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Senate File 619 - ReprintedA Bill ForAn Act 1modifying provisions applicable to certain service
2contract providers regulated by the commissioner of
3insurance, providing fees, making penalties applicable,
4making an appropriation, and including effective date
5provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 523C.1, Code 2019, is amended to read as
2follows:
3523C.1 Definitions.
4As used in this chapter, unless the context otherwise
5requires:
61. “Commissioner” means the commissioner of insurance.
72. “Custodial account” means an account established by
8agreement between a licensed service company and a custodian
9under section 523C.5.
103. “Custodial agreement” means an agreement entered into
11between a licensed service company and a custodian under
12section 523C.5.
134. “Custodian” means an institution meeting the requirements
14established by the commissioner which institution has entered
15into a custodial agreement or reserve account agreement with a
16licensed service company.
175. “Depository” means an institution designated by the
18commissioner as an authorized custodian for purposes of
19sections 523C.5 and 523C.11.
206. 2. “Licensed service company” means a service company
21which is licensed by the commissioner pursuant to this chapter.
223. “Maintenance agreement” means a contract of any duration
23that provides for scheduled maintenance to property.
244. “Motor vehicle” means any self-propelled vehicle subject
25to registration under chapter 321.
265. “Motor vehicle manufacturer” means any of the following:
27a. A person who manufactures or produces motor vehicles
28and sells the motor vehicles under the person’s trade name or
29label.
30b. A person who is a wholly owned subsidiary of any person
31who manufactures or produces motor vehicles.
32c. A person who holds a one hundred percent ownership
33interest in another person who manufactures or produces motor
34vehicles.
35d. A person who does not manufacture or produce motor
-1-1vehicles, but for which motor vehicles are sold under the
2person’s trade name or label.
3e. A person who manufactures or produces motor vehicles,
4but the motor vehicles are sold under the trade name or label
5of another person.
6f. A person who does not manufacture or produce motor
7vehicles, but who licenses the use of the person’s trade name
8or label to another person pursuant to a written contract, who
9then sells motor vehicles under the trade name or label of the
10licensor.
116. “Motor vehicle service contract” means a contract or
12agreement sold for separate consideration for a specific
13duration that undertakes to perform the repair, replacement,
14or maintenance of a motor vehicle, or indemnification for
15such repair, replacement, or maintenance, for the operation
16or structural failure of a motor vehicle due to a defect in
17materials, workmanship, or normal wear and tear, with or
18without additional provisions for the incidental payment
19of indemnity under limited circumstances, including but
20not limited to motor vehicle towing, rental, emergency road
21service, and road hazard protection. “Motor vehicle service
22contract” also includes a contract or agreement sold for
23separate consideration for a specific duration that provides
24for any of the following services or products:
25a. The repair or replacement of motor vehicle tires or
26wheels that are damaged as a result of contact with road
27hazards, including but not limited to potholes, rocks, wood
28debris, metal parts, glass, plastic, curbs, or composite
29scraps.
30b. The removal of dents or creases on a motor vehicle
31under a process that does not use paint or affect the existing
32paint finish, and without sanding, bonding, or replacing motor
33vehicle body panels.
34c. The repair or replacement of motor vehicle windshields
35that are damaged as a result of contact with road hazards.
-2- 1d. The replacement of motor vehicle keys or key fobs in the
2event that such device becomes inoperable, lost, or stolen.
3e. Any other service or product approved by the
4commissioner.
57. “Premium” means the consideration paid to an insurer for
6a reimbursement insurance policy.
77. 8. “Record” means the same as defined in section 516E.1
8information stored or preserved in any medium, including in
9an electronic or paper format. A “record” includes but is
10not limited to documents, books, publications, accounts,
11correspondence, memoranda, agreements, computer files, film,
12microfilm, photographs, and audio or visual tapes.
139. “Reimbursement insurance policy” means a contractual
14liability insurance policy issued to a service company that
15either provides reimbursement to a service company under the
16terms of insured service contracts issued or sold by the
17service company or, in the event of nonperformance by the
18service company, pays, on behalf of the service company, all
19covered contractual obligations incurred by the service company
20under the terms of the insured service contracts issued or sold
21by the service company.
228. “Reserve account agreement” means an agreement entered
23into between a licensed service company and a depository under
24section 523C.11.
259. 10. “Residential service contract” means a contract or
26agreement between a residential customer and a service company
27which undertakes, for a predetermined fee and for a specified
28 any period of time, to service, maintain, repair, or replace,
29or indemnify expenses for all or any part of the operational or
30 structural components, appliances, or electrical, mechanical,
31 plumbing, heating, cooling, or air-conditioning systems of
32residential property containing not more than four dwelling
33units in the state which fails due to normal wear or tear or
34inherent defect. “Residential service contract” also includes
35a contract which provides for the service, repair, replacement,
-3-1or maintenance of property for damage resulting from power
2surges, roof leakage, and accidental damage.
310. 11. “Service company” means a person who issues and
4performs, or arranges to perform, is contractually obligated to
5perform services pursuant to a motor vehicle service contract
6or residential service contract.
712. “Service contract” means a motor vehicle service
8contract or residential service contract.
913. “Warranty” means a statement made solely by the
10manufacturer, importer, or seller of property or services
11without consideration, that is not negotiated or separated from
12the sale of the product and is incidental to the sale of the
13product, and that guarantees indemnity for defective parts,
14mechanical or electrical breakdown, and labor or other remedial
15measures, such as repair or replacement of the property or
16repetition of services.
17 Sec. 2. Section 523C.2, Code 2019, is amended to read as
18follows:
19523C.2 License required.
201. A person shall not issue a, offer for sale, or sell a
21motor vehicle service contract or residential service contract
22or undertake or arrange to perform services pursuant to a
23residential service contract in this state unless the person
24is a corporation or other form of organization approved by the
25commissioner by rule and is a licensed as a service company
26under this chapter.
272. The licensure requirements of this chapter shall not
28apply to any person who provides support services or works
29under the direction of a licensed service company in connection
30with the issuance, offer for sale, or sale of a service
31contract in this state, including but not limited to a person
32who provides marketing, administrative, or technical support.
33 Sec. 3. Section 523C.3, Code 2019, is amended to read as
34follows:
35523C.3 Application for license.
-4- 11. Application for a license as a service company shall
2be made to and filed with the commissioner on forms approved
3by the commissioner and shall include all of the following
4information:
5a. The name and principal address of the applicant.
6b. The state of incorporation of the applicant.
7c. The name and address of the applicant’s registered agent
8for service of process within Iowa.
9d. A certificate of good standing for the applicant issued
10by the secretary of state and dated not more than thirty days
11prior to the date of the application.
12e. Evidence of compliance with section 523C.5.
13f. A copy of each motor vehicle service contract form to be
14used or issued in this state, if applicable.
15g. A copy of each residential service contract form to be
16used or issued in this state, if applicable.
172. The application shall be accompanied by all of the
18following:
19a. A certificate of good standing for the applicant issued
20by the secretary of state and dated not more than thirty days
21prior to the date of the application.
22b. A surety bond, a copy of the receipt from the treasurer
23of state that a cash deposit has been made, or a copy of a
24custodial agreement as provided in section 523C.5.
25c. A copy of the most recent financial statement, including
26balance sheets and related statements of income, of the
27applicant, prepared in accordance with generally accepted
28accounting principles, audited by a certified public accountant
29and dated not more than twelve months prior to the date of the
30application.
31d. An affidavit of an authorized officer of the service
32company stating the number of contracts issued by the service
33company in the preceding calendar year, and stating that the
34net worth of the service company satisfies the requirements of
35section 523C.6.
-5- 1e. a. A license fee in the amount of two five hundred fifty
2 dollars.
3b. If applicable, a fee in the amount of fifty dollars
4for each motor vehicle service contract form submitted in an
5application as provided in subsection 1, paragraph “f”.
