House Study Bill 225 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON CARLSON) 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 2469YC (3) 88 gh/rn

H.F. _____ 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 2469YC (3) 88 gh/rn 1/ 26

H.F. _____ 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 2469YC (3) 88 gh/rn 2/ 26

H.F. _____ 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 2469YC (3) 88 gh/rn 3/ 26

H.F. _____ 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. 12. “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 13. “Service contract” means a motor vehicle service 9 contract or residential service contract. 10 14. “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 2469YC (3) 88 gh/rn 4/ 26

H.F. _____ 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 2469YC (3) 88 gh/rn 5/ 26

H.F. _____ 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 2469YC (3) 88 gh/rn 6/ 26

H.F. _____ 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 4. If the commissioner denies renewal of the license, the 17 denial shall be in writing setting forth the grounds for denial 18 and shall be accompanied by a refund of fifty percent of the 19 license renewal fee. 20 5. In addition to the annual license renewal requirements 21 as provided in this section, a licensee shall report to the 22 commissioner any material change in information submitted by 23 the licensee in its initial license application which has 24 not been reported to the commissioner, including a change in 25 contact information, a change in ownership, or any other change 26 which substantially affects the licensee’s operations in this 27 state. 28 Sec. 5. Section 523C.5, Code 2019, is amended by striking 29 the section and inserting in lieu thereof the following: 30 523C.5 Financial responsibility —— demonstration 31 requirements. 32 In order to assure the faithful performance of a service 33 company’s obligations to its contract holders in this state, 34 a licensed service company shall demonstrate financial 35 -7- LSB 2469YC (3) 88 gh/rn 7/ 26

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

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

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

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

H.F. _____ contract issued, sold, or offered for sale in this state shall 1 comply with all of the following, as applicable: 2 a. A service contract shall be written in clear, 3 understandable language in at least eight point font. 4 b. (1) A service contract insured by a reimbursement 5 insurance policy as provided in section 523C.5, subsection 1, 6 shall include a statement in substantially the following form: 7 Obligations of the service company under this service 8 contract are guaranteed under a reimbursement insurance policy. 9 If the service company fails to pay or provide service on a 10 claim within sixty days after proof of loss has been filed with 11 the service company, the service contract holder is entitled 12 to make a claim directly against the reimbursement insurance 13 policy. 14 (2) A service contract insured by a reimbursement insurance 15 policy shall conspicuously state the name and address of the 16 issuer of the reimbursement insurance policy for that service 17 contract. A claim against a reimbursement insurance policy 18 shall also include a claim for return of the unearned service 19 company fee paid for the service contract. 20 c. A service contract not insured under a reimbursement 21 insurance policy shall contain a statement in substantially the 22 following form: 23 Obligations of the service company under this service 24 contract are backed by the full faith and credit of the service 25 company and you are not guaranteed under a reimbursement 26 insurance policy. 27 d. A service contract shall state the name and address of 28 the service company obligated to perform services under the 29 contract, and shall conspicuously identify the service company, 30 any third-party administrator, and the service contract holder 31 to the extent that the name and address of the service contract 32 holder has been furnished. The identities of such parties are 33 not required to be printed on the contract in advance and may 34 be added to the contract at the time of sale. 35 -12- LSB 2469YC (3) 88 gh/rn 12/ 26

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

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

H.F. _____ and duties of the service contract holder, including but not 1 limited to the duty to protect against any further damage, 2 and the obligation to follow an owner’s manual or any other 3 required service or maintenance. 4 n. A service contract shall clearly state whether or not 5 the contract provides for or excludes consequential damages 6 or preexisting conditions, if applicable. A service contract 7 may, but is not required to, cover damage resulting from rust, 8 corrosion, or damage caused by a part or system which is not 9 covered under the service contract. 10 o. A service contract shall clearly state the fee, if any, 11 charged on the service contract holder for making a service 12 call. 13 p. A service contract shall state the name and address of 14 the commissioner. 15 Sec. 8. Section 523C.9, Code 2019, is amended to read as 16 follows: 17 523C.9 Suspension or revocation of license. 18 1. In addition to the license revocation provisions of 19 section 523C.5 , the The commissioner may suspend or revoke or 20 refuse to renew the license of a service company for any of the 21 following grounds: 22 a. 1. The service company violated a lawful order of the 23 commissioner or any provision of this chapter . 24 b. 2. The service company failed to pay any final judgment 25 rendered against it in this state within sixty days after the 26 judgment became final. 27 c. 3. The service company has without just cause refused 28 to perform or negligently or incompetently performed services 29 required to be performed under its residential service 30 contracts and the refusal, or negligent or incompetent 31 performance has occurred with such frequency, as the 32 commissioner determines, as to indicate the general business 33 practices of the service company. 34 d. 4. The service company violated section 523C.13 . 35 -15- LSB 2469YC (3) 88 gh/rn 15/ 26

