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 would 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. 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, 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Section 116.5 of the Insurance Code is repealed.
Section 12140 of the Insurance Code is amended to
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,
12or 12153, or miscellaneous service that augments or is incidental
13to any of those services, but who is not directly or indirectly
14engaged, either as principal or agent, in selling or offering for sale,
15furnishing, or procuring any other service described in this chapter.
16(e) A person who is licensed as a vehicle service contract
17provider and offering any of the services described in paragraphs
P3 1(1) to (4), inclusive, of subdivision (c) of Section 12800, to the
2extent that person is providing the services described therein.
3(f) A person offering the services described in paragraph (7) of
4subdivision (a) of Section 12805 to the extent that person is
5providing the services described therein.
6(g) An agreement that promises routine maintenance.
Section 12800 of the Insurance Code is amended to
The following definitions apply for purposes of this
11(a) “Motor vehicle” means a self-propelled device operated
12solely or primarily upon land and may include both self-propelled
13motor homes or recreational vehicles, non-self-propelled camping
14and recreational trailers, off-road vehicles, and trailers designed
15to transport off-road vehicles. However, “motor vehicle” shall not
16include a self-propelled vehicle, or a component part of such a
17vehicle, that has any of the following characteristics:
18(1) Has a gross vehicle weight rating of 30,000 pounds or more,
19and is not a recreational vehicle as defined by Section 18010 of
20the Health and Safety Code.
21(2) Is designed to transport more than 15 passengers, including
23(3) Is used in the transportation of materials considered
24hazardous pursuant to the Hazardous Materials Transportation Act
25(49 U.S.C. Sec. 5101 et seq.), as amended.
26(b) “Watercraft” means a vessel, as defined in Section 21 of the
27Harbors and Navigation Code, and may include any
28non-self-propelled trailer used to transport such watercraft upon
30(c) (1) “Vehicle service contract” means a contract or agreement
31for a separately stated consideration and for a specific duration to
32repair, replace, or maintain a motor vehicle or watercraft, or to
33indemnify for the repair, replacement, or maintenance of a motor
34vehicle or watercraft, necessitated by an operational or structural
35failure due to a defect in materials or workmanship, or due to
36normal wear and tear.
37(2) (A) A vehicle service contract may also provide for the
38incidental payment of indemnity under limited circumstances only
39in the form of the following additional benefits: coverage for
40towing, substitute transportation, emergency road service, rental
P4 1car reimbursement, reimbursement of deductible amounts under
2a manufacturer’s warranty, and reimbursement for travel, lodging,
4(B) A provider seeking to offer a vehicle service contract,
5including any of the benefits described in subparagraph (A), shall,
6when filing a specimen of the contract in accordance with
7subdivision (a) of Section 12820, certify that the indemnity benefits
8provided are incidental. For purposes of subparagraph (A) and this
9certification, indemnity benefits are incidental if the cost to provide
10them based on historical data, or projected data if historical data
11is unavailable or insufficient, is substantially less than the cost of
12providing all the benefits described in paragraphs (1), (3), (4), and
13(5). The commissioner may request the historical or projected data
14at any time.
15(3) “Vehicle service contract” also includes an agreement of a
16term of at least one year, for separately stated consideration, that
17promises routine maintenance.
18(4) Notwithstanding Section 116, and paragraphs (1) and (2) of
19this subdivision, a vehicle service contract also includes one or
20more of the following:
21(A) An agreement that promises the repair or replacement of a
22tire or wheel necessitated by wear and tear, defect, or damage
23caused by a road hazard. However, an agreement that promises
24the repair or replacement of a tire necessitated by wear and tear,
25defect, or damage caused by a road hazard, in which the obligor
26is the tire manufacturer, is exempt from the requirements of this
27part. A warranty provided by a tire or wheel distributor or retailer
28is exempt from the requirements of this part as long as the warranty
29covers only defects in the material or workmanship of the tire or
31(B) An agreement that promises the repair or replacement of
32glass on a vehicle necessitated by wear and tear, defect, or damage
33caused by a road hazard. However, a warranty provided by a
34vehicle glass or glass sealant manufacturer is exempt from the
35requirements of this part. A warranty provided by a vehicle glass
36distributor or retailer is exempt from the requirements of this part
37as long as the warranty covers only defects in the material or
38workmanship of the vehicle glass.
39(C) An agreement that promises the removal of a dent, ding, or
40crease without affecting the existing paint finish using paintless
P5 1dent repair techniques, and which expressly excludes the
2replacement of vehicle body panels, sanding, bonding, or painting.
3(D) An agreement that promises the replacement of a motor
4vehicle key or key fob in the event that the key or key fob becomes
5inoperable or is lost or stolen.
6(5) “Vehicle service contract” also includes an agreement
7covering any of a vehicle’s mechanical components, provided with
8or without separate consideration, that promises to repair, replace,
9or maintain a motor vehicle or watercraft, or to indemnify for the
10repair, replacement, or maintenance of a motor vehicle or
11watercraft, conditioned upon the use of a specific brand or brands
12of lubricant, treatment, fluid, or additive.
13(d) “Service contract administrator” or “administrator” means
14any person, other than an obligor, who performs or arranges,
15directly or indirectly, the collection, maintenance, or disbursement
16of moneys to compensate any party for claims or repairs pursuant
17to a vehicle service contract, and who also performs or arranges,
18directly or indirectly, any of the following activities with respect
19to vehicle service contracts in which a seller located within this
20state is the obligor:
21(1) Providing sellers with service contract forms.
