Amended in Assembly April 11, 2016

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 amended, 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 wouldbegin delete 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.end deletebegin insert specify that an agreement whereby an employer promises, or a third party contracted by the employer and acting on the employer’s behalf provides, mileage reimbursement or vehicle maintenance or repairs, or any combination of these benefits, to the employer’s employees for personal vehicles used in the employer’s business is not insurance.end insert 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,begin delete woodend delete 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:

P2    1

SECTION 1.  

Section 116.5 of the Insurance Code is repealed.

2

SEC. 2.  

Section 12140 of the Insurance Code is amended to
3read:

4

12140.  

This part shall not apply to any of the following:

5(a) A duly authorized attorney at law acting in the usual course
6of his profession.

7(b) An admitted insurer.

8(c) An association of motor carriers.

9(d) A person who is directly or indirectly engaged, either as
10principal or agent, in selling or offering for sale, furnishing, or
11procuring any of the services described in Section 12148, 12152,
P3    1or 12153, or miscellaneous service that augments or is incidental
2to any of those services, but who is not directly or indirectly
3engaged, either as principal or agent, in selling or offering for sale,
4furnishing, or procuring any other service described in this chapter.

5(e) A person who is licensed as a vehicle service contract
6provider and offering any of the services described inbegin insert paragraphs
7(1) to (4), inclusive, ofend insert
subdivision (c) of Section 12800, to the
8extent that person is providing the services described therein.

9(f) A person offering the services described in paragraphbegin delete (4) of
10subdivision (c) of Section 12800,end delete
begin insert (7) of subdivision (a) of Section
1112805end insert
to the extent that person is providing the services described
12therein.

13(g) An agreementbegin delete for separately stated considerationend delete that
14promises routine maintenance.

15

SEC. 3.  

Section 12800 of the Insurance Code is amended to
16read:

17

12800.  

The following definitions apply for purposes of this
18part:

19(a) “Motor vehicle” means a self-propelled device operated
20solely or primarily upon land and may include both self-propelled
21motor homes or recreational vehicles, non-self-propelled camping
22and recreational trailers, off-road vehicles, and trailers designed
23to transport off-road vehicles. However, “motor vehicle” shall not
24include a self-propelled vehicle, or a component part of such a
25vehicle, that has any of the following characteristics:

26(1) Has a gross vehicle weight rating of 30,000 pounds or more,
27and is not a recreational vehicle as defined by Section 18010 of
28the Health and Safety Code.

29(2) Is designed to transport more than 15 passengers, including
30the driver.

31(3) Is used in the transportation of materials considered
32hazardous pursuant to the Hazardous Materials Transportation Act
33(49 U.S.C. Sec. 5101 et seq.), as amended.

34(b) “Watercraft” means a vessel, as defined in Section 21 of the
35Harbors and Navigation Code, and may include any
36non-self-propelled trailer used to transport such watercraft upon
37land.

38(c) (1) “Vehicle service contract” means a contract or agreement
39for a separately stated consideration and for a specific duration to
40repair, replace, or maintain a motor vehicle or watercraft, or to
P4    1indemnify for the repair, replacement, or maintenance of a motor
2vehicle or watercraft, necessitated by an operational or structural
3failure due to a defect in materials or workmanship, or due to
4normal wear and tear.

5(2) (A) A vehicle service contract may also provide for the
6incidental payment of indemnity under limited circumstances only
7in the form of the following additional benefits: coverage for
8towing, substitute transportation, emergency road service, rental
9car reimbursement, reimbursement of deductible amounts under
10a manufacturer’s warranty, and reimbursement for travel, lodging,
11or meals.

12(B) begin insertA provider seeking to offer a vehicle service contract,
13including any of the benefits described in subparagraph (A), shall,
14when filing a specimen of the contract in accordance with
15subdivision (a) of Section 12820, certify that the indemnity benefits
16provided are incidental. end insert
For purposes ofbegin delete this paragraph,end delete
17begin insert subparagraph (A) and this certification,end insert indemnity benefits are
18incidental if the cost to provide them based on historical data, or
19projected data if historical data is unavailable or insufficient, is
20substantially less than the cost of providing all the benefits
21described in paragraphsbegin delete (1) and (3).end deletebegin insert (1), (3), (4), and (5). The
22commissioner may request the historical or projected data at any
23time.end insert

begin insert

24
(3) “Vehicle service contract” also includes an agreement of
25a term of at least one year, for separately stated consideration,
26that promises routine maintenance.

