House File 747 - Introduced HOUSE FILE 747 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 665) (SUCCESSOR TO HSB 225) 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 2469HZ (3) 88 gh/rn

H.F. 747 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 2469HZ (3) 88 gh/rn 1/ 27

H.F. 747 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 sold for separate consideration for a specific 12 duration that undertakes to perform the repair, replacement, 13 or maintenance of a motor vehicle, or indemnification for 14 such repair, replacement, or maintenance, for the operation 15 or structural failure of a motor vehicle due to a defect in 16 materials, workmanship, or normal wear and tear, with or 17 without additional provisions for the incidental payment 18 of indemnity under limited circumstances, including but 19 not limited to motor vehicle towing, rental, emergency road 20 service, and road hazard protection. “Motor vehicle service 21 contract” also includes a contract or agreement sold for 22 separate consideration for a specific duration that provides 23 for any of the following services or products: 24 a. The repair or replacement of motor vehicle tires or 25 wheels that are damaged as a result of contact with road 26 hazards, including but not limited to potholes, rocks, wood 27 debris, metal parts, glass, plastic, curbs, or composite 28 scraps. 29 b. The removal of dents or creases on a motor vehicle 30 under a process that does not use paint or affect the existing 31 paint finish, and without sanding, bonding, or replacing motor 32 vehicle body panels. 33 c. The repair or replacement of motor vehicle windshields 34 that are damaged as a result of contact with road hazards. 35 -2- LSB 2469HZ (3) 88 gh/rn 2/ 27

H.F. 747 d. The replacement of motor vehicle keys or key fobs in the 1 event that such device becomes inoperable, lost, or stolen. 2 e. Any other service or product approved by the 3 commissioner. 4 7. “Premium” means the consideration paid to an insurer for 5 a reimbursement insurance policy. 6 7. 8. “Record” means the same as defined in section 516E.1 7 information stored or preserved in any medium, including in 8 an electronic or paper format. A “record” includes but is 9 not limited to documents, books, publications, accounts, 10 correspondence, memoranda, agreements, computer files, film, 11 microfilm, photographs, and audio or visual tapes . 12 9. “Reimbursement insurance policy” means a contractual 13 liability insurance policy issued to a service company that 14 either provides reimbursement to a service company under the 15 terms of insured service contracts issued or sold by the 16 service company or, in the event of nonperformance by the 17 service company, pays, on behalf of the service company, all 18 covered contractual obligations incurred by the service company 19 under the terms of the insured service contracts issued or sold 20 by the service company. 21 8. “Reserve account agreement” means an agreement entered 22 into between a licensed service company and a depository under 23 section 523C.11 . 24 9. 10. “Residential service contract” means a contract or 25 agreement between a residential customer and a service company 26 which undertakes, for a predetermined fee and for a specified 27 any period of time, to service, maintain, repair, or replace , 28 or indemnify expenses for all or any part of the operational or 29 structural components, appliances, or electrical, mechanical, 30 plumbing, heating, cooling, or air-conditioning systems of 31 residential property containing not more than four dwelling 32 units in the state which fails due to normal wear or tear or 33 inherent defect. “Residential service contract” also includes 34 a contract which provides for the service, repair, replacement, 35 -3- LSB 2469HZ (3) 88 gh/rn 3/ 27

H.F. 747 or maintenance of property for damage resulting from power 1 surges, roof leakage, and accidental damage . 2 10. 11. “Service company” means a person who issues and 3 performs, or arranges to perform, is contractually obligated to 4 perform services pursuant to a motor vehicle service contract 5 or residential service contract. 6 12. “Service contract” means a motor vehicle service 7 contract or residential service contract. 8 13. “Warranty” means a statement made solely by the 9 manufacturer, importer, or seller of property or services 10 without consideration, that is not negotiated or separated from 11 the sale of the product and is incidental to the sale of the 12 product, and that guarantees indemnity for defective parts, 13 mechanical or electrical breakdown, and labor or other remedial 14 measures, such as repair or replacement of the property or 15 repetition of services. 16 Sec. 2. Section 523C.2, Code 2019, is amended to read as 17 follows: 18 523C.2 License required. 19 1. A person shall not issue a , offer for sale, or sell a 20 motor vehicle service contract or residential service contract 21 or undertake or arrange to perform services pursuant to a 22 residential service contract in this state unless the person 23 is a corporation or other form of organization approved by the 24 commissioner by rule and is a licensed as a service company 25 under this chapter . 26 2. The licensure requirements of this chapter shall not 27 apply to any person who provides support services or works 28 under the direction of a licensed service company in connection 29 with the issuance, offer for sale, or sale of a service 30 contract in this state, including but not limited to a person 31 who provides marketing, administrative, or technical support. 32 Sec. 3. Section 523C.3, Code 2019, is amended to read as 33 follows: 34 523C.3 Application for license. 35 -4- LSB 2469HZ (3) 88 gh/rn 4/ 27