63. If the application contains the required information and
7is accompanied by the items set forth in subsection 2, and if
8the net worth requirements of section 523C.6 are satisfied, as
9evidenced by the audited financial statements, the commissioner
10shall issue the license. If the form of application is not
11properly completed or if the required accompanying documents
12are not furnished or in proper form, the commissioner shall
13not issue the license and shall give the applicant written
14notice of the grounds for not issuing the license. A notice
15of license denial shall be accompanied by a refund of fifty
16percent of the fee submitted with the application.
174. Fees collected under this section shall be deposited as
18provided in section 505.7 523C.24.
19 Sec. 4. Section 523C.4, Code 2019, is amended to read as
20follows:
21523C.4 License expiration and renewal.
221. Each license issued under this chapter shall expire
23on June 30 next be valid for a period of one year and shall
24be renewed by August 31 of each year following the date of
25issuance. If the service company maintains in force the surety
26bond described in section 523C.5 and if its license is not
27subject to or under suspension or revocation under section
28523C.9, its license shall be renewed by the commissioner upon
29receipt by the commissioner on or before the expiration date
30of a renewal application accompanied by the items required by
31section 523C.3, subsection 2, paragraphs “b”, “c”, “d”, and “e”,
32and section 523C.15.
332. An application for renewal shall include the information
34required for an initial license as described in section 523C.3,
35subsection 1.
-6- 13. The renewal application shall be accompanied by all of
2the following:
3a. A license renewal fee in the amount of five hundred
4dollars.
5b. If applicable, a fee in the amount of three percent of
6the aggregate amount of payments the licensee received for the
7sale or issuance of residential service contracts in this state
8during the preceding fiscal year, provided that such fee shall
9be no less than one hundred dollars and no greater than fifty
10thousand dollars.
11c. If applicable, a fee in the amount of fifty dollars
12for each motor vehicle service contract form submitted in a
13renewal application as provided in section 523C.3, subsection
141, paragraph “f”.
15d. Information regarding the number of motor vehicle service
16contracts or residential service contracts issued during the
17preceding fiscal year, the number canceled or expired during
18the preceding fiscal year, the number in effect at the end of
19the preceding fiscal year, and the amount of service contract
20fees received during the preceding fiscal year.
214. If the commissioner denies renewal of the license, the
22denial shall be in writing setting forth the grounds for denial
23and shall be accompanied by a refund of fifty percent of the
24license renewal fee.
255. In addition to the annual license renewal requirements
26as provided in this section, a licensee shall report to the
27commissioner any material change in information submitted by
28the licensee in its initial license application which has
29not been reported to the commissioner, including a change in
30contact information, a change in ownership, or any other change
31which substantially affects the licensee’s operations in this
32state.
33 Sec. 5. Section 523C.5, Code 2019, is amended by striking
34the section and inserting in lieu thereof the following:
35523C.5 Financial responsibility — demonstration
-7-1requirements.
2In order to assure the faithful performance of a service
3company’s obligations to its contract holders in this state,
4a licensed service company shall demonstrate financial
5responsibility to the commissioner by satisfying one of the
6following, as evidenced by the service company:
71. Insuring all motor vehicle service contracts and
8residential service contracts offered for sale in this state
9under a reimbursement insurance policy that complies with
10section 523C.6.
112. Doing both of the following:
12a. Maintaining a funded reserve account for the service
13company’s obligations under any issued and outstanding service
14contracts in this state, in an amount no less than forty
15percent of gross consideration received, less claims paid, for
16the sale of all service contracts issued and in force in this
17state. The reserve account shall be subject to examination and
18review by the commissioner.
19b. Placing in trust with the commissioner a financial
20security deposit in an amount no less than five percent of
21the gross consideration received by the service company,
22less claims paid, for the sale of all motor vehicle service
23contracts and residential service contracts issued and in force
24in this state, but not less than twenty-five thousand dollars,
25consisting of one of the following:
26(1) Cash.
27(2) Securities of the type eligible for deposit by insurers
28authorized to transact business in this state.
29(3) Certificates of deposit.
30(4) A surety bond issued by an authorized surety company.
31(5) Another form of security as prescribed by the
32commissioner by rule.
333. Doing both of the following:
34a. Maintaining, on its own or together with a parent
35company, a minimum net worth or stockholders’ equity of one
-8-1hundred million dollars or more.
2b. Upon request from the commissioner, providing either:
3(1) A copy of the service company’s financial statements.
4(2) If the service company’s financial statements are
5consolidated with those of its parent company, a copy of the
6parent company’s most recent form 10-K or form 20-F filed with
7the federal securities and exchange commission within the last
8calendar year, or if the parent company does not file with
9the federal securities and exchange commission, a copy of the
10parent company’s audited financial statements showing a net
11worth of at least one hundred million dollars. If the service
12company’s financial statements are consolidated with those of
13its parent company, the service company shall also provide a
14copy of a written agreement by the parent company guaranteeing
15the obligations of the service company under motor vehicle
16service contracts and residential service contracts issued and
17outstanding by the service company in this state.
18 Sec. 6. Section 523C.6, Code 2019, is amended by striking
19the section and inserting in lieu thereof the following:
20523C.6 Reimbursement insurance policy requirements — insurer
21qualifications.
221. Requirements. A reimbursement insurance policy insuring
23a motor vehicle service contract or residential service
24contract issued, sold, or offered for sale in this state shall
25provide for all of the following:
26a. The reimbursement insurance policy shall obligate the
27insurer that issued such policy to reimburse or pay on behalf
28of the service company any covered sums that the service
29company is legally obligated to pay according to the terms of
30the contract or, in the event of nonperformance by the service
31company, provide the service which the service company is
32legally obligated to perform according to the terms of the
33service contract, which shall be conspicuously stated in the
34reimbursement insurance policy.
35b. The reimbursement insurance policy shall entitle a
-9-1service contract holder to make a claim directly against the
2insurance policy if the service company fails to pay or provide
3service on a claim within sixty days after proof of loss is
4filed with the service company.
5c. The insurer that issued a reimbursement insurance policy
6shall be deemed to have received the premiums upon the payment
7of the total purchase price of the service contract by the
8service contract holder.
92. Termination. As applicable, an insurer that issued a
10reimbursement insurance policy shall not terminate the policy
11unless a written notice has been received by the commissioner
12and by each applicable service company. The notice shall
13fix the date of termination at a date no earlier than ten
14days after receipt of the notice by the commissioner. The
15termination of a reimbursement insurance policy shall not
16reduce the issuer’s responsibility for a service contract
17issued by an insured service company prior to the date of
18termination.
193. Indemnification or subrogation. This section does
20not prevent or limit the right of an insurer that issued a
21reimbursement insurance policy to seek indemnification from or
22subrogation against a service company if the insurer pays or
23is obligated to pay a service contract holder sums that the
24service company was obligated to pay pursuant to the provisions
25of a service contract or pursuant to a contractual agreement.
264. Premium tax liability. Payments for the purchase price
27of a service contract by a service contract holder shall be
28exempt from premium tax. However, premiums shall be subject
29to premium tax.
305. Qualifications of insurer. An insurer issuing a
31reimbursement insurance policy under this chapter shall be
32authorized, registered, or otherwise permitted to transact
33business in this state and shall meet one of the following
34requirements:
35a. At the time the policy is filed with the commissioner,
-10-1and continuously thereafter, the insurer maintains surplus
2as to policyholders and paid-in capital of at least fifteen
3million dollars and annually files copies of the insurer’s
4financial statements, national association of insurance
5commissioners annual statement, and actuarial certification, if
6required and filed in the insurer’s state of domicile.
7b. At the time the policy is filed with the commissioner and
8continuously thereafter, the insurer does all of the following:
9(1) Maintains surplus as to policyholders and paid-in
10capital of less than fifteen million dollars but at least ten
11million dollars.
12(2) Demonstrates to the satisfaction of the commissioner
13that the insurer maintains a ratio of net written premiums,
14wherever written, to surplus as to policyholders and paid-in
15capital of not greater than three to one.
