BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 1130 (Wilk) Hearing Date: June 25, 2014
As Amended: April 18, 2013
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor (05/30/13)78-0/Pass
Asm. Appr. (05/15/13)17-0/Pass
Asm. Ins. (04/24/13)13-0/Pass
SUMMARY Streamlines the application process required of
out-of-state applicants for a home protection company license.
DIGEST
Existing law
1. Defines "home protection contract" to mean a contract
whereby a person, other than a builder, seller, or lessor of
the home, undertakes for a specified period of time, for a
predetermined fee, to repair or replace all or any part of
any component, system or appliance of a home necessitated by
wear and tear, deterioration or inherent defect, arising
during the effective period of the contract.
2. Requires that the contract provide for the servicing,
repair, or replacement of the covered appliances or
components, but may not cover damages arising from the
failure of any component, system or appliance.
3. Requires home protection companies to be licensed and
regulated by the California Department of Insurance (CDI).
4. Requires home protection companies to comply with specified
statutes governing insurance companies.
AB 1130 (Wilk), Page 2
This bill
1. Exempts foreign applicants for a home protection company
license from the following requirements if the chief
executive officer agrees to provide the CDI the same
financial reports required of domestic home protection
companies:
a. Filing a financial statement certified by their
domestic regulator.
b. Filing a report of examination by the insurance
regulator in their home state.
c. Holding a certificate of authority as an insurance
company.
COMMENTS
1. Purpose of the bill . According to the author, existing law
creates an expensive and unnecessary roadblock for existing
home protection companies in other states to obtain a
license in California, if the out of state company is not
licensed as an insurer in the company's home state. In many
states home protection companies are regulated by the state
attorney general or consumer affairs or real estate
regulators. In these cases, even applicants who have solid
experience in many states are required to undergo the
expensive and time-consuming process of obtaining licensure
as a California insurer. This bill would permit companies
operating in other states to offer home protection contracts
in California without obtaining a separate certificate of
authority here.
2. Background . According to the sponsor, home protection
contracts, often referred to as "home warranties," are often
purchased in connection with the sale of homes to provide
buyers with coverage should the wear and tear on home
appliances and systems require repair or replacement. The
AB 1130 (Wilk), Page 3
contracts are short in duration, often for a year but
sometimes monthly, and do not carry the "long-tail"
liability typical of more insurance products like life or
long-term care insurance.
Home protection contracts might not be considered
"insurance" in other states because of the nature of the
coverage. Academically, property and casualty insurance is
often thought of as covering only those risks that are
accidental or by chance. This is sometimes referred to as
the fortuity doctrine. Some states, however, do not view
home protection contracts as a form of insurance, but rather
distinguish service or maintenance contract because they
cover damages that relate to predictable and controllable
wear and tear.
California regulates home protection companies similarly to
insurers. Companies from out-of-state may be subject to
numerous requirements not required in its home state. This
bill provides that out-of-state home protection companies
selling contracts in California do not have to file copies
of certain documents to obtain a license if the companies
home state regulatory official does not require the
document. (So if the state's attorney general oversees
these companies and does not require one of the listed
documents, California will not require a copy of that
document either.) However, the company will have to file
the financial documents required in its home state.
3. Argument in Support . The NHSCA writes that the bill grants
CDI the authority to waive certain pre-licensing
requirements for new out-of-state applicants which are not
licensed as insurers in their home states. In many states,
home protection or home warranty companies are not required
to obtain insurance licenses, and in some circumstances it
should not be necessary for applicants to obtain insurance
licenses in California if they have been operating
successfully in other states.
4. Arguments in Opposition
None received.
5. Suggested Amendments . The author, sponsor, and CDI engaged
in significant discussion to streamline the regulatory
AB 1130 (Wilk), Page 4
requirements relating to home protection licensees. Based
on that agreement, the committee may wish to consider
amendments that accomplish the following:
a. Replace Quarterly with Annual Financial Reports.
California law requires home protection licensees to
submit both quarterly and annual financial statements to
the CDI. The proposed amendment would replace the
quarterly statement requirement to and annual statements,
leaving the CDI the authority request financial statements
at any time it deems necessary. According to the sponsor,
National Home Service Contract Association (NHSCA), no
other state currently requires home service/home
protection companies to submit quarterly reports. NHSCA
also contends that given the low regulatory risk of home
protection companies, submission of an annual financial
statement is adequate to protect the public. The sponsor
argues that the financial condition of home protection
companies simply does not change sufficiently from quarter
to quarter to make such reporting necessary, and annual
financial statements will be fully adequate to protect the
public.
b. Limit Financial Examinations. Clarify that the CDI
will conduct financial examinations not more frequently
than every five years, unless circumstances warrant an
interim exam. According to the sponsor, financial
examinations are expensive for both licensees and the CDI.
Under the amendment, the CDI retains the exam authority
if there is evidence that the condition of the licensee
has deteriorated. Market conduct exams are not affected
by this change.
POSITIONS
Support
National Home Service Contract Association (Sponsor)
Oppose
None received.
Consultant: Hugh Slayden (916) 651-4773
AB 1130 (Wilk), Page 5