California Legislature—2015–16 Regular Session

Assembly BillNo. 2354


Introduced by Assembly Member Calderon

February 18, 2016


An act to amend Sections 12140, 12800, 12805, and 12820 of, and to repeal Section 116.5 of, the Insurance Code, relating to vehicle service contracts.

LEGISLATIVE COUNSEL’S DIGEST

AB 2354, as introduced, Calderon. Vehicle service contracts.

Existing law provides that an express warranty warranting a motor vehicle lubricant, treatment, fluid, or additive that covers incidental or consequential damage resulting from a failure of the lubricant, treatment, fluid, or additive shall constitute automobile insurance, unless specified requirements are met.

This bill would repeal this provision.

Existing law provides that a “vehicle service contract,” except as provided, is insurance and is regulated by the Department of Insurance. A person, other than a seller of motor vehicles, is prohibited from selling or offering for sale a vehicle service contract. An obligor, the entity legally obligated under the terms of a service contract, who is not a seller, is required to possess a vehicle service contract license, as provided. “Vehicle service contract” is defined for the purposes of these provisions.

This bill, among other things, would add to the definition of a “vehicle service contract” an agreement, that promises the replacement of a motor vehicle key or key fob in the event that the key or key fob becomes inoperable or is lost or stolen, and an agreement covering any of the vehicle’s mechanical components, provided with or without separate consideration, that promises 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, conditioned upon the use of a specific brand or brands of lubricant, treatment, fluid, or additive.

This bill would delete from the definition of “vehicle service contract” an agreement of a term of at least one year, for separately stated consideration, that promises routine maintenance, and would specify that this type of agreement is not insurance. The bill would also specify that an agreement whereby an employer, or a 3rd party contracted by the employer, provides mileage reimbursement and incidental maintenance and repairs to its employees for personal vehicles used for business purposes is not a vehicle service contract or insurance. The bill would also define the term “road hazard” as a hazard that is encountered while driving a motor vehicle and that may include, but is not limited to, potholes, rocks, wood debris, metal parts, glass, plastic, curbs, or composite scraps for purposes of vehicle service contract coverage.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

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SECTION 1.  

Section 116.5 of the Insurance Code is repealed.

begin delete
2

116.5.  

An express warranty warranting a motor vehicle
3lubricant, treatment, fluid, or additive that covers incidental or
4consequential damage resulting from a failure of the lubricant,
5treatment, fluid, or additive, shall constitute automobile insurance,
6unless all of the following requirements are met:

7(a) The obligor is the primary manufacturer of the product. For
8the purpose of this section, “manufacturer” means a person who
9can prove clearly and convincingly that the per unit cost of owned
10or leased capital goods, including the factory, used to produce the
11product, plus the per unit cost of nonsubcontracted labor used to
12produce the product, exceeds twice the per unit cost of raw
13materials used to produce the product. “Manufacturer” also means
14a person who has formulated or produced, and continuously offered
15in this state for more than nine years, a motor vehicle lubricant,
16treatment, fluid, or additive.

P3    1(b) The commissioner has issued a written determination that
2the obligor is a manufacturer as defined in subdivision (a). An
3obligor shall provide the commissioner with all information,
4documents, and affidavits reasonably necessary for this
5determination to be made. Approval by the commissioner shall be
6obtained prior to January 1, 2004, or prior to the issuance of a
7warranty subject to this section, whichever is later. If the
8commissioner determines that the obligor is not a manufacturer,
9the obligor may obtain a hearing in accordance with Chapter 4.5
10(commencing with Section 11400) of Part 1 of Division 3 of Title
112 of the Government Code.

12(c) The agreement covers only damage incurred while the
13product was in the vehicle.

14(d) The agreement is provided automatically with the product
15at no extra charge.

end delete
16

SEC. 2.  

Section 12140 of the Insurance Code is amended to
17read:

18

12140.  

This part shall not apply to any of the following:

19(a) A duly authorized attorney at law acting in the usual course
20of his profession.

21(b) begin deleteAny end deletebegin insertAn end insertadmitted insurer.