end insert
begin delete

27(3)

end delete

28begin insert(4)end insert Notwithstanding Section 116, and paragraphs (1) and (2) of
29this subdivision, a vehicle service contract also includes one or
30more of the following:

31(A) An agreement that promises the repair or replacement of a
32tire or wheel necessitated by wear and tear, defect, or damage
33caused by a road hazard. However, an agreement that promises
34the repair or replacement of a tire necessitated by wear and tear,
35defect, or damage caused by a road hazard, in which the obligor
36is the tire manufacturer, is exempt from the requirements of this
37part. A warranty provided by a tire or wheel distributor or retailer
38is exempt from the requirements of this part as long as the warranty
39covers only defects in the material or workmanship of the tire or
40wheel.

P5    1(B) An agreement that promises the repair or replacement of
2glass on a vehicle necessitated by wear and tear, defect, or damage
3caused by a road hazard. However, a warranty provided by a
4vehicle glass or glass sealant manufacturer is exempt from the
5requirements of this part. A warranty provided by a vehicle glass
6distributor or retailer is exempt from the requirements of this part
7as long as the warranty covers only defects in the material or
8workmanship of the vehicle glass.

9(C) An agreement that promises the removal of a dent, ding, or
10crease without affecting the existing paint finish using paintless
11dent repair techniques, and which expressly excludes the
12replacement of vehicle body panels, sanding, bonding, or painting.

13(D) An agreement that promises the replacement of a motor
14vehicle key or key fob in the event that the key or key fob becomes
15inoperable or is lost or stolen.

begin delete

16(4)

end delete

17begin insert(5)end insert “Vehicle service contract” also includes an agreement
18covering any of a vehicle’s mechanical components, provided with
19or without separate consideration, that promises to repair, replace,
20or maintain a motor vehicle or watercraft, or to indemnify for the
21repair, replacement, or maintenance of a motor vehicle or
22watercraft, conditioned upon the use of a specific brand or brands
23of lubricant, treatment, fluid, or additive.

begin delete

24(5) A “vehicle service contract” or contract of insurance does
25not include an agreement whereby an employer, or a third party
26contracted by the employer, provides mileage reimbursement and
27incidental maintenance and repairs to its employees for personal
28vehicles used for business purposes.

end delete

29(d) “Service contract administrator” or “administrator” means
30any person, other than an obligor, who performs or arranges,
31directly or indirectly, the collection, maintenance, or disbursement
32of moneys to compensate any party for claims or repairs pursuant
33to a vehicle service contract, and who also performs or arranges,
34directly or indirectly, any of the following activities with respect
35to vehicle service contracts in which a seller located within this
36state is the obligor:

37(1) Providing sellers with service contract forms.

38(2) Participating in the adjustment of claims arising from service
39contracts.

P6    1(e) “Purchaser” means any person who purchases a vehicle
2service contract from a seller.

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

4(1) With respect to motor vehicles, a dealer or lessor-retailer
5licensed in one of those capacities by the Department of Motor
6Vehicles and who sells vehicle service contracts incidental to his
7or her business of selling or leasing motor vehicles.

8(2) With respect to watercraft, a person who sells vehicle service
9 contracts incidental to that person’s business of selling or leasing
10watercraft vehicles.

11(g) “Obligor” means the entity legally obligated under the terms
12of a service contract.

13(h) “Road hazard” means a hazard that is encountered while
14driving a motor vehicle and that may include, but is not limited
15to, potholes, rocks,begin delete woodend delete debris, metal parts, glass, plastic, curbs,
16or composite scraps.

17

SEC. 4.  

Section 12805 of the Insurance Code is amended to
18read:

19

12805.  

(a) Notwithstanding Sections 103 and 116, the
20following types of agreementsbegin insert covering watercraft or motor
21vehiclesend insert
shall not constitute insurance:

22(1) A vehicle service contract that does each of the following:

23(A) Names as the obligor a motor vehicle manufacturer or
24distributor licensed in that capacity by the Department of Motor
25Vehicles, or a watercraft manufacturer.

26(B) Covers only motor vehicles or watercraft manufactured,
27distributed, or sold by that obligor.

28(2) A vehicle service contract in which the obligor is a seller,
29provided that the obligor complies with all provisions of this part
30except Section 12815.

31(3) A vehicle service contract sold by a seller in which the
32obligor is a party other than the seller, provided that the obligor
33complies with all provisions of this part.