16(3) Files copies annually of the insurer’s financial
17statements, national association of insurance commissioners
18annual statement, and actuarial certification, if required and
19filed in the insurer’s state of domicile.
20 Sec. 7. Section 523C.7, Code 2019, is amended by striking
21the section and inserting in lieu thereof the following:
22523C.7 Disclosure to service contract holders — contract
23form — required provisions.
241. A motor vehicle service contract or residential service
25contract shall not be issued, sold, or offered for sale in this
26state unless the service company does all of the following:
27a. Provides a receipt for the purchase of the service
28contract to the service contract holder.
29b. Provides a copy of the service contract to the service
30contract holder within a reasonable period of time after the
31date of purchase of the service contract.
32c. Provides a complete sample copy of the terms and
33conditions of the service contract to the service contract
34holder prior to the date of purchase. A service company may
35comply with this paragraph by providing the service contract
-11-1holder with a complete sample copy of the terms or conditions
2of the service contract, or directing the service contract
3holder to an internet site containing a complete sample copy of
4the terms and conditions of the service contract.
52. A motor vehicle service contract or residential service
6contract issued, sold, or offered for sale in this state shall
7comply with all of the following, as applicable:
8a. A service contract shall be written in clear,
9understandable language in at least eight point font.
10b. (1) A service contract insured by a reimbursement
11insurance policy as provided in section 523C.5, subsection 1,
12shall include a statement in substantially the following form:
13Obligations of the service company under this service
14contract are guaranteed under a reimbursement insurance policy.
15If the service company fails to pay or provide service on a
16claim within sixty days after proof of loss has been filed with
17the service company, the service contract holder is entitled
18to make a claim directly against the reimbursement insurance
19policy.
20(2) A service contract insured by a reimbursement insurance
21policy shall conspicuously state the name and address of the
22issuer of the reimbursement insurance policy for that service
23contract. A claim against a reimbursement insurance policy
24shall also include a claim for return of any refund due in
25accordance with paragraphs “k” and “l”.
26c. A service contract not insured under a reimbursement
27insurance policy shall contain a statement in substantially the
28following form:
29Obligations of the service company under this service
30contract are backed by the full faith and credit of the service
31company and are not guaranteed under a reimbursement insurance
32policy.
33d. A service contract shall state the name and address of
34the service company obligated to perform services under the
35contract, and shall conspicuously identify the service company,
-12-1any third-party administrator, and the service contract holder
2to the extent that the name and address of the service contract
3holder has been furnished. The identities of such parties are
4not required to be printed on the contract in advance and may
5be added to the contract at the time of sale.
6e. A service contract shall clearly state the total purchase
7price of the service contract and the terms under which the
8service contract is sold. The total purchase price is not
9required to be printed on the contract in advance and may be
10added to the contract at the time of sale.
11f. If prior approval of repair work is required, a service
12contract shall conspicuously describe the procedure for
13obtaining prior approval and for making a claim, including a
14toll-free telephone number for claim service, and the procedure
15for obtaining emergency repairs performed outside of normal
16business hours.
17g. A service contract shall clearly state the existence of
18any deductible amount.
19h. A service contract shall specify the merchandise
20or services, or both, to be provided and any limitations,
21exceptions, or exclusions.
22i. A service contract shall clearly state the conditions on
23which the use of substitute parts or services will be allowed.
24Such conditions shall comply with applicable state and federal
25laws.
26j. A service contract shall clearly state any terms,
27restrictions, or conditions governing the transferability of
28the service contract.
29k. A service contract shall clearly state the terms and
30conditions governing the cancellation of the contract prior
31to the termination or expiration date of the contract by the
32service company or the service contract holder. If the service
33company cancels the contract, the service company shall mail a
34written notice of termination to the service contract holder
35at least fifteen days before the date of the termination.
-13-1Prior notice of cancellation by the service company is not
2required if the reason for cancellation is nonpayment of the
3purchase price, a material misrepresentation by the service
4contract holder to the service company or its administrator, or
5a substantial breach of duties by the service contract holder
6relating to the covered product or its use. The notice of
7cancellation shall state the effective date of the cancellation
8and the reason for the cancellation. If a service contract
9is canceled by the service company for any reason other than
10nonpayment of the purchase price, the service company shall
11refund the service contract holder in an amount equal to one
12hundred percent of the unearned purchase price paid, calculated
13on a pro rata basis based upon elapsed time or mileage,
14less any claims paid. The service company may also charge a
15reasonable administrative fee in an amount no greater than ten
16percent of the total purchase price.
17l. (1) A service contract shall permit the original
18service contract holder that purchased the contract to cancel
19and return the service contract within at least twenty days
20of the date of mailing the service contract to the service
21contract holder or within at least ten days after delivery of
22the service contract if the service contract is delivered at
23the time of sale of the service contract, or within a longer
24period of time as permitted under the service contract. If no
25claim has been made under the service contract prior to its
26return, the service contract is void and the full purchase
27price of the service contract shall be refunded to the service
28contract holder. A ten percent penalty shall be added each
29month to a refund that is not paid to a service contract holder
30within thirty days of the return of the service contract to the
31service company.
32(2) If the service contract holder cancels the service
33contract outside of the applicable time as provided in
34subparagraph (1) or after a claim is made under the service
35contract, the service company shall refund the service contract
-14-1holder in an amount equal to one hundred percent of the
2unearned purchase price paid, calculated on a pro rata basis
3based upon elapsed time or mileage, less any claims paid. The
4service company may also charge a reasonable administrative fee
5in an amount no greater than ten percent of the total purchase
6price.
7m. A service contract shall set forth all of the obligations
8and duties of the service contract holder, including but not
9limited to the duty to protect against any further damage,
10and the obligation to follow an owner’s manual or any other
11required service or maintenance.
12n. A service contract shall clearly state whether or not
13the contract provides for or excludes consequential damages
14or preexisting conditions, if applicable. A service contract
15may, but is not required to, cover damage resulting from rust,
16corrosion, or damage caused by a part or system which is not
17covered under the service contract.
18o. A service contract shall clearly state the fee, if any,
19charged on the service contract holder for making a service
20call.
21p. A service contract shall state the name and address of
22the commissioner.
23 Sec. 8. Section 523C.9, Code 2019, is amended to read as
24follows:
25523C.9 Suspension or revocation of license.
261. In addition to the license revocation provisions of
27section 523C.5, the The commissioner may suspend or revoke or
28refuse to renew the license of a service company for any of the
29following grounds:
30a. 1. The service company violated a lawful order of the
31commissioner or any provision of this chapter.
32b. 2. The service company failed to pay any final judgment
33rendered against it in this state within sixty days after the
34judgment became final.
35c. 3. The service company has without just cause refused
-15-1to perform or negligently or incompetently performed services
2required to be performed under its residential service
3contracts and the refusal, or negligent or incompetent
4performance has occurred with such frequency, as the
5commissioner determines, as to indicate the general business
6practices of the service company.
7d. 4. The service company violated section 523C.13.
8e. 5. The service company failed to maintain the net worth
9required by section 523C.6 demonstrate financial responsibility
10pursuant to section 523C.5.
11f. The service company failed to maintain the reserve
12account required by section 523C.11.
13g. 6. The service company failed to maintain its corporate
14certificate of good standing with the secretary of state.
152. If the license of a service company is terminated
16under section 523C.5 because of failure to maintain bond, the
17commissioner shall give written notice of termination to the
18service company. The notice shall include the effective date
19of the termination.
20 Sec. 9. Section 523C.12, Code 2019, is amended to read as
21follows:
22523C.12 Optional examination.
23The commissioner or a designee of the commissioner may
24make an examination of the books and records of a service
25company, including copies of contracts and records of claims
26and expenditures, and verify its assets, liabilities, and
27reserves. The actual costs of the examination shall be borne
28by the service company. The costs of an examination under this
29section shall not exceed an amount equal to ten percent of the
30service company’s reported net income in the previous fiscal
31year.