22(c) begin deleteAny end deletebegin insertAn end insertassociation of motor carriers.

23(d) begin deleteAny end deletebegin insertA end insertperson who is directly or indirectly engaged, either
24as principal or agent, in selling or offering for sale, furnishing, or
25procuring any of the services described in Section 12148, 12152,
26or 12153, or miscellaneous service that augments or is incidental
27to any of those services, but who is not directly or indirectly
28engaged, either as principal or agent, in selling or offering for sale,
29furnishing, or procuring any other service described in this chapter.

begin insert

30(e) A person who is licensed as a vehicle service contract
31provider and offering any of the services described in subdivision
32(c) of Section 12800, to the extent that person is providing the
33services described therein.

end insert
begin insert

34(f) A person offering the services described in paragraph (4) of
35subdivision (c) of Section 12800, to the extent that person is
36providing the services described therein.

end insert
begin insert

37(g) An agreement for separately stated consideration that
38promises routine maintenance.

end insert
39

SEC. 3.  

Section 12800 of the Insurance Code is amended to
40read:

P4    1

12800.  

The following definitions apply for purposes of this
2part:

3(a) “Motor vehicle” means a self-propelled device operated
4solely or primarily upon land and may include both self-propelled
5motor homes or recreational vehicles, non-self-propelled camping
6and recreational trailers, off-road vehicles, and trailers designed
7to transport off-road vehicles. However, “motor vehicle” shall not
8include a self-propelled vehicle, or a component part of such a
9vehicle, that has any of the following characteristics:

10(1) Has a gross vehicle weight rating of 30,000 pounds or more,
11and is not a recreational vehicle as defined by Section 18010 of
12the Health and Safety Code.

13(2) Is designed to transport more than 15 passengers, including
14the driver.

15(3) Is used in the transportation of materials considered
16hazardous pursuant to the Hazardous Materials Transportation Act
17(49 U.S.C. Sec. 5101 et seq.), as amended.

18(b) “Watercraft” means a vessel, as defined in Section 21 of the
19Harbors and Navigation Code, and may include any
20non-self-propelled trailer used to transport such watercraft upon
21land.

22(c) (1) “Vehicle service contract” means a contract or agreement
23for a separately stated consideration and for a specific duration to
24repair, replace, or maintain a motor vehicle or watercraft, or to
25indemnify for the repair, replacement, or maintenance of a motor
26vehicle or watercraft, necessitated by an operational or structural
27failure due to a defect in materials or workmanship, or due to
28normal wear and tear.

29(2) begin insert(A)end insertbegin insertend insertA vehicle service contract may also provide for the
30incidental payment of indemnity under limited circumstances only
31in the form of the following additional benefits: coverage for
32towing, substitute transportation, emergency road service, rental
33car reimbursement, reimbursement of deductible amounts under
34a manufacturer’s warranty, and reimbursement for travel, lodging,
35or meals.

begin delete

36(3) “Vehicle service contract” also includes an agreement of a
37term of at least one year, for separately stated consideration, that
38promises routine maintenance.

end delete
begin insert

39(B) For purposes of this paragraph, indemnity benefits are
40incidental if the cost to provide them based on historical data, or
P5    1projected data if historical data is unavailable or insufficient, is
2substantially less than the cost of providing all the benefits
3described in paragraphs (1) and (3).

end insert
begin delete

4(4)

end delete

5begin insert(3)end insert Notwithstanding Section 116, and paragraphs (1) and (2) of
6this subdivision, a vehicle service contract also includes one or
7more of the following:

8(A) An agreement that promises the repair or replacement of a
9tire or wheel necessitated by wear and tear, defect, or damage
10caused by a road hazard. However, an agreement that promises
11the repair or replacement of a tire necessitated by wear and tear,
12defect, or damage caused by a road hazard, in which the obligor
13is the tire manufacturer, is exempt from the requirements of this
14part. A warranty provided by a tire or wheel distributor or retailer
15is exempt from the requirements of this part as long as the warranty
16covers only defects in the material or workmanship of the tire or
17wheel.