34(4) An agreement in which the obligor is a motor vehicle or
35watercraft part manufacturer, distributor, or retailer, that covers
36no more than the following items:

37(A) The repair or replacement of a part manufactured,
38distributed, or retailed by that obligor.

39(B) Consequential and incidental damage resulting from the
40failure of that part.

P7    1(5) An agreement in which the obligor is a repair facility, that
2is entered into pursuant and subsequent to repair work previously
3performed by that repair facility, and that is limited in scope to the
4following:

5(A) The repair or replacement of the part that was previously
6repaired.

7(B) Consequential and incidental damage resulting from the
8failure of that part.

9(6) An agreement promising only routine maintenance that does
10not constitute a vehicle service contract.

begin delete

11(7) An agreement whereby an employer, or a third party
12contracted by the employer, provides mileage reimbursement and
13incidental maintenance and repairs to its employees for personal
14vehicles used for business purposes.

15(8) An agreement for separately stated consideration that
16 promises routine maintenance.

end delete
begin insert

17
(7) An agreement whereby an employer promises, or a third
18party contracted by the employer and acting on the employer’s
19behalf provides, mileage reimbursement or vehicle maintenance
20or repairs, or any combination of these benefits, to the employer’s
21employees for personal vehicles used in the employer’s business.

end insert

22(b) The types of agreements described in paragraphsbegin delete (4), (5),
23and (6)end delete
begin insert (4) to (7), inclusive,end insert of subdivision (a) are exempt from all
24provisions of this part.

25(c) Vehicle service contracts described in paragraph (1) of
26subdivision (a) are exempt from the provisions of Sections 12815,
2712830, 12835, and 12845.

28

SEC. 5.  

Section 12820 of the Insurance Code, as added by
29Section 27 of Chapter 348 of the Statutes of 2015, is amended to
30read:

31

12820.  

(a) Prior to offering a vehicle service contract form to
32a purchaser or providing a vehicle service contract form to a seller,
33an obligor shall file with the commissioner a specimen of that
34vehicle service contract form.

35(b) A vehicle service contract form may include any or all of
36the benefits described in subdivision (c) of Section 12800 and shall
37comply with all of the following requirements:

38(1) (A) If an obligor has complied with Section 12830, the
39vehicle service contract shall include a disclosure in substantially
40the following form: “Performance to you under this contract is
P8    1guaranteed by a California approved insurance company. You may
2file a claim with this insurance company if any promise made in
3the contract has been denied or has not been honored within 60
4days after your request. The name and address of the insurance
5company is: (insert name and address). If you are not satisfied with
6the insurance company’s response, you may contact the California
7Department of Insurance at 1-800-927-4357 or access the
8department’s Internet Web site (www.insurance.ca.gov).”

9(B) If an obligor has complied with Section 12836, the vehicle
10service contract shall include a disclosure in substantially the
11following form: “If any promise made in the contract has been
12denied or has not been honored within 60 days after your request,
13you may contact the California Department of Insurance at
141-800-927-4357 or access the department’s Internet Web site
15(www.insurance.ca.gov).”

16(C) The requirement that a vehicle service contract form include
17the department’s Internet Web site shall not apply to a form for
18which the department has issued a “no objection letter” as of
19December 31, 2016.

20(2) All vehicle service contract language that excludes coverage,
21or imposes duties upon the purchaser, shall be conspicuously
22printed in boldface type no smaller than the surrounding type.

23(3) The vehicle service contract shall do each of the following:

24(A) State the obligor’s full corporate name or a fictitious name
25approved by the commissioner, the obligor’s mailing address, the
26obligor’s telephone number, and the obligor’s vehicle service
27contract provider license number.

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

29(C) Conspicuously state the vehicle service contract’s purchase
30price.

31(D) Comply with Sections 1794.4 and 1794.41 of the Civil
32Code.

33(E) Name the administrator, if any, and provide the
34administrator’s license number.

35(4) If the vehicle service contract excludes coverage for
36preexisting conditions, the contract must disclose this exclusion
37in 12-point type.

38(c) The following benefits constitute insurance, whether offered
39as part of a vehicle service contract or in a separate agreement:

P9    1(1) Indemnification for a loss caused by misplacement, theft,
2collision, fire, or other peril typically covered in the comprehensive
3coverage section of an automobile insurance policy, a homeowner’s
4policy, or a marine or inland marine policy, except as expressly
5authorized in subdivision (c) of Section 12800.

6(2) Locksmith services, unless offered as part of an emergency
7road service benefit.

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



O

    98