32 Sec. 10. Section 523C.13, Code 2019, is amended to read as
33follows:
34523C.13 Prohibited acts or practices — penalty — violations
35— contracts voided.
-16- 11. A licensed service company which offers motor
2vehicle service contracts for sale in this state, or its
3representative, shall not, directly or indirectly, represent in
4any manner, whether by written solicitation or telemarketing, a
5false, deceptive, or misleading statement with respect to any
6of the following:
7a. Statements regarding the service company’s affiliation
8with a motor vehicle manufacturer or importer.
9b. Statements regarding the validity or expiration of a
10warranty.
11c. Statements regarding a motor vehicle service contract
12holder’s coverage under a motor vehicle service contract,
13including statements suggesting that the service contract
14holder must purchase a new service contract in order to
15maintain coverage under the existing service contract or
16warranty.
172. The commissioner shall may adopt rules which regulate
18motor vehicle service contracts and residential service
19contracts to prohibit misrepresentation, false advertising,
20defamation, boycotts, coercion, intimidation, false statements
21and entries and unfair discrimination or practices. If the
22commissioner finds that a person has violated the rules adopted
23under this section, the commissioner may order any or all of
24the following:
251. a. Payment of a civil penalty of not more than one
26thousand dollars for each and every act or violation, but not
27to exceed an aggregate of ten thousand dollars, unless the
28person knew or reasonably should have known the person was in
29violation of this section, in which case the penalty shall be
30not more than five thousand dollars for each and every act or
31violation, but not to exceed an aggregate penalty of fifty
32thousand dollars in any one six-month period. The commissioner
33shall, if it finds the violations of this section were
34directed, encouraged, condoned, ignored, or ratified by the
35employer of such person, assess such penalty to the employer
-17-1and not such person. Any civil penalties collected under this
2subsection shall be deposited as provided in section 505.7.
32. b. Suspension or revocation of the license of a person,
4if the person knew or reasonably should have known the person
5was in violation of this section.
63. A violation of this chapter constitutes an unlawful
7practice pursuant to section 714.16.
84. A service contract issued or sold in this state is void
9if the person that issued or sold the service contract, at the
10time of issuance or sale, was not licensed as a service company
11under this chapter.
12 Sec. 11. Section 523C.15, Code 2019, is amended to read as
13follows:
14523C.15 Annual report.
15A licensed service company that does not demonstrate
16financial responsibility by insuring service contracts under a
17reimbursement insurance policy as provided in section 523C.5,
18subsection 1, shall file with the commissioner an annual
19report within ninety days of the close of its fiscal no later
20than August 31 of each year. The annual report shall be in
21a form prescribed by the commissioner and contain all of the
22following:
231. A current financial statement including a balance
24sheet and statement of operations prepared in accordance with
25generally accepted accounting principles and certified by an
26independent certified public accountant.
272. The number of residential service contracts issued
28during the preceding fiscal year, the number canceled or
29expired during the year, the number in effect at year end and
30the amount of residential service contract fees received.
313. 2. Any other information relating to the performance
32and solvency of the residential service company required by the
33commissioner.
34 Sec. 12. Section 523C.16, Code 2019, is amended to read as
35follows:
-18- 1523C.16 Exclusions.
2This chapter does not apply to any of the following and the
3following do not constitute the practice of insurance:
41. A performance guarantee given by a builder of a residence
5or the manufacturer or seller or lessor of residential property
6if no identifiable charge is made for the guarantee.
72. A residential service contract, guarantee or warranty
8between a residential customer and a service company which will
9perform the work itself and not through subcontractors for
10the service, repair or replacement of residential property,
11 appliances, or electrical, plumbing, heating, cooling or
12air-conditioning systems.
133. A contract between a service company issuing residential
14service contracts and a person who actually performs the
15maintenance, repairs, or replacements of structural components,
16or appliances, or electrical, plumbing, heating, cooling, or
17air-conditioning systems, if someone other than the service
18company actually performs these functions.
194. A residential service contract, guarantee or warranty
20issued by a retail merchant to a retail customer, guaranteeing
21or warranting the repair, service or replacement of appliances
22or electrical, plumbing, heating, cooling or air-conditioning
23systems sold by said retail merchant.
245. A residential service contract, guarantee, or warranty
25issued by a manufacturer, third party, or retail company,
26covering the repair, maintenance, or replacement of residential
27property, individual appliances, and other individual items
28of merchandise marketed and sold by a retail company, in the
29ordinary course of business.
306. A motor vehicle service contract issued by the
31manufacturer or importer of the motor vehicle covered by
32the service contract or to any third party acting in an
33administrative capacity on the manufacturer’s behalf in
34connection with that service contract.
357. A residential service contract involving residential
-19-1property containing more than four dwelling units.
28. A warranty.
39. A motor vehicle service contract issued, offered for
4sale, or sold to any person other than a consumer.
510. A maintenance agreement.
6 Sec. 13. Section 523C.17, Code 2019, is amended to read as
7follows:
8523C.17 Lending institutions, service companies, and
9insurance companies.
10A bank, savings association, insurance company, or other
11lending institution shall not require the purchase of a motor
12vehicle service contract or residential service contract as
13a condition of a loan or the sale of any property or motor
14vehicle. A service company or an insurer, either directly or
15indirectly, as a part of any real property transaction in which
16a residential service contract will be issued, purchased, or
17acquired, shall not require that a residential service contract
18be issued, purchased, or acquired in conjunction with or as a
19condition precedent to the issuance, purchase, or acquisition,
20by any person, of a policy of insurance. A lending institution
21shall not sell a residential service contract to a borrower
22unless the borrower signs an affidavit acknowledging that
23the purchase is not required. Violation of this section is
24punishable as provided in section 523C.13.
25 Sec. 14. Section 523C.22, Code 2019, is amended to read as
26follows:
27523C.22 Claim procedures.
28A licensed service company shall promptly provide a written
29explanation to the residential customer service contract
30holder, describing the reasons for denying a claim or for the
31offer of a compromise settlement, based on all relevant facts
32or legal requirements and referring to applicable provisions of
33the residential service contract.
34 Sec. 15. NEW SECTION. 523C.24 Service company oversight
35fund.
-20- 11. A service company oversight fund is created in the
2state treasury as a separate fund under the control of the
3commissioner. The fund shall consist of all moneys deposited
4in the fund pursuant to subsection 2.
52. The commissioner shall deposit in the service company
6oversight fund an amount equal to one-third of all licensing,
7examination, renewal, and inspection fees collected under this
8chapter, provided that the maximum amount of fees deposited
9in the fund each fiscal year shall not exceed five hundred
10thousand dollars. Any remaining fees collected under this
11chapter and not deposited in the service company oversight fund
12shall be deposited as provided in section 505.7.
133. Moneys in the service company oversight fund are
14appropriated to the commissioner for the administration and
15enforcement of this chapter, and for establishing service
16contract consumer complaint, education, and outreach programs.
174. Notwithstanding section 12C.7, subsection 2, interest or
18earnings on moneys deposited in the service company oversight
19fund shall be credited to the fund. Notwithstanding section
208.33, moneys credited to the fund shall not revert at the close
21of a fiscal year.
22 Sec. 16. REPEAL. Chapter 516E, Code 2019, is repealed.
23 Sec. 17. REPEAL. Sections 523C.8, 523C.8A, 523C.11,
24523C.14, and 523C.18, Code 2019, are repealed.
25 Sec. 18. EMERGENCY RULES. The commissioner of insurance
26may adopt emergency rules under section 17A.4, subsection 3,
27and section 17A.5, subsection 2, paragraph “b”, to implement
28the provisions of this Act and the rules shall be effective
29immediately upon filing unless a later date is specified in the
30rules. Any rules adopted in accordance with this section shall
31also be published as a notice of intended action as provided
32in section 17A.4.