18(B) An agreement that promises the repair or replacement of
19glass on a vehicle necessitated by wear and tear, defect, or damage
20caused by a road hazard. However, a warranty provided by a
21vehicle glass or glass sealant manufacturer is exempt from the
22requirements of this part. A warranty provided by a vehicle glass
23distributor or retailer is exempt from the requirements of this part
24as long as the warranty covers only defects in the material or
25workmanship of the vehicle glass.

26(C) An agreement that promises the removal of a dent, ding, or
27crease without affecting the existing paint finish using paintless
28dent repair techniques, and which expressly excludes the
29replacement of vehicle body panels, sanding, bonding, or painting.

begin insert

30(D) An agreement that promises the replacement of a motor
31vehicle key or key fob in the event that the key or key fob becomes
32inoperable or is lost or stolen.

end insert
begin insert

33(4) “Vehicle service contract” also includes an agreement
34covering any of a vehicle’s mechanical components, provided with
35or without separate consideration, that promises to repair, replace,
36or maintain a motor vehicle or watercraft, or to indemnify for the
37repair, replacement, or maintenance of a motor vehicle or
38watercraft, conditioned upon the use of a specific brand or brands
39of lubricant, treatment, fluid, or additive.

end insert
begin insert

P6    1(5) A “vehicle service contract” or contract of insurance does
2not include an agreement whereby an employer, or a third party
3contracted by the employer, provides mileage reimbursement and
4incidental maintenance and repairs to its employees for personal
5vehicles used for business purposes.

end insert

6(d) “Service contract administrator” or “administrator” means
7any person, other than an obligor, who performs or arranges,
8directly or indirectly, the collection, maintenance, or disbursement
9of moneys to compensate any party for claims or repairs pursuant
10to a vehicle service contract, and who also performs or arranges,
11directly or indirectly, any of the following activities with respect
12to vehicle service contracts in which a seller located within this
13state is the obligor:

14(1) Providing sellers with service contract forms.

15(2) Participating in the adjustment of claims arising from service
16contracts.

17(e) “Purchaser” means any person who purchases a vehicle
18service contract from a seller.

19(f) “Seller” means either of the following:

20(1) With respect to motor vehicles, a dealer or lessor-retailer
21licensed in one of those capacities by the Department of Motor
22Vehicles and who sells vehicle service contracts incidental to his
23or her business of selling or leasing motor vehicles.

24(2) With respect to watercraft, a person who sells vehicle service
25 contracts incidental to that person’s business of selling or leasing
26watercraft vehicles.

27(g) “Obligor” means the entity legally obligated under the terms
28of a service contract.

begin insert

29(h) “Road hazard” means a hazard that is encountered while
30driving a motor vehicle and that may include, but is not limited
31to, potholes, rocks, wood debris, metal parts, glass, plastic, curbs,
32or composite scraps.

end insert
33

SEC. 4.  

Section 12805 of the Insurance Code is amended to
34read:

35

12805.  

(a) Notwithstanding Sections 103 and 116, the
36following types of agreements shall not constitute insurance:

37(1) A vehicle service contract that does each of the following:

38(A) Names as the obligor a motor vehicle manufacturer or
39distributor licensed in that capacity by the Department of Motor
40Vehicles, or a watercraft manufacturer.

P7    1(B) Covers only motor vehicles or watercraft manufactured,
2distributed, or sold by that obligor.

3(2) A vehicle service contract in which the obligor is a seller,
4provided that the obligor complies with all provisions of this part
5except Section 12815.

6(3) A vehicle service contract sold by a seller in which the
7obligor is a party other than the seller, provided that the obligor
8complies with all provisions of this part.

9(4) An agreement in which the obligor is a motor vehicle or
10watercraft part manufacturer, distributor, or retailer, that covers
11no more than the following items:

12(A) The repair or replacement of a part manufactured,
13distributed, or retailed by that obligor.

14(B) Consequential and incidental damage resulting from the
15failure of that part.

