%) of gross written premiums in force in this State, whichever is greater, in accordance with rules adopted by the Commissioner that make the deposit required commensurate with the risk assumed.
(b)	This deposit shall be maintained free and unencumbered as long as the company continues in business in this State.  ."
Sec. 9.  G.S. 58-1-50 reads as rewritten:
"§ 58-1-50.  Denial, suspension, or revocation of registration of service agreement companies.
									(a)	The Commissioner may deny an application for registration or renewal of registration by any service agreement company or may suspend or revoke the registration of any service agreement company if any of the following occur:
(1)	The company has failed or refused to comply with any law, order, or rule applicable to it.
(2)	The company's financial condition is unsound, the company is unable to pay its obligations when they are due, or the company's admitted assets do not exceed its liabilities.
(3)	The company has published or made to the Department or to the public any false statement or report.
(4)	The company has refused to submit to any examination authorized by law.
(5)	The company has made a practice of unduly engaging in litigation or delaying the investigation of claims or the adjustment or payment of valid claims.
Any suspension, revocation, or refusal to renew a registration may also be made applicable to the license or registration of any individual who is a party to the default or improper practice.  The Commissioner may impose a civil penalty under G.S. 58-2-70 if a company fails to acknowledge a claim within 30 days after receiving written notice of the claim; provided that the notice contains sufficient information for the service agreement company to identify the specific coverage involved.  The company acknowledges the claim by doing any of the following:  advising the claimant or the claimant's legal representative that the claim is being investigated; paying the claim; making a bona fide written offer of settlement; or making a written denial of the claim.
(b)	The Commissioner may consider any or all of the standards outlined in G.S. 58-30-60(b) to determine whether the continued operation of any registered service agreement company is hazardous to its service agreements holders, creditors, or the general public.
(c)	Whenever the financial condition of a service agreement company is such that, if not modified or corrected, its continued operation would result in impairment or insolvency, the Commissioner may impose any provisions of Article 30 of this Chapter. 
				(d)	The Commissioner may adopt rules specifying the kinds of assets held by service agreement companies that are appropriate and inappropriate for determining the financial condition of a service agreement company."
Sec. 10.  G.S. 58-1-15(b) reads as rewritten:
"(b)	Any warranty made solely by a manufacturer, distributor, or seller of goods or services without charge, or an extended warranty offered as an option and made solely by a manufacturer, distributor, or seller of goods or services for charge, that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor, or any other remedial measure, including replacement of goods or repetition of services, shall not be a contract of insurance under this Chapter. Service agreements on motor vehicles and home appliances are governed by G.S. 58-1-25 through G.S. 58-1-50. "
Sec. 11.  This act is effective upon ratification.