BILL NUMBER: AB 1008 CHAPTERED 10/08/07 CHAPTER 326 FILED WITH SECRETARY OF STATE OCTOBER 8, 2007 APPROVED BY GOVERNOR OCTOBER 8, 2007 PASSED THE SENATE AUGUST 27, 2007 PASSED THE ASSEMBLY AUGUST 30, 2007 AMENDED IN SENATE JULY 9, 2007 AMENDED IN SENATE JUNE 25, 2007 AMENDED IN SENATE JUNE 12, 2007 AMENDED IN SENATE JUNE 11, 2007 AMENDED IN ASSEMBLY APRIL 10, 2007 INTRODUCED BY Assembly Member Charles Calderon FEBRUARY 22, 2007 An act to amend Sections 12800, 12805, and 12820 of, and to add Section 12836 to, the Insurance Code, relating to insurance. LEGISLATIVE COUNSEL'S DIGEST AB 1008, Charles Calderon. Insurance: vehicle service contracts. Existing law defines "vehicle service contract" for purposes of provisions relating to sellers of vehicles. This bill would change the definition of "vehicle service contract" to include only those agreements that have a term of at least one year that promise routine maintenance, and agreements that promise repair or replacement of a tire, wheel, or glass on a vehicle, as specified. Under existing law, certain types of agreements or contracts do not constitute insurance, including a maintenance service contract with a term of one year or less that does not contain provisions for indemnification and does not provide a discount to the purchaser, as specified. This bill would delete that provision and instead provide that an agreement promising only routine maintenance that does not constitute a vehicle service contract does not constitute insurance. Existing law provides that prior to offering a vehicle service contract form to a purchaser or providing a vehicle service contract form to a seller, an obligor shall file with the commissioner a specimen of that vehicle service contract form. This bill would provide that a vehicle service contract may include any or all specified benefits, subject to specified requirements. Existing law provides that prior to incurring an obligation under a vehicle service contract, an obligor shall file with the commissioner, as specified, a policy covering 100% of the obligor's vehicle service contract obligation. This bill would provide that in lieu of filing an insurance policy as specified prior to incurring an obligation under a vehicle service contract, an obligor or its parent company may establish to the commissioner's satisfaction that it possesses a net worth of $100,000,000 and provides the commissioner, upon request, with specified documentation. The bill would also provide that if the obligor elects to meet the net worth requirement through the parent company, the parent company shall agree in writing to guarantee the obligations of the obligor relating to contracts of the obligor issued in this state. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 12800 of the Insurance Code is amended to read: 12800. The following definitions apply for purposes of this part: (a) "Motor vehicle" means a self-propelled device operated solely or primarily upon land and may include both self-propelled motor homes or recreational vehicles, non-self-propelled camping and recreational trailers, off-road vehicles, and trailers designed to transport off-road vehicles. However, "motor vehicle" shall not include a self-propelled vehicle, or a component part of such a vehicle, that has any of the following characteristics: (1) Has a gross vehicle weight rating of 30,000 pounds or more, and is not a recreational vehicle as defined by Section 18010 of the Health and Safety Code. (2) Is designed to transport more than 15 passengers, including the driver. (3) Is used in the transportation of materials considered hazardous pursuant to the Hazardous Materials Transportation Act (49 U.S.C. Sec. 5101 et seq.), as amended. (b) "Watercraft" means a vessel, as defined in Section 21 of the Harbors and Navigation Code, and may include any non-self-propelled trailer used to transport such watercraft upon land. (c) (1) "Vehicle service contract" means a contract or agreement for a separately stated consideration and for a specific duration to repair, replace, or maintain a motor vehicle or watercraft, or to indemnify for the repair, replacement, or maintenance of a motor vehicle or watercraft, necessitated by an operational or structural failure due to a defect in materials or workmanship, or due to normal wear and tear. (2) A vehicle service contract may also provide for the incidental payment of indemnity under limited circumstances only in the form of the following additional benefits: coverage for towing, substitute transportation, emergency road service, rental car reimbursement, reimbursement of deductible amounts under a manufacturer's warranty, and reimbursement for travel, lodging, or meals. (3) "Vehicle service contract" also includes an agreement of a term of at least one year, for separately stated consideration, that promises routine maintenance. (4) Notwithstanding Section 116, and paragraphs (1) and (2) of this subdivision, a vehicle service contract also includes one or more of the following: (A) An agreement that promises the repair or replacement of a tire or wheel necessitated by wear and tear, defect, or damage caused by a road hazard. However, an agreement that promises the repair or replacement of a tire necessitated by wear and tear, defect, or damage caused by a road hazard, in which the obligor is the tire manufacturer, is exempt from the requirements of this part. A warranty provided by a tire or wheel distributor or retailer is exempt from the requirements of this part as long as the warranty covers only defects in the material or workmanship of the tire or wheel. (B) An agreement that promises the repair or replacement of glass on a vehicle necessitated by wear and tear, defect, or damage caused by a road hazard. However, a warranty provided by a vehicle glass manufacturer is exempt from the requirements of this part. A warranty provided by a vehicle glass distributor or retailer is exempt from the requirements of this part as long as the warranty covers only defects in the material or workmanship of the vehicle glass. (C) An agreement that promises the removal of a dent, ding, or crease without affecting the existing paint finish using paintless dent repair techniques, and which expressly excludes the replacement of vehicle body panels, sanding, bonding, or painting. (d) "Service contract administrator" or "administrator" means any person, other than an obligor, who performs or arranges, directly or indirectly, the collection, maintenance, or disbursement of moneys to compensate any party for claims or