Service Warranty Act

A service warranty is an extended warranty for your car, home, appliances or other devices. We have all received calls or mailings related to purchasing one of these service warranties, sometimes in a misleading way.

SB 1475 creates the Service Warranty Act and requires persons acting as a service warranty association to be licensed by the Insurance Commissioner. An insurer authorized to transact property or casualty insurance is authorized to transact a service warranty business without additional licensure. The measure provides requirements for application of a license and allows for an annual renewal of the license upon payment of a $400 fee.

License requirements include being a solvent association, evidence of competence and trustworthiness, a trademark name and a bond. The measure requires such licensed associations to maintain a funded, unearned reserve account and surety bond unless the association has purchased an insurance policy which satisfies certain financial responsibility criteria.

The Commissioner is authorized to revoke or suspend a license if it is determined that the association has violated any lawful rule or order of the Commissioner or provision of the Act and immediately suspends the license in other circumstances. The license must be suspended or revoked if certain conditions are met. The measure provides procedures and fees associated with suspending and revoking a license. An administrative penalty may be issued in lieu of suspension, revocation or refusal to renew. Persons who knowingly violate the Act will be guilty of a misdemeanor and any person damaged by the violator may bring a civil action.

Service warranty forms must be filed and approved by the Commissioner 30 days before its issuance or use. Each service warranty contract must contain a cancellation provision, contact information of the provider, and a statement indicating it is not an insurance contract. Each association must file an annual statement, and may be required to file a quarterly statement, detailing financial information and pay a $100 fine per day the association neglects to file the annual statement. The measure requires provider fees and assessments are to be subject to an administrative fee in lieu of the premium tax and authorize an annual fee in lieu of the administrative fee. Associations are subject to periodic examinations by the Commissioner and required to maintain financial and claims records.

The measure lists actions and practices that will be deemed unfair methods of competition and unfair or deceptive act and the Commissioner is authorized to investigate and hold administrative hearing for alleged unfair or deceptive acts or practices. The Commissioner may also seek an injunction in district court.

The act has passed the Senate by a 31 to 15 vote and passed the House Judiciary Committee today and will be sent to the full floor for a vote.