16(5) An agreement in which the obligor is a repair facility, that
17is entered into pursuant and subsequent to repair work previously
18performed by that repair facility, and that is limited in scope to the
19following:

20(A) The repair or replacement of the part that was previously
21repaired.

22(B) Consequential and incidental damage resulting from the
23failure of that part.

24(6) An agreement promising only routine maintenance that does
25not constitute a vehicle service contract.

begin insert

26(7) An agreement whereby an employer, or a third party
27contracted by the employer, provides mileage reimbursement and
28incidental maintenance and repairs to its employees for personal
29vehicles used for business purposes.

end insert
begin insert

30(8) An agreement for separately stated consideration that
31 promises routine maintenance.

end insert

32(b) The types of agreements described in paragraphs (4), (5),
33and (6) of subdivision (a) are exempt from all provisions of this
34part.

35(c) Vehicle service contracts described in paragraph (1) of
36subdivision (a) are exempt from the provisions of Sections 12815,
3712830, 12835, and 12845.

38

SEC. 5.  

Section 12820 of the Insurance Code, as added by
39Section 27 of Chapter 348 of the Statutes of 2015, is amended to
40read:

P8    1

12820.  

(a) Prior to offering a vehicle service contract form to
2a purchaser or providing a vehicle service contract form to a seller,
3an obligor shall file with the commissioner a specimen of that
4vehicle service contract form.

5(b) A vehicle service contract form may include any or all of
6the benefits described in subdivision (c) of Section 12800 and shall
7comply with all of the following requirements:

8(1) (A) If an obligor has complied with Section 12830, the
9vehicle service contract shall include a disclosure in substantially
10the following form: “Performance to you under this contract is
11guaranteed by a California approved insurance company. You may
12file a claim with this insurance company if any promise made in
13the contract has been denied or has not been honored within 60
14days after your request. The name and address of the insurance
15company is: (insert name and address). If you are not satisfied with
16the insurance company’s response, you may contact the California
17Department of Insurance at 1-800-927-4357 or access the
18department’s Internet Web site (www.insurance.ca.gov).”

19(B) If an obligor has complied with Section 12836, the vehicle
20service contract shall include a disclosure in substantially the
21following form: “If any promise made in the contract has been
22denied or has not been honored within 60 days after your request,
23you may contact the California Department of Insurance at
241-800-927-4357 or access the department’s Internet Web site
25(www.insurance.ca.gov).”

26(C) The requirement that a vehicle service contract form include
27the department’s Internet Web site shall not apply to a form for
28which the department has issued a “no objection letter” as of
29December 31, 2016.

30(2) All vehicle service contract language that excludes coverage,
31or imposes duties upon the purchaser, shall be conspicuously
32printed in boldface type no smaller than the surrounding type.

33(3) The vehicle service contract shall do each of the following:

34(A) State the obligor’s full corporate name or a fictitious name
35approved by the commissioner, the obligor’s mailing address, the
36obligor’s telephone number, and the obligor’s vehicle service
37contract provider license number.

38(B) State the name of the purchaser and the name of the seller.

39(C) Conspicuously state the vehicle service contract’s purchase
40price.

P9    1(D) Comply with Sections 1794.4 and 1794.41 of the Civil
2Code.

3(E) Name the administrator, if any, and provide the
4administrator’s license number.

5(4) If the vehicle service contract excludes coverage for
6preexisting conditions, the contract must disclose this exclusion
7in 12-point type.

8(c) The following benefits constitute insurance, whether offered
9as part of a vehicle service contract or in a separate agreement:

10(1) Indemnification for a loss caused by misplacement, theft,
11collision, fire, or other peril typically covered in the comprehensive
12coverage section of an automobile insurance policy, a homeowner’s
13policy, or a marine or inland marinebegin delete policy.end deletebegin insert policy, except as
14expressly authorized in subdivision (c) of Section 12800.end insert

15(2) Locksmith services, unless offered as part of an emergency
16road service benefit.

17(d) This section shall become operative on January 1, 2017.



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