BILL NUMBER: AB 2354 INTRODUCED
BILL TEXT
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:
SECTION 1. Section 116.5 of the Insurance Code is repealed.
116.5. 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 all of the
following requirements are met:
(a) The obligor is the primary manufacturer of the product. For
the purpose of this section, "manufacturer" means a person who can
prove clearly and convincingly that the per unit cost of owned or
leased capital goods, including the factory, used to produce the
product, plus the per unit cost of nonsubcontracted labor used to
produce the product, exceeds twice the per unit cost of raw materials
used to produce the product. "Manufacturer" also means a person who
has formulated or produced, and continuously offered in this state
for more than nine years, a motor vehicle lubricant, treatment,
fluid, or additive.
(b) The commissioner has issued a written determination that the
obligor is a manufacturer as defined in subdivision (a). An obligor
shall provide the commissioner with all information, documents, and
affidavits reasonably necessary for this determination to be made.
Approval by the commissioner shall be obtained prior to January 1,
2004, or prior to the issuance of a warranty subject to this section,
whichever is later. If the commissioner determines that the obligor
is not a manufacturer, the obligor may obtain a hearing in accordance
with Chapter 4.5 (commencing with Section 11400) of Part 1 of
Division 3 of Title 2 of the Government Code.
(c) The agreement covers only damage incurred while the product
was in the vehicle.
(d) The agreement is provided automatically with the product at no
extra charge.
SEC. 2. Section 12140 of the Insurance Code is amended to read:
12140. This part shall not apply to any of the following:
(a) A duly authorized attorney at law acting in the usual course
of his profession.
(b) Any An admitted insurer.
(c) Any An association of motor
carriers.
(d) Any A person who is directly or
indirectly engaged, either as principal or agent, in selling or
offering for sale, furnishing, or procuring any of the services
described in Section 12148, 12152, or 12153, or miscellaneous service
that augments or is incidental to any of those services, but who is
not directly or indirectly engaged, either as principal or agent, in
selling or offering for sale, furnishing, or procuring any other
service described in this chapter.
(e) A person who is licensed as a vehicle service contract
provider and offering any of the services described in subdivision
(c) of Section 12800, to the extent that person is providing the
services described therein.
(f) A person offering the services described in paragraph (4) of
subdivision (c) of Section 12800, to the extent that person is
providing the services described therein.
(g) An agreement for separately stated consideration that promises
routine maintenance.
SEC. 3. 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) 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.
(B) For purposes of this paragraph, indemnity benefits are
incidental if the cost to provide them based on historical data, or
projected data if historical data is unavailable or insufficient, is
substantially less than the cost of providing all the benefits
described in paragraphs (1) and (3).
(4)
(3) 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 or
glass sealant 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) 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.
(4) "Vehicle service contract" also includes an agreement covering
any of a 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.
(5) A "vehicle service contract" or contract of insurance does not
include an agreement whereby an employer, or a third party
contracted by the employer, provides mileage reimbursement and
incidental maintenance and repairs to its employees for personal
vehicles used for business purposes.
(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.
(h) "Road hazard" means 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.
SEC. 4. 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.
(7) An agreement whereby an employer, or a third party contracted
by the employer, provides mileage reimbursement and incidental
maintenance and repairs to its employees for personal vehicles used
for business purposes.
(8) An agreement for separately stated consideration that promises
routine maintenance.
(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. 5. Section 12820 of the Insurance Code, as added by Section
27 of Chapter 348 of the Statutes of 2015, 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 or access the department's Internet Web
site (www.insurance.ca.gov)."
(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 or
access the department's Internet Web site (www.insurance.ca.gov)."
(C) The requirement that a vehicle service contract form include
the department's Internet Web site shall not apply to a form for
which the department has issued a "no objection letter" as of
December 31, 2016.
(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.
policy, except as expressly authorized in subdivision
(c) of Section 12800.
(2) Locksmith services, unless offered as part of an emergency
road service benefit.
(d) This section shall become operative on January 1, 2017.