33 Sec. 19. EFFECTIVE DATE. This Act, being deemed of
34immediate importance, takes effect upon enactment.
gh/rn/mb
2contract providers regulated by the commissioner of
3insurance, providing fees, making penalties applicable,
4making an appropriation, and including effective date
5provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 523C.1, Code 2019, is amended to read as
2follows:
3523C.1 Definitions.
4As used in this chapter, unless the context otherwise
5requires:
61. “Commissioner” means the commissioner of insurance.
72. “Custodial account” means an account established by
8agreement between a licensed service company and a custodian
9under section 523C.5.
103. “Custodial agreement” means an agreement entered into
11between a licensed service company and a custodian under
12section 523C.5.
134. “Custodian” means an institution meeting the requirements
14established by the commissioner which institution has entered
15into a custodial agreement or reserve account agreement with a
16licensed service company.
175. “Depository” means an institution designated by the
18commissioner as an authorized custodian for purposes of
19sections 523C.5 and 523C.11.
206. 2. “Licensed service company” means a service company
21which is licensed by the commissioner pursuant to this chapter.
223. “Maintenance agreement” means a contract of any duration
23that provides for scheduled maintenance to property.
244. “Motor vehicle” means any self-propelled vehicle subject
25to registration under chapter 321.
265. “Motor vehicle manufacturer” means any of the following:
27a. A person who manufactures or produces motor vehicles
28and sells the motor vehicles under the person’s trade name or
29label.
30b. A person who is a wholly owned subsidiary of any person
31who manufactures or produces motor vehicles.
32c. A person who holds a one hundred percent ownership
33interest in another person who manufactures or produces motor
34vehicles.
35d. A person who does not manufacture or produce motor
-1-1vehicles, but for which motor vehicles are sold under the
2person’s trade name or label.
3e. A person who manufactures or produces motor vehicles,
4but the motor vehicles are sold under the trade name or label
5of another person.
6f. A person who does not manufacture or produce motor
7vehicles, but who licenses the use of the person’s trade name
8or label to another person pursuant to a written contract, who
9then sells motor vehicles under the trade name or label of the
10licensor.
116. “Motor vehicle service contract” means a contract or
12agreement sold for separate consideration for a specific
13duration that undertakes to perform the repair, replacement,
14or maintenance of a motor vehicle, or indemnification for
15such repair, replacement, or maintenance, for the operation
16or structural failure of a motor vehicle due to a defect in
17materials, workmanship, or normal wear and tear, with or
18without additional provisions for the incidental payment
19of indemnity under limited circumstances, including but
20not limited to motor vehicle towing, rental, emergency road
21service, and road hazard protection. “Motor vehicle service
22contract” also includes a contract or agreement sold for
23separate consideration for a specific duration that provides
24for any of the following services or products:
25a. The repair or replacement of motor vehicle tires or
26wheels that are damaged as a result of contact with road
27hazards, including but not limited to potholes, rocks, wood
28debris, metal parts, glass, plastic, curbs, or composite
29scraps.
30b. The removal of dents or creases on a motor vehicle
31under a process that does not use paint or affect the existing
32paint finish, and without sanding, bonding, or replacing motor
33vehicle body panels.
34c. The repair or replacement of motor vehicle windshields
35that are damaged as a result of contact with road hazards.
-2- 1d. The replacement of motor vehicle keys or key fobs in the
2event that such device becomes inoperable, lost, or stolen.
3e. Any other service or product approved by the
4commissioner.
57. “Premium” means the consideration paid to an insurer for
6a reimbursement insurance policy.
77. 8. “Record” means the same as defined in section 516E.1
8information stored or preserved in any medium, including in
9an electronic or paper format. A “record” includes but is
10not limited to documents, books, publications, accounts,
11correspondence, memoranda, agreements, computer files, film,
12microfilm, photographs, and audio or visual tapes.
139. “Reimbursement insurance policy” means a contractual
14liability insurance policy issued to a service company that
15either provides reimbursement to a service company under the
16terms of insured service contracts issued or sold by the
17service company or, in the event of nonperformance by the
18service company, pays, on behalf of the service company, all
19covered contractual obligations incurred by the service company
20under the terms of the insured service contracts issued or sold
21by the service company.
228. “Reserve account agreement” means an agreement entered
23into between a licensed service company and a depository under
24section 523C.11.
259. 10. “Residential service contract” means a contract or
26agreement between a residential customer and a service company
27which undertakes, for a predetermined fee and for a specified
28 any period of time, to service, maintain, repair, or replace,
29or indemnify expenses for all or any part of the operational or
30 structural components, appliances, or electrical, mechanical,
31 plumbing, heating, cooling, or air-conditioning systems of
32residential property containing not more than four dwelling
33units in the state which fails due to normal wear or tear or
34inherent defect. “Residential service contract” also includes
35a contract which provides for the service, repair, replacement,
-3-1or maintenance of property for damage resulting from power
2surges, roof leakage, and accidental damage.
310. 11. “Service company” means a person who issues and
4performs, or arranges to perform, is contractually obligated to
5perform services pursuant to a motor vehicle service contract
6or residential service contract.
712. “Service contract” means a motor vehicle service
8contract or residential service contract.
913. “Warranty” means a statement made solely by the
10manufacturer, importer, or seller of property or services
11without consideration, that is not negotiated or separated from
12the sale of the product and is incidental to the sale of the
13product, and that guarantees indemnity for defective parts,
14mechanical or electrical breakdown, and labor or other remedial
15measures, such as repair or replacement of the property or
16repetition of services.
17 Sec. 2. Section 523C.2, Code 2019, is amended to read as
18follows:
19523C.2 License required.
201. A person shall not issue a, offer for sale, or sell a
21motor vehicle service contract or residential service contract
22or undertake or arrange to perform services pursuant to a
23residential service contract in this state unless the person
24is a corporation or other form of organization approved by the
25commissioner by rule and is a licensed as a service company
26under this chapter.
272. The licensure requirements of this chapter shall not
28apply to any person who provides support services or works
29under the direction of a licensed service company in connection
30with the issuance, offer for sale, or sale of a service
31contract in this state, including but not limited to a person
32who provides marketing, administrative, or technical support.
33 Sec. 3. Section 523C.3, Code 2019, is amended to read as
34follows:
35523C.3 Application for license.
-4- 11. Application for a license as a service company shall
2be made to and filed with the commissioner on forms approved
3by the commissioner and shall include all of the following
4information:
5a. The name and principal address of the applicant.
6b. The state of incorporation of the applicant.
7c. The name and address of the applicant’s registered agent
8for service of process within Iowa.
9d. A certificate of good standing for the applicant issued
10by the secretary of state and dated not more than thirty days
11prior to the date of the application.
12e. Evidence of compliance with section 523C.5.
13f. A copy of each motor vehicle service contract form to be
14used or issued in this state, if applicable.
15g. A copy of each residential service contract form to be
16used or issued in this state, if applicable.
172. The application shall be accompanied by all of the
18following:
19a. A certificate of good standing for the applicant issued
20by the secretary of state and dated not more than thirty days
21prior to the date of the application.
22b. A surety bond, a copy of the receipt from the treasurer
23of state that a cash deposit has been made, or a copy of a
24custodial agreement as provided in section 523C.5.
25c. A copy of the most recent financial statement, including
26balance sheets and related statements of income, of the
27applicant, prepared in accordance with generally accepted
28accounting principles, audited by a certified public accountant
29and dated not more than twelve months prior to the date of the
30application.
31d. An affidavit of an authorized officer of the service
32company stating the number of contracts issued by the service
33company in the preceding calendar year, and stating that the
34net worth of the service company satisfies the requirements of
35section 523C.6.
-5- 1e. a. A license fee in the amount of two five hundred fifty
2 dollars.
3b. If applicable, a fee in the amount of fifty dollars
4for each motor vehicle service contract form submitted in an
5application as provided in subsection 1, paragraph “f”.