H.F. 747 1. Application for a license as a service company shall 1 be made to and filed with the commissioner on forms approved 2 by the commissioner and shall include all of the following 3 information: 4 a. The name and principal address of the applicant. 5 b. The state of incorporation of the applicant. 6 c. The name and address of the applicant’s registered agent 7 for service of process within Iowa. 8 d. A certificate of good standing for the applicant issued 9 by the secretary of state and dated not more than thirty days 10 prior to the date of the application. 11 e. Evidence of compliance with section 523C.5. 12 f. A copy of each motor vehicle service contract form to be 13 used or issued in this state, if applicable. 14 g. A copy of each residential service contract form to be 15 used or issued in this state, if applicable. 16 2. The application shall be accompanied by all of the 17 following: 18 a. A certificate of good standing for the applicant issued 19 by the secretary of state and dated not more than thirty days 20 prior to the date of the application. 21 b. A surety bond, a copy of the receipt from the treasurer 22 of state that a cash deposit has been made, or a copy of a 23 custodial agreement as provided in section 523C.5 . 24 c. A copy of the most recent financial statement, including 25 balance sheets and related statements of income, of the 26 applicant, prepared in accordance with generally accepted 27 accounting principles, audited by a certified public accountant 28 and dated not more than twelve months prior to the date of the 29 application. 30 d. An affidavit of an authorized officer of the service 31 company stating the number of contracts issued by the service 32 company in the preceding calendar year, and stating that the 33 net worth of the service company satisfies the requirements of 34 section 523C.6 . 35 -5- LSB 2469HZ (3) 88 gh/rn 5/ 27

H.F. 747 e. a. A license fee in the amount of two five hundred fifty 1 dollars. 2 b. If applicable, a fee in the amount of fifty dollars 3 for each motor vehicle service contract form submitted in an 4 application as provided in subsection 1, paragraph “f” . 5 3. If the application contains the required information and 6 is accompanied by the items set forth in subsection 2 , and if 7 the net worth requirements of section 523C.6 are satisfied, as 8 evidenced by the audited financial statements, the commissioner 9 shall issue the license. If the form of application is not 10 properly completed or if the required accompanying documents 11 are not furnished or in proper form, the commissioner shall 12 not issue the license and shall give the applicant written 13 notice of the grounds for not issuing the license. A notice 14 of license denial shall be accompanied by a refund of fifty 15 percent of the fee submitted with the application. 16 4. Fees collected under this section shall be deposited as 17 provided in section 505.7 523C.24 . 18 Sec. 4. Section 523C.4, Code 2019, is amended to read as 19 follows: 20 523C.4 License expiration and renewal. 21 1. Each license issued under this chapter shall expire 22 on June 30 next be valid for a period of one year and shall 23 be renewed by August 31 of each year following the date of 24 issuance. If the service company maintains in force the surety 25 bond described in section 523C.5 and if its license is not 26 subject to or under suspension or revocation under section 27 523C.9 , its license shall be renewed by the commissioner upon 28 receipt by the commissioner on or before the expiration date 29 of a renewal application accompanied by the items required by 30 section 523C.3, subsection 2 , paragraphs “b”, “c”, “d”, and “e” , 31 and section 523C.15 . 32 2. An application for renewal shall include the information 33 required for an initial license as described in section 523C.3, 34 subsection 1. 35 -6- LSB 2469HZ (3) 88 gh/rn 6/ 27