H.F. _____ e. 5. The service company failed to maintain the net worth 1 required by section 523C.6 demonstrate financial responsibility 2 pursuant to section 523C.5 . 3 f. The service company failed to maintain the reserve 4 account required by section 523C.11 . 5 g. 6. The service company failed to maintain its corporate 6 certificate of good standing with the secretary of state. 7 2. If the license of a service company is terminated 8 under section 523C.5 because of failure to maintain bond, the 9 commissioner shall give written notice of termination to the 10 service company. The notice shall include the effective date 11 of the termination. 12 Sec. 9. Section 523C.12, Code 2019, is amended to read as 13 follows: 14 523C.12 Optional examination. 15 The commissioner or a designee of the commissioner may 16 make an examination of the books and records of a service 17 company, including copies of contracts and records of claims 18 and expenditures, and verify its assets, liabilities, and 19 reserves. The actual costs of the examination shall be borne 20 by the service company. The costs of an examination under this 21 section shall not exceed an amount equal to ten percent of the 22 service company’s reported net income in the previous fiscal 23 year. 24 Sec. 10. Section 523C.13, Code 2019, is amended to read as 25 follows: 26 523C.13 Prohibited acts or practices —— penalty. 27 1. A licensed service company which offers motor 28 vehicle service contracts for sale in this state, or its 29 representative, shall not, directly or indirectly, represent in 30 any manner, whether by written solicitation or telemarketing, a 31 false, deceptive, or misleading statement with respect to any 32 of the following: 33 a. Statements regarding the service company’s affiliation 34 with a motor vehicle manufacturer or importer. 35 -16- LSB 2469YC (3) 88 gh/rn 16/ 26

H.F. _____ b. Statements regarding the validity or expiration of a 1 warranty. 2 c. Statements regarding a motor vehicle service contract 3 holder’s coverage under a motor vehicle service contract, 4 including statements suggesting that the service contract 5 holder must purchase a new service contract in order to 6 maintain coverage under the existing service contract or 7 warranty. 8 2. The commissioner shall may adopt rules which regulate 9 motor vehicle service contracts and residential service 10 contracts to prohibit misrepresentation, false advertising, 11 defamation, boycotts, coercion, intimidation, false statements 12 and entries and unfair discrimination or practices. If the 13 commissioner finds that a person has violated the rules adopted 14 under this section , the commissioner may order any or all of 15 the following: 16 1. a. Payment of a civil penalty of not more than one 17 thousand dollars for each and every act or violation, but not 18 to exceed an aggregate of ten thousand dollars, unless the 19 person knew or reasonably should have known the person was in 20 violation of this section , in which case the penalty shall be 21 not more than five thousand dollars for each and every act or 22 violation, but not to exceed an aggregate penalty of fifty 23 thousand dollars in any one six-month period. The commissioner 24 shall, if it finds the violations of this section were 25 directed, encouraged, condoned, ignored, or ratified by the 26 employer of such person, assess such penalty to the employer 27 and not such person. Any civil penalties collected under this 28 subsection shall be deposited as provided in section 505.7 . 29 2. b. Suspension or revocation of the license of a person, 30 if the person knew or reasonably should have known the person 31 was in violation of this section . 32 Sec. 11. Section 523C.15, Code 2019, is amended to read as 33 follows: 34 523C.15 Annual report. 35 -17- LSB 2469YC (3) 88 gh/rn 17/ 26

H.F. _____ A licensed service company that does not demonstrate 1 financial responsibility by insuring service contracts under a 2 reimbursement insurance policy as provided in section 523C.5, 3 subsection 1, shall file with the commissioner an annual 4 report within ninety days of the close of its fiscal no later 5 than August 31 of each year. The annual report shall be in 6 a form prescribed by the commissioner and contain all of the 7 following: 8 1. A current financial statement including a balance 9 sheet and statement of operations prepared in accordance with 10 generally accepted accounting principles and certified by an 11 independent certified public accountant. 12 2. The number of motor vehicle service contracts or 13 residential service contracts issued during the preceding 14 fiscal year, the number canceled or expired during the year, 15 the number in effect at year end and the amount of residential 16 service contract fees received. 17 3. Any other information relating to the performance and 18 solvency of the residential service company required by the 19 commissioner. 20 Sec. 12. Section 523C.16, Code 2019, is amended to read as 21 follows: 22 523C.16 Exclusions. 23 This chapter does not apply to any of the following: 24 1. A performance guarantee given by a builder of a residence 25 or the manufacturer or seller or lessor of residential property 26 if no identifiable charge is made for the guarantee. 27 2. A residential service contract, guarantee or warranty 28 between a residential customer and a service company which will 29 perform the work itself and not through subcontractors for 30 the service, repair or replacement of residential property, 31 appliances , or electrical, plumbing, heating, cooling or 32 air-conditioning systems. 33 3. A contract between a service company issuing residential 34 service contracts and a person who actually performs the 35 -18- LSB 2469YC (3) 88 gh/rn 18/ 26