63. If the application contains the required information and
7is accompanied by the items set forth in subsection 2, and if
8the net worth requirements of section 523C.6 are satisfied, as
9evidenced by the audited financial statements, the commissioner
10shall issue the license. If the form of application is not
11properly completed or if the required accompanying documents
12are not furnished or in proper form, the commissioner shall
13not issue the license and shall give the applicant written
14notice of the grounds for not issuing the license. A notice
15of license denial shall be accompanied by a refund of fifty
16percent of the fee submitted with the application.
174. Fees collected under this section shall be deposited as
18provided in section 505.7 523C.24.
19 Sec. 4. Section 523C.4, Code 2019, is amended to read as
20follows:
21523C.4 License expiration and renewal.
221. Each license issued under this chapter shall expire
23on June 30 next be valid for a period of one year and shall
24be renewed by August 31 of each year following the date of
25issuance. If the service company maintains in force the surety
26bond described in section 523C.5 and if its license is not
27subject to or under suspension or revocation under section
28523C.9, its license shall be renewed by the commissioner upon
29receipt by the commissioner on or before the expiration date
30of a renewal application accompanied by the items required by
31section 523C.3, subsection 2, paragraphs “b”, “c”, “d”, and “e”,
32and section 523C.15.
332. An application for renewal shall include the information
34required for an initial license as described in section 523C.3,
35subsection 1.
-6- 13. The renewal application shall be accompanied by all of
2the following:
3a. A license renewal fee in the amount of five hundred
4dollars.
5b. If applicable, a fee in the amount of three percent of
6the aggregate amount of payments the licensee received for the
7sale or issuance of residential service contracts in this state
8during the preceding fiscal year, provided that such fee shall
9be no less than one hundred dollars and no greater than fifty
10thousand dollars.
11c. If applicable, a fee in the amount of fifty dollars
12for each motor vehicle service contract form submitted in a
13renewal application as provided in section 523C.3, subsection
141, paragraph “f”.
15d. Information regarding the number of motor vehicle service
16contracts or residential service contracts issued during the
17preceding fiscal year, the number canceled or expired during
18the preceding fiscal year, the number in effect at the end of
19the preceding fiscal year, and the amount of service contract
20fees received during the preceding fiscal year.
214. If the commissioner denies renewal of the license, the
22denial shall be in writing setting forth the grounds for denial
23and shall be accompanied by a refund of fifty percent of the
24license renewal fee.
255. In addition to the annual license renewal requirements
26as provided in this section, a licensee shall report to the
27commissioner any material change in information submitted by
28the licensee in its initial license application which has
29not been reported to the commissioner, including a change in
30contact information, a change in ownership, or any other change
31which substantially affects the licensee’s operations in this
32state.
33 Sec. 5. Section 523C.5, Code 2019, is amended by striking
34the section and inserting in lieu thereof the following:
35523C.5 Financial responsibility — demonstration
-7-1requirements.
2In order to assure the faithful performance of a service
3company’s obligations to its contract holders in this state,
4a licensed service company shall demonstrate financial
5responsibility to the commissioner by satisfying one of the
6following, as evidenced by the service company:
71. Insuring all motor vehicle service contracts and
8residential service contracts offered for sale in this state
9under a reimbursement insurance policy that complies with
10section 523C.6.
112. Doing both of the following:
12a. Maintaining a funded reserve account for the service
13company’s obligations under any issued and outstanding service
14contracts in this state, in an amount no less than forty
15percent of gross consideration received, less claims paid, for
16the sale of all service contracts issued and in force in this
17state. The reserve account shall be subject to examination and
18review by the commissioner.
19b. Placing in trust with the commissioner a financial
20security deposit in an amount no less than five percent of
21the gross consideration received by the service company,
22less claims paid, for the sale of all motor vehicle service
23contracts and residential service contracts issued and in force
24in this state, but not less than twenty-five thousand dollars,
25consisting of one of the following:
26(1) Cash.
27(2) Securities of the type eligible for deposit by insurers
28authorized to transact business in this state.
29(3) Certificates of deposit.
30(4) A surety bond issued by an authorized surety company.
31(5) Another form of security as prescribed by the
32commissioner by rule.
333. Doing both of the following:
34a. Maintaining, on its own or together with a parent
35company, a minimum net worth or stockholders’ equity of one
-8-1hundred million dollars or more.
2b. Upon request from the commissioner, providing either:
3(1) A copy of the service company’s financial statements.
4(2) If the service company’s financial statements are
5consolidated with those of its parent company, a copy of the
6parent company’s most recent form 10-K or form 20-F filed with
7the federal securities and exchange commission within the last
8calendar year, or if the parent company does not file with
9the federal securities and exchange commission, a copy of the
10parent company’s audited financial statements showing a net
11worth of at least one hundred million dollars. If the service
12company’s financial statements are consolidated with those of
13its parent company, the service company shall also provide a
14copy of a written agreement by the parent company guaranteeing
15the obligations of the service company under motor vehicle
16service contracts and residential service contracts issued and
17outstanding by the service company in this state.
18 Sec. 6. Section 523C.6, Code 2019, is amended by striking
19the section and inserting in lieu thereof the following:
20523C.6 Reimbursement insurance policy requirements — insurer
21qualifications.
221. Requirements. A reimbursement insurance policy insuring
23a motor vehicle service contract or residential service
24contract issued, sold, or offered for sale in this state shall
25provide for all of the following:
26a. The reimbursement insurance policy shall obligate the
27insurer that issued such policy to reimburse or pay on behalf
28of the service company any covered sums that the service
29company is legally obligated to pay according to the terms of
30the contract or, in the event of nonperformance by the service
31company, provide the service which the service company is
32legally obligated to perform according to the terms of the
33service contract, which shall be conspicuously stated in the
34reimbursement insurance policy.
35b. The reimbursement insurance policy shall entitle a
-9-1service contract holder to make a claim directly against the
2insurance policy if the service company fails to pay or provide
3service on a claim within sixty days after proof of loss is
4filed with the service company.
5c. The insurer that issued a reimbursement insurance policy
6shall be deemed to have received the premiums upon the payment
7of the total purchase price of the service contract by the
8service contract holder.
92. Termination. As applicable, an insurer that issued a
10reimbursement insurance policy shall not terminate the policy
11unless a written notice has been received by the commissioner
12and by each applicable service company. The notice shall
13fix the date of termination at a date no earlier than ten
14days after receipt of the notice by the commissioner. The
15termination of a reimbursement insurance policy shall not
16reduce the issuer’s responsibility for a service contract
17issued by an insured service company prior to the date of
18termination.
193. Indemnification or subrogation. This section does
20not prevent or limit the right of an insurer that issued a
21reimbursement insurance policy to seek indemnification from or
22subrogation against a service company if the insurer pays or
23is obligated to pay a service contract holder sums that the
24service company was obligated to pay pursuant to the provisions
25of a service contract or pursuant to a contractual agreement.
264. Premium tax liability. Payments for the purchase price
27of a service contract by a service contract holder shall be
28exempt from premium tax. However, premiums shall be subject
29to premium tax.
305. Qualifications of insurer. An insurer issuing a
31reimbursement insurance policy under this chapter shall be
32authorized, registered, or otherwise permitted to transact
33business in this state and shall meet one of the following
34requirements:
35a. At the time the policy is filed with the commissioner,
-10-1and continuously thereafter, the insurer maintains surplus
2as to policyholders and paid-in capital of at least fifteen
3million dollars and annually files copies of the insurer’s
4financial statements, national association of insurance
5commissioners annual statement, and actuarial certification, if
6required and filed in the insurer’s state of domicile.
7b. At the time the policy is filed with the commissioner and
8continuously thereafter, the insurer does all of the following:
9(1) Maintains surplus as to policyholders and paid-in
10capital of less than fifteen million dollars but at least ten
11million dollars.
12(2) Demonstrates to the satisfaction of the commissioner
13that the insurer maintains a ratio of net written premiums,
14wherever written, to surplus as to policyholders and paid-in
15capital of not greater than three to one.