H.F. 747 3. The renewal application shall be accompanied by all of 1 the following: 2 a. A license renewal fee in the amount of five hundred 3 dollars. 4 b. If applicable, a fee in the amount of three percent of 5 the aggregate amount of payments the licensee received for the 6 sale or issuance of residential service contracts in this state 7 during the preceding fiscal year, provided that such fee shall 8 be no less than one hundred dollars and no greater than fifty 9 thousand dollars. 10 c. If applicable, a fee in the amount of fifty dollars 11 for each motor vehicle service contract form submitted in a 12 renewal application as provided in section 523C.3, subsection 13 1, paragraph “f” . 14 d. Information regarding the number of motor vehicle service 15 contracts or residential service contracts issued during the 16 preceding fiscal year, the number canceled or expired during 17 the preceding fiscal year, the number in effect at the end of 18 the preceding fiscal year, and the amount of service contract 19 fees received during the preceding fiscal year. 20 4. If the commissioner denies renewal of the license, the 21 denial shall be in writing setting forth the grounds for denial 22 and shall be accompanied by a refund of fifty percent of the 23 license renewal fee. 24 5. In addition to the annual license renewal requirements 25 as provided in this section, a licensee shall report to the 26 commissioner any material change in information submitted by 27 the licensee in its initial license application which has 28 not been reported to the commissioner, including a change in 29 contact information, a change in ownership, or any other change 30 which substantially affects the licensee’s operations in this 31 state. 32 Sec. 5. Section 523C.5, Code 2019, is amended by striking 33 the section and inserting in lieu thereof the following: 34 523C.5 Financial responsibility —— demonstration 35 -7- LSB 2469HZ (3) 88 gh/rn 7/ 27

H.F. 747 requirements. 1 In order to assure the faithful performance of a service 2 company’s obligations to its contract holders in this state, 3 a licensed service company shall demonstrate financial 4 responsibility to the commissioner by satisfying one of the 5 following, as evidenced by the service company: 6 1. Insuring all motor vehicle service contracts and 7 residential service contracts offered for sale in this state 8 under a reimbursement insurance policy that complies with 9 section 523C.6. 10 2. Doing both of the following: 11 a. Maintaining a funded reserve account for the service 12 company’s obligations under any issued and outstanding service 13 contracts in this state, in an amount no less than forty 14 percent of gross consideration received, less claims paid, for 15 the sale of all service contracts issued and in force in this 16 state. The reserve account shall be subject to examination and 17 review by the commissioner. 18 b. Placing in trust with the commissioner a financial 19 security deposit in an amount no less than five percent of 20 the gross consideration received by the service company, 21 less claims paid, for the sale of all motor vehicle service 22 contracts and residential service contracts issued and in force 23 in this state, but not less than twenty-five thousand dollars, 24 consisting of one of the following: 25 (1) Cash. 26 (2) Securities of the type eligible for deposit by insurers 27 authorized to transact business in this state. 28 (3) Certificates of deposit. 29 (4) A surety bond issued by an authorized surety company. 30 (5) Another form of security as prescribed by the 31 commissioner by rule. 32 3. Doing both of the following: 33 a. Maintaining, on its own or together with a parent 34 company, a minimum net worth or stockholders’ equity of one 35 -8- LSB 2469HZ (3) 88 gh/rn 8/ 27

H.F. 747 hundred million dollars or more. 1 b. Upon request from the commissioner, providing either: 2 (1) A copy of the service company’s financial statements. 3 (2) If the service company’s financial statements are 4 consolidated with those of its parent company, a copy of the 5 parent company’s most recent form 10-K or form 20-F filed with 6 the federal securities and exchange commission within the last 7 calendar year, or if the parent company does not file with 8 the federal securities and exchange commission, a copy of the 9 parent company’s audited financial statements showing a net 10 worth of at least one hundred million dollars. If the service 11 company’s financial statements are consolidated with those of 12 its parent company, the service company shall also provide a 13 copy of a written agreement by the parent company guaranteeing 14 the obligations of the service company under motor vehicle 15 service contracts and residential service contracts issued and 16 outstanding by the service company in this state. 17 Sec. 6. Section 523C.6, Code 2019, is amended by striking 18 the section and inserting in lieu thereof the following: 19 523C.6 Reimbursement insurance policy requirements —— insurer 20 qualifications. 21 1. Requirements. A reimbursement insurance policy insuring 22 a motor vehicle service contract or residential service 23 contract issued, sold, or offered for sale in this state shall 24 provide for all of the following: 25 a. The reimbursement insurance policy shall obligate the 26 insurer that issued such policy to reimburse or pay on behalf 27 of the service company any covered sums that the service 28 company is legally obligated to pay according to the terms of 29 the contract or, in the event of nonperformance by the service 30 company, provide the service which the service company is 31 legally obligated to perform according to the terms of the 32 service contract, which shall be conspicuously stated in the 33 reimbursement insurance policy. 34 b. The reimbursement insurance policy shall entitle a 35 -9- LSB 2469HZ (3) 88 gh/rn 9/ 27

