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