16(3) Files copies annually of the insurer’s financial
17statements, national association of insurance commissioners
18annual statement, and actuarial certification, if required and
19filed in the insurer’s state of domicile.
20 Sec. 7. Section 523C.7, Code 2019, is amended by striking
21the section and inserting in lieu thereof the following:
22523C.7 Disclosure to service contract holders — contract
23form — required provisions.
241. A motor vehicle service contract or residential service
25contract shall not be issued, sold, or offered for sale in this
26state unless the service company does all of the following:
27a. Provides a receipt for the purchase of the service
28contract to the service contract holder.
29b. Provides a copy of the service contract to the service
30contract holder within a reasonable period of time after the
31date of purchase of the service contract.
32c. Provides a complete sample copy of the terms and
33conditions of the service contract to the service contract
34holder prior to the date of purchase. A service company may
35comply with this paragraph by providing the service contract
-11-1holder with a complete sample copy of the terms or conditions
2of the service contract, or directing the service contract
3holder to an internet site containing a complete sample copy of
4the terms and conditions of the service contract.
52. A motor vehicle service contract or residential service
6contract issued, sold, or offered for sale in this state shall
7comply with all of the following, as applicable:
8a. A service contract shall be written in clear,
9understandable language in at least eight point font.
10b. (1) A service contract insured by a reimbursement
11insurance policy as provided in section 523C.5, subsection 1,
12shall include a statement in substantially the following form:
13Obligations of the service company under this service
14contract are guaranteed under a reimbursement insurance policy.
15If the service company fails to pay or provide service on a
16claim within sixty days after proof of loss has been filed with
17the service company, the service contract holder is entitled
18to make a claim directly against the reimbursement insurance
19policy.
20(2) A service contract insured by a reimbursement insurance
21policy shall conspicuously state the name and address of the
22issuer of the reimbursement insurance policy for that service
23contract. A claim against a reimbursement insurance policy
24shall also include a claim for return of any refund due in
25accordance with paragraphs “k” and “l”.
26c. A service contract not insured under a reimbursement
27insurance policy shall contain a statement in substantially the
28following form:
29Obligations of the service company under this service
30contract are backed by the full faith and credit of the service
31company and are not guaranteed under a reimbursement insurance
32policy.
33d. A service contract shall state the name and address of
34the service company obligated to perform services under the
35contract, and shall conspicuously identify the service company,
-12-1any third-party administrator, and the service contract holder
2to the extent that the name and address of the service contract
3holder has been furnished. The identities of such parties are
4not required to be printed on the contract in advance and may
5be added to the contract at the time of sale.
6e. A service contract shall clearly state the total purchase
7price of the service contract and the terms under which the
8service contract is sold. The total purchase price is not
9required to be printed on the contract in advance and may be
10added to the contract at the time of sale.
11f. If prior approval of repair work is required, a service
12contract shall conspicuously describe the procedure for
13obtaining prior approval and for making a claim, including a
14toll-free telephone number for claim service, and the procedure
15for obtaining emergency repairs performed outside of normal
16business hours.
17g. A service contract shall clearly state the existence of
18any deductible amount.
19h. A service contract shall specify the merchandise
20or services, or both, to be provided and any limitations,
21exceptions, or exclusions.
22i. A service contract shall clearly state the conditions on
23which the use of substitute parts or services will be allowed.
24Such conditions shall comply with applicable state and federal
25laws.
26j. A service contract shall clearly state any terms,
27restrictions, or conditions governing the transferability of
28the service contract.
29k. A service contract shall clearly state the terms and
30conditions governing the cancellation of the contract prior
31to the termination or expiration date of the contract by the
32service company or the service contract holder. If the service
33company cancels the contract, the service company shall mail a
34written notice of termination to the service contract holder
35at least fifteen days before the date of the termination.
-13-1Prior notice of cancellation by the service company is not
2required if the reason for cancellation is nonpayment of the
3purchase price, a material misrepresentation by the service
4contract holder to the service company or its administrator, or
5a substantial breach of duties by the service contract holder
6relating to the covered product or its use. The notice of
7cancellation shall state the effective date of the cancellation
8and the reason for the cancellation. If a service contract
9is canceled by the service company for any reason other than
10nonpayment of the purchase price, the service company shall
11refund the service contract holder in an amount equal to one
12hundred percent of the unearned purchase price paid, calculated
13on a pro rata basis based upon elapsed time or mileage,
14less any claims paid. The service company may also charge a
15reasonable administrative fee in an amount no greater than ten
16percent of the total purchase price.
17l. (1) A service contract shall permit the original
18service contract holder that purchased the contract to cancel
19and return the service contract within at least twenty days
20of the date of mailing the service contract to the service
21contract holder or within at least ten days after delivery of
22the service contract if the service contract is delivered at
23the time of sale of the service contract, or within a longer
24period of time as permitted under the service contract. If no
25claim has been made under the service contract prior to its
26return, the service contract is void and the full purchase
27price of the service contract shall be refunded to the service
28contract holder. A ten percent penalty shall be added each
29month to a refund that is not paid to a service contract holder
30within thirty days of the return of the service contract to the
31service company.
32(2) If the service contract holder cancels the service
33contract outside of the applicable time as provided in
34subparagraph (1) or after a claim is made under the service
35contract, the service company shall refund the service contract
-14-1holder in an amount equal to one hundred percent of the
2unearned purchase price paid, calculated on a pro rata basis
3based upon elapsed time or mileage, less any claims paid. The
4service company may also charge a reasonable administrative fee
5in an amount no greater than ten percent of the total purchase
6price.
7m. A service contract shall set forth all of the obligations
8and duties of the service contract holder, including but not
9limited to the duty to protect against any further damage,
10and the obligation to follow an owner’s manual or any other
11required service or maintenance.
12n. A service contract shall clearly state whether or not
13the contract provides for or excludes consequential damages
14or preexisting conditions, if applicable. A service contract
15may, but is not required to, cover damage resulting from rust,
16corrosion, or damage caused by a part or system which is not
17covered under the service contract.
18o. A service contract shall clearly state the fee, if any,
19charged on the service contract holder for making a service
20call.
21p. A service contract shall state the name and address of
22the commissioner.
23 Sec. 8. Section 523C.9, Code 2019, is amended to read as
24follows:
25523C.9 Suspension or revocation of license.
261. In addition to the license revocation provisions of
27section 523C.5, the The commissioner may suspend or revoke or
28refuse to renew the license of a service company for any of the
29following grounds:
30a. 1. The service company violated a lawful order of the
31commissioner or any provision of this chapter.
32b. 2. The service company failed to pay any final judgment
33rendered against it in this state within sixty days after the
34judgment became final.
35c. 3. The service company has without just cause refused
-15-1to perform or negligently or incompetently performed services
2required to be performed under its residential service
3contracts and the refusal, or negligent or incompetent
4performance has occurred with such frequency, as the
5commissioner determines, as to indicate the general business
6practices of the service company.
7d. 4. The service company violated section 523C.13.
8e. 5. The service company failed to maintain the net worth
9required by section 523C.6 demonstrate financial responsibility
10pursuant to section 523C.5.
11f. The service company failed to maintain the reserve
12account required by section 523C.11.
13g. 6. The service company failed to maintain its corporate
14certificate of good standing with the secretary of state.
152. If the license of a service company is terminated
16under section 523C.5 because of failure to maintain bond, the
17commissioner shall give written notice of termination to the
18service company. The notice shall include the effective date
19of the termination.
20 Sec. 9. Section 523C.12, Code 2019, is amended to read as
21follows:
22523C.12 Optional examination.
23The commissioner or a designee of the commissioner may
24make an examination of the books and records of a service
25company, including copies of contracts and records of claims
26and expenditures, and verify its assets, liabilities, and
27reserves. The actual costs of the examination shall be borne
28by the service company. The costs of an examination under this
29section shall not exceed an amount equal to ten percent of the
30service company’s reported net income in the previous fiscal
31year.