H.F. 747 service contract holder to make a claim directly against the 1 insurance policy if the service company fails to pay or provide 2 service on a claim within sixty days after proof of loss is 3 filed with the service company. 4 c. The insurer that issued a reimbursement insurance policy 5 shall be deemed to have received the premiums upon the payment 6 of the total purchase price of the service contract by the 7 service contract holder. 8 2. Termination. As applicable, an insurer that issued a 9 reimbursement insurance policy shall not terminate the policy 10 unless a written notice has been received by the commissioner 11 and by each applicable service company. The notice shall 12 fix the date of termination at a date no earlier than ten 13 days after receipt of the notice by the commissioner. The 14 termination of a reimbursement insurance policy shall not 15 reduce the issuer’s responsibility for a service contract 16 issued by an insured service company prior to the date of 17 termination. 18 3. Indemnification or subrogation. This section does 19 not prevent or limit the right of an insurer that issued a 20 reimbursement insurance policy to seek indemnification from or 21 subrogation against a service company if the insurer pays or 22 is obligated to pay a service contract holder sums that the 23 service company was obligated to pay pursuant to the provisions 24 of a service contract or pursuant to a contractual agreement. 25 4. Premium tax liability. Payments for the purchase price 26 of a service contract by a service contract holder shall be 27 exempt from premium tax. However, premiums shall be subject 28 to premium tax. 29 5. Qualifications of insurer. An insurer issuing a 30 reimbursement insurance policy under this chapter shall be 31 authorized, registered, or otherwise permitted to transact 32 business in this state and shall meet one of the following 33 requirements: 34 a. At the time the policy is filed with the commissioner, 35 -10- LSB 2469HZ (3) 88 gh/rn 10/ 27

H.F. 747 and continuously thereafter, the insurer maintains surplus 1 as to policyholders and paid-in capital of at least fifteen 2 million dollars and annually files copies of the insurer’s 3 financial statements, national association of insurance 4 commissioners annual statement, and actuarial certification, if 5 required and filed in the insurer’s state of domicile. 6 b. At the time the policy is filed with the commissioner and 7 continuously thereafter, the insurer does all of the following: 8 (1) Maintains surplus as to policyholders and paid-in 9 capital of less than fifteen million dollars but at least ten 10 million dollars. 11 (2) Demonstrates to the satisfaction of the commissioner 12 that the insurer maintains a ratio of net written premiums, 13 wherever written, to surplus as to policyholders and paid-in 14 capital of not greater than three to one. 15 (3) Files copies annually of the insurer’s financial 16 statements, national association of insurance commissioners 17 annual statement, and actuarial certification, if required and 18 filed in the insurer’s state of domicile. 19 Sec. 7. Section 523C.7, Code 2019, is amended by striking 20 the section and inserting in lieu thereof the following: 21 523C.7 Disclosure to service contract holders —— contract 22 form —— required provisions. 23 1. A motor vehicle service contract or residential service 24 contract shall not be issued, sold, or offered for sale in this 25 state unless the service company does all of the following: 26 a. Provides a receipt for the purchase of the service 27 contract to the service contract holder. 28 b. Provides a copy of the service contract to the service 29 contract holder within a reasonable period of time after the 30 date of purchase of the service contract. 31 c. Provides a complete sample copy of the terms and 32 conditions of the service contract to the service contract 33 holder prior to the date of purchase. A service company may 34 comply with this paragraph by providing the service contract 35 -11- LSB 2469HZ (3) 88 gh/rn 11/ 27