repairs pursuant to a vehicle service contract, and who also performs or arranges, directly or indirectly, any of the following activities with respect to vehicle service contracts in which a seller located within this state is the obligor: (1) Providing sellers with service contract forms. (2) Participating in the adjustment of claims arising from service contracts. (e) "Purchaser" means any person who purchases a vehicle service contract from a seller. (f) "Seller" means either of the following: (1) With respect to motor vehicles, a dealer or lessor-retailer licensed in one of those capacities by the Department of Motor Vehicles and who sells vehicle service contracts incidental to his or her business of selling or leasing motor vehicles. (2) With respect to watercraft, a person who sells vehicle service contracts incidental to that person's business of selling or leasing watercraft vehicles. (g) "Obligor" means the entity legally obligated under the terms of a service contract. SEC. 2. Section 12805 of the Insurance Code is amended to read: 12805. (a) Notwithstanding Sections 103 and 116, the following types of agreements shall not constitute insurance: (1) A vehicle service contract that does each of the following: (A) Names as the obligor a motor vehicle manufacturer or distributor licensed in that capacity by the Department of Motor Vehicles, or a watercraft manufacturer. (B) Covers only motor vehicles or watercraft manufactured, distributed, or sold by that obligor. (2) A vehicle service contract in which the obligor is a seller, provided that the obligor complies with all provisions of this part except Section 12815. (3) A vehicle service contract sold by a seller in which the obligor is a party other than the seller, provided that the obligor complies with all provisions of this part. (4) An agreement in which the obligor is a motor vehicle or watercraft part manufacturer, distributor, or retailer, that covers no more than the following items: (A) The repair or replacement of a part manufactured, distributed, or retailed by that obligor. (B) Consequential and incidental damage resulting from the failure of that part. (5) An agreement in which the obligor is a repair facility, that is entered into pursuant and subsequent to repair work previously performed by that repair facility, and that is limited in scope to the following: (A) The repair or replacement of the part that was previously repaired. (B) Consequential and incidental damage resulting from the failure of that part. (6) An agreement promising only routine maintenance that does not constitute a vehicle service contract. (b) The types of agreements described in paragraphs (4), (5), and (6) of subdivision (a) are exempt from all provisions of this part. (c) Vehicle service contracts described in paragraph (1) of subdivision (a) are exempt from the provisions of Sections 12815, 12830, 12835, and 12845. SEC. 3. Section 12820 of the Insurance Code is amended to read: 12820. (a) Prior to offering a vehicle service contract form to a purchaser or providing a vehicle service contract form to a seller, an obligor shall file with the commissioner a specimen of that vehicle service contract form. (b) A vehicle service contract form may include any or all of the benefits described in subdivision (c) of Section 12800 and shall comply with all of the following requirements: (1) (A) If an obligor has complied with Section 12830, the vehicle service contract shall include a disclosure in substantially the following form: "Performance to you under this contract is guaranteed by a California approved insurance company. You may file a claim with this insurance company if any promise made in the contract has been denied or has not been honored within 60 days after your request. The name and address of the insurance company is: (insert name and address). If you are not satisfied with the insurance company's response, you may contact the California Department of Insurance at 1-800-927-4357." (B) If an obligor has complied with Section 12836, the vehicle service contract shall include a disclosure in substantially the following form: "If any promise made in the contract has been denied or has not been honored within 60 days after your request, you may contact the California Department of Insurance at 1-800-927-4357." (2) All vehicle service contract language that excludes coverage, or imposes duties upon the purchaser, shall be conspicuously printed in boldface type no smaller than the surrounding type. (3) The vehicle service contract shall do each of the following: (A) State the obligor's full corporate name or a fictitious name approved by the commissioner, the obligor's mailing address, the obligor's telephone number, and the obligor's vehicle service contract provider license number. (B) State the name of the purchaser and the name of the seller. (C) Conspicuously state the vehicle service contract's purchase price. (D) Comply with Sections 1794.4 and 1794.41 of the Civil Code. (E) Name the administrator, if any, and provide the administrator' s license number. (4) If the vehicle service contract excludes coverage for preexisting conditions, the contract must disclose this exclusion in 12-point type. (c) The following benefits constitute insurance, whether offered as part of a vehicle service contract or in a separate agreement: (1) Indemnification for a loss caused by misplacement, theft, collision, fire, or other peril typically covered in the comprehensive coverage section of an automobile insurance policy, a homeowner's policy, or a marine or inland marine policy. (2) Locksmith services, unless offered as part of an emergency road service benefit. SEC. 4. Section 12836 is added to the Insurance Code, to read: 12836. In lieu of complying with Section 12830, an obligor or its parent company may establish to the commissioner's satisfaction that it possesses a net worth of one hundred million dollars ($100,000,000). The obligor shall, upon request, provide the commissioner with all documents and affidavits necessary to establish the net worth, including, but not limited to, a copy of the obligor' s financial statements or the obligor's parent company's financial statements, and affidavits by the president and chief financial officer attesting to the net worth of the obligor or the obligor's parent company. If the obligor elects to meet the net worth requirement through the parent company, the parent company shall agree in writing to guarantee the obligations of the obligor relating to contracts of the obligor issued in this state.