32 Sec. 10. Section 523C.13, Code 2019, is amended to read as
33follows:
34523C.13 Prohibited acts or practices — penalty — violations
35— contracts voided.
-16- 11. A licensed service company which offers motor
2vehicle service contracts for sale in this state, or its
3representative, shall not, directly or indirectly, represent in
4any manner, whether by written solicitation or telemarketing, a
5false, deceptive, or misleading statement with respect to any
6of the following:
7a. Statements regarding the service company’s affiliation
8with a motor vehicle manufacturer or importer.
9b. Statements regarding the validity or expiration of a
10warranty.
11c. Statements regarding a motor vehicle service contract
12holder’s coverage under a motor vehicle service contract,
13including statements suggesting that the service contract
14holder must purchase a new service contract in order to
15maintain coverage under the existing service contract or
16warranty.
172. The commissioner shall may adopt rules which regulate
18motor vehicle service contracts and residential service
19contracts to prohibit misrepresentation, false advertising,
20defamation, boycotts, coercion, intimidation, false statements
21and entries and unfair discrimination or practices. If the
22commissioner finds that a person has violated the rules adopted
23under this section, the commissioner may order any or all of
24the following:
251. a. Payment of a civil penalty of not more than one
26thousand dollars for each and every act or violation, but not
27to exceed an aggregate of ten thousand dollars, unless the
28person knew or reasonably should have known the person was in
29violation of this section, in which case the penalty shall be
30not more than five thousand dollars for each and every act or
31violation, but not to exceed an aggregate penalty of fifty
32thousand dollars in any one six-month period. The commissioner
33shall, if it finds the violations of this section were
34directed, encouraged, condoned, ignored, or ratified by the
35employer of such person, assess such penalty to the employer
-17-1and not such person. Any civil penalties collected under this
2subsection shall be deposited as provided in section 505.7.
32. b. Suspension or revocation of the license of a person,
4if the person knew or reasonably should have known the person
5was in violation of this section.
63. A violation of this chapter constitutes an unlawful
7practice pursuant to section 714.16.
84. A service contract issued or sold in this state is void
9if the person that issued or sold the service contract, at the
10time of issuance or sale, was not licensed as a service company
11under this chapter.
12 Sec. 11. Section 523C.15, Code 2019, is amended to read as
13follows:
14523C.15 Annual report.
15A licensed service company that does not demonstrate
16financial responsibility by insuring service contracts under a
17reimbursement insurance policy as provided in section 523C.5,
18subsection 1, shall file with the commissioner an annual
19report within ninety days of the close of its fiscal no later
20than August 31 of each year. The annual report shall be in
21a form prescribed by the commissioner and contain all of the
22following:
231. A current financial statement including a balance
24sheet and statement of operations prepared in accordance with
25generally accepted accounting principles and certified by an
26independent certified public accountant.
272. The number of residential service contracts issued
28during the preceding fiscal year, the number canceled or
29expired during the year, the number in effect at year end and
30the amount of residential service contract fees received.
313. 2. Any other information relating to the performance
32and solvency of the residential service company required by the
33commissioner.
34 Sec. 12. Section 523C.16, Code 2019, is amended to read as
35follows:
-18- 1523C.16 Exclusions.
2This chapter does not apply to any of the following and the
3following do not constitute the practice of insurance:
41. A performance guarantee given by a builder of a residence
5or the manufacturer or seller or lessor of residential property
6if no identifiable charge is made for the guarantee.
72. A residential service contract, guarantee or warranty
8between a residential customer and a service company which will
9perform the work itself and not through subcontractors for
10the service, repair or replacement of residential property,
11 appliances, or electrical, plumbing, heating, cooling or
12air-conditioning systems.
133. A contract between a service company issuing residential
14service contracts and a person who actually performs the
15maintenance, repairs, or replacements of structural components,
16or appliances, or electrical, plumbing, heating, cooling, or
17air-conditioning systems, if someone other than the service
18company actually performs these functions.
194. A residential service contract, guarantee or warranty
20issued by a retail merchant to a retail customer, guaranteeing
21or warranting the repair, service or replacement of appliances
22or electrical, plumbing, heating, cooling or air-conditioning
23systems sold by said retail merchant.
245. A residential service contract, guarantee, or warranty
25issued by a manufacturer, third party, or retail company,
26covering the repair, maintenance, or replacement of residential
27property, individual appliances, and other individual items
28of merchandise marketed and sold by a retail company, in the
29ordinary course of business.
306. A motor vehicle service contract issued by the
31manufacturer or importer of the motor vehicle covered by
32the service contract or to any third party acting in an
33administrative capacity on the manufacturer’s behalf in
34connection with that service contract.
357. A residential service contract involving residential
-19-1property containing more than four dwelling units.
28. A warranty.
39. A motor vehicle service contract issued, offered for
4sale, or sold to any person other than a consumer.
510. A maintenance agreement.
6 Sec. 13. Section 523C.17, Code 2019, is amended to read as
7follows:
8523C.17 Lending institutions, service companies, and
9insurance companies.
10A bank, savings association, insurance company, or other
11lending institution shall not require the purchase of a motor
12vehicle service contract or residential service contract as
13a condition of a loan or the sale of any property or motor
14vehicle. A service company or an insurer, either directly or
15indirectly, as a part of any real property transaction in which
16a residential service contract will be issued, purchased, or
17acquired, shall not require that a residential service contract
18be issued, purchased, or acquired in conjunction with or as a
19condition precedent to the issuance, purchase, or acquisition,
20by any person, of a policy of insurance. A lending institution
21shall not sell a residential service contract to a borrower
22unless the borrower signs an affidavit acknowledging that
23the purchase is not required. Violation of this section is
24punishable as provided in section 523C.13.
25 Sec. 14. Section 523C.22, Code 2019, is amended to read as
26follows:
27523C.22 Claim procedures.
28A licensed service company shall promptly provide a written
29explanation to the residential customer service contract
30holder, describing the reasons for denying a claim or for the
31offer of a compromise settlement, based on all relevant facts
32or legal requirements and referring to applicable provisions of
33the residential service contract.
34 Sec. 15. NEW SECTION. 523C.24 Service company oversight
35fund.
-20- 11. A service company oversight fund is created in the
2state treasury as a separate fund under the control of the
3commissioner. The fund shall consist of all moneys deposited
4in the fund pursuant to subsection 2.
52. The commissioner shall deposit in the service company
6oversight fund an amount equal to one-third of all licensing,
7examination, renewal, and inspection fees collected under this
8chapter, provided that the maximum amount of fees deposited
9in the fund each fiscal year shall not exceed five hundred
10thousand dollars. Any remaining fees collected under this
11chapter and not deposited in the service company oversight fund
12shall be deposited as provided in section 505.7.
133. Moneys in the service company oversight fund are
14appropriated to the commissioner for the administration and
15enforcement of this chapter, and for establishing service
16contract consumer complaint, education, and outreach programs.
174. Notwithstanding section 12C.7, subsection 2, interest or
18earnings on moneys deposited in the service company oversight
19fund shall be credited to the fund. Notwithstanding section
208.33, moneys credited to the fund shall not revert at the close
21of a fiscal year.
22 Sec. 16. REPEAL. Chapter 516E, Code 2019, is repealed.
23 Sec. 17. REPEAL. Sections 523C.8, 523C.8A, 523C.11,
24523C.14, and 523C.18, Code 2019, are repealed.
25 Sec. 18. EMERGENCY RULES. The commissioner of insurance
26may adopt emergency rules under section 17A.4, subsection 3,
27and section 17A.5, subsection 2, paragraph “b”, to implement
28the provisions of this Act and the rules shall be effective
29immediately upon filing unless a later date is specified in the
30rules. Any rules adopted in accordance with this section shall
31also be published as a notice of intended action as provided
32in section 17A.4.
33 Sec. 19. EFFECTIVE DATE. This Act, being deemed of
34immediate importance, takes effect upon enactment.
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