H.F. 747 holder with a complete sample copy of the terms or conditions 1 of the service contract, or directing the service contract 2 holder to an internet site containing a complete sample copy of 3 the terms and conditions of the service contract. 4 2. A motor vehicle service contract or residential service 5 contract issued, sold, or offered for sale in this state shall 6 comply with all of the following, as applicable: 7 a. A service contract shall be written in clear, 8 understandable language in at least eight point font. 9 b. (1) A service contract insured by a reimbursement 10 insurance policy as provided in section 523C.5, subsection 1, 11 shall include a statement in substantially the following form: 12 Obligations of the service company under this service 13 contract are guaranteed under a reimbursement insurance policy. 14 If the service company fails to pay or provide service on a 15 claim within sixty days after proof of loss has been filed with 16 the service company, the service contract holder is entitled 17 to make a claim directly against the reimbursement insurance 18 policy. 19 (2) A service contract insured by a reimbursement insurance 20 policy shall conspicuously state the name and address of the 21 issuer of the reimbursement insurance policy for that service 22 contract. A claim against a reimbursement insurance policy 23 shall also include a claim for return of any refund due in 24 accordance with paragraphs “k” and “l” . 25 c. A service contract not insured under a reimbursement 26 insurance policy shall contain a statement in substantially the 27 following form: 28 Obligations of the service company under this service 29 contract are backed by the full faith and credit of the service 30 company and are not guaranteed under a reimbursement insurance 31 policy. 32 d. A service contract shall state the name and address of 33 the service company obligated to perform services under the 34 contract, and shall conspicuously identify the service company, 35 -12- LSB 2469HZ (3) 88 gh/rn 12/ 27

H.F. 747 any third-party administrator, and the service contract holder 1 to the extent that the name and address of the service contract 2 holder has been furnished. The identities of such parties are 3 not required to be printed on the contract in advance and may 4 be added to the contract at the time of sale. 5 e. A service contract shall clearly state the total purchase 6 price of the service contract and the terms under which the 7 service contract is sold. The total purchase price is not 8 required to be printed on the contract in advance and may be 9 added to the contract at the time of sale. 10 f. If prior approval of repair work is required, a service 11 contract shall conspicuously describe the procedure for 12 obtaining prior approval and for making a claim, including a 13 toll-free telephone number for claim service, and the procedure 14 for obtaining emergency repairs performed outside of normal 15 business hours. 16 g. A service contract shall clearly state the existence of 17 any deductible amount. 18 h. A service contract shall specify the merchandise 19 or services, or both, to be provided and any limitations, 20 exceptions, or exclusions. 21 i. A service contract shall clearly state the conditions on 22 which the use of substitute parts or services will be allowed. 23 Such conditions shall comply with applicable state and federal 24 laws. 25 j. A service contract shall clearly state any terms, 26 restrictions, or conditions governing the transferability of 27 the service contract. 28 k. A service contract shall clearly state the terms and 29 conditions governing the cancellation of the contract prior 30 to the termination or expiration date of the contract by the 31 service company or the service contract holder. If the service 32 company cancels the contract, the service company shall mail a 33 written notice of termination to the service contract holder 34 at least fifteen days before the date of the termination. 35 -13- LSB 2469HZ (3) 88 gh/rn 13/ 27

H.F. 747 Prior notice of cancellation by the service company is not 1 required if the reason for cancellation is nonpayment of the 2 purchase price, a material misrepresentation by the service 3 contract holder to the service company or its administrator, or 4 a substantial breach of duties by the service contract holder 5 relating to the covered product or its use. The notice of 6 cancellation shall state the effective date of the cancellation 7 and the reason for the cancellation. If a service contract 8 is canceled by the service company for any reason other than 9 nonpayment of the purchase price, the service company shall 10 refund the service contract holder in an amount equal to one 11 hundred percent of the unearned purchase price paid, calculated 12 on a pro rata basis based upon elapsed time or mileage, 13 less any claims paid. The service company may also charge a 14 reasonable administrative fee in an amount no greater than ten 15 percent of the total purchase price. 16 l. (1) A service contract shall permit the original 17 service contract holder that purchased the contract to cancel 18 and return the service contract within at least twenty days 19 of the date of mailing the service contract to the service 20 contract holder or within at least ten days after delivery of 21 the service contract if the service contract is delivered at 22 the time of sale of the service contract, or within a longer 23 period of time as permitted under the service contract. If no 24 claim has been made under the service contract prior to its 25 return, the service contract is void and the full purchase 26 price of the service contract shall be refunded to the service 27 contract holder. A ten percent penalty shall be added each 28 month to a refund that is not paid to a service contract holder 29 within thirty days of the return of the service contract to the 30 service company. 31 (2) If the service contract holder cancels the service 32 contract outside of the applicable time as provided in 33 subparagraph (1) or after a claim is made under the service 34 contract, the service company shall refund the service contract 35 -14- LSB 2469HZ (3) 88 gh/rn 14/ 27

H.F. 747 holder in an amount equal to one hundred percent of the 1 unearned purchase price paid, calculated on a pro rata basis 2 based upon elapsed time or mileage, 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 2469HZ (3) 88 gh/rn 15/ 27

H.F. 747 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 —— violations 34 —— contracts voided . 35 -16- LSB 2469HZ (3) 88 gh/rn 16/ 27

H.F. 747 1. A licensed service company which offers motor 1 vehicle service contracts for sale in this state, or its 2 representative, shall not, directly or indirectly, represent in 3 any manner, whether by written solicitation or telemarketing, a 4 false, deceptive, or misleading statement with respect to any 5 of the following: 6 a. Statements regarding the service company’s affiliation 7 with a motor vehicle manufacturer or importer. 8 b. Statements regarding the validity or expiration of a 9 warranty. 10 c. Statements regarding a motor vehicle service contract 11 holder’s coverage under a motor vehicle service contract, 12 including statements suggesting that the service contract 13 holder must purchase a new service contract in order to 14 maintain coverage under the existing service contract or 15 warranty. 16 2. The commissioner shall may adopt rules which regulate 17 motor vehicle service contracts and residential service 18 contracts to prohibit misrepresentation, false advertising, 19 defamation, boycotts, coercion, intimidation, false statements 20 and entries and unfair discrimination or practices. If the 21 commissioner finds that a person has violated the rules adopted 22 under this section , the commissioner may order any or all of 23 the following: 24 1. a. Payment of a civil penalty of not more than one 25 thousand dollars for each and every act or violation, but not 26 to exceed an aggregate of ten thousand dollars, unless the 27 person knew or reasonably should have known the person was in 28 violation of this section , in which case the penalty shall be 29 not more than five thousand dollars for each and every act or 30 violation, but not to exceed an aggregate penalty of fifty 31 thousand dollars in any one six-month period. The commissioner 32 shall, if it finds the violations of this section were 33 directed, encouraged, condoned, ignored, or ratified by the 34 employer of such person, assess such penalty to the employer 35 -17- LSB 2469HZ (3) 88 gh/rn 17/ 27

H.F. 747 and not such person. Any civil penalties collected under this 1 subsection shall be deposited as provided in section 505.7 . 2 2. b. Suspension or revocation of the license of a person, 3 if the person knew or reasonably should have known the person 4 was in violation of this section . 5 3. A violation of this chapter constitutes an unlawful 6 practice pursuant to section 714.16. 7 4. A service contract issued or sold in this state is void 8 if the person that issued or sold the service contract, at the 9 time of issuance or sale, was not licensed as a service company 10 under this chapter. 11 Sec. 11. Section 523C.15, Code 2019, is amended to read as 12 follows: 13 523C.15 Annual report. 14 A licensed service company that does not demonstrate 15 financial responsibility by insuring service contracts under a 16 reimbursement insurance policy as provided in section 523C.5, 17 subsection 1, shall file with the commissioner an annual 18 report within ninety days of the close of its fiscal no later 19 than August 31 of each year. The annual report shall be in 20 a form prescribed by the commissioner and contain all of the 21 following: 22 1. A current financial statement including a balance 23 sheet and statement of operations prepared in accordance with 24 generally accepted accounting principles and certified by an 25 independent certified public accountant. 26 2. The number of residential service contracts issued 27 during the preceding fiscal year, the number canceled or 28 expired during the year, the number in effect at year end and 29 the amount of residential service contract fees received. 30 3. 2. Any other information relating to the performance and 31 solvency of the residential service company required by the 32 commissioner. 33 Sec. 12. Section 523C.16, Code 2019, is amended to read as 34 follows: 35 -18- LSB 2469HZ (3) 88 gh/rn 18/ 27