22(2) Participating in the adjustment of claims arising from service
24(e) “Purchaser” means any person who purchases a vehicle
25service contract from a seller.
26(f) “Seller” means either of the following:
27(1) With respect to motor vehicles, a dealer or lessor-retailer
28licensed in one of those capacities by the Department of Motor
29Vehicles and who sells vehicle service contracts incidental to his
30or her business of selling or leasing motor vehicles.
31(2) With respect to watercraft, a person who sells vehicle service
32 contracts incidental to that person’s business of selling or leasing
34(g) “Obligor” means the entity legally obligated under the terms
35of a service contract.
36(h) “Road hazard” means a hazard that is encountered while
37driving a motor vehicle and that may include, but is not limited
38to, potholes, rocks, debris, metal parts, glass, plastic, curbs, or
Section 12805 of the Insurance Code is amended to
(a) Notwithstanding Sections 103 and 116, the
4following types of agreements covering watercraft or motor
5vehicles shall not constitute insurance:
6(1) A vehicle service contract that does each of the following:
7(A) Names as the obligor a motor vehicle manufacturer or
8distributor licensed in that capacity by the Department of Motor
9Vehicles, or a watercraft manufacturer.
10(B) Covers only motor vehicles or watercraft manufactured,
11distributed, or sold by that obligor.
12(2) A vehicle service contract in which the obligor is a seller,
13provided that the obligor complies with all provisions of this part
14except Section 12815.
15(3) A vehicle service contract sold by a seller in which the
16obligor is a party other than the seller, provided that the obligor
17complies with all provisions of this part.
18(4) An agreement in which the obligor is a motor vehicle or
19watercraft part manufacturer, distributor, or retailer, that covers
20no more than the following items:
21(A) The repair or replacement of a part manufactured,
22distributed, or retailed by that obligor.
23(B) Consequential and incidental damage resulting from the
24failure of that part.
25(5) An agreement in which the obligor is a repair facility, that
26is entered into pursuant and subsequent to repair work previously
27performed by that repair facility, and that is limited in scope to the
29(A) The repair or replacement of the part that was previously
31(B) Consequential and incidental damage resulting from the
32failure of that part.
33(6) An agreement promising only routine maintenance that does
34not constitute a vehicle service contract.
35(7) An agreement whereby an employer promises, or a third
36party contracted by the employer and acting on the employer’s
37behalf provides, mileage reimbursement or vehicle
38maintenance or repairs, or any combination of these
39benefits, to the employer’s employees for personal vehicles used
40in the employer’s business.
P7 1(b) The types of agreements described in paragraphs (4) to (7),
2inclusive, of subdivision (a) are exempt from all provisions of this
4(c) Vehicle service contracts described in paragraph (1) of
5subdivision (a) are exempt from the provisions of Sections 12815,
612830, 12835, and 12845.
Section 12820 of the Insurance Code, as added by
8Section 27 of Chapter 348 of the Statutes of 2015, is amended to
(a) Prior to offering a vehicle service contract form to
11a purchaser or providing a vehicle service contract form to a seller,
12an obligor shall file with the commissioner a specimen of that
13vehicle service contract form.
14(b) A vehicle service contract form may include any or all of
15the benefits described in subdivision (c) of Section 12800 and shall
16comply with all of the following requirements:
17(1) (A) If an obligor has complied with Section 12830, the
18vehicle service contract shall include a disclosure in substantially
19the following form: “Performance to you under this contract is
20guaranteed by a California approved insurance company. You may
21file a claim with this insurance company if any promise made in
22the contract has been denied or has not been honored within 60
23days after your request. The name and address of the insurance
24company is: (insert name and address). If you are not satisfied with
25the insurance company’s response, you may contact the California
26Department of Insurance at 1-800-927-4357 or access the
27department’s Internet Web site (www.insurance.ca.gov).”
28(B) If an obligor has complied with Section 12836, the vehicle
29service contract shall include a disclosure in substantially the
30following form: “If any promise made in the contract has been
31denied or has not been honored within 60 days after your request,
32you may contact the California Department of Insurance at
331-800-927-4357 or access the department’s Internet Web site
35(C) The requirement that a vehicle service contract form include
36the department’s Internet Web site shall not apply to a form for
37which the department has issued a “no objection letter” as of
38December 31, 2016.
P8 1(2) All vehicle service contract language that excludes coverage,
2or imposes duties upon the purchaser, shall be conspicuously
3printed in boldface type no smaller than the surrounding type.
4(3) The vehicle service contract shall do each of the following:
5(A) State the obligor’s full corporate name or a fictitious name
6approved by the commissioner, the obligor’s mailing address, the
7obligor’s telephone number, and the obligor’s vehicle service
8contract provider license number.
9(B) State the name of the purchaser and the name of the seller.
10(C) Conspicuously state the vehicle service contract’s purchase
12(D) Comply with Sections 1794.4 and 1794.41 of the Civil
14(E) Name the administrator, if any, and provide the
15administrator’s license number.
16(4) If the vehicle service contract excludes coverage for
17preexisting conditions, the contract must disclose this exclusion
18in 12-point type.
19(c) The following benefits constitute insurance, whether offered
20as part of a vehicle service contract or in a separate agreement:
21(1) Indemnification for a loss caused by misplacement, theft,
22collision, fire, or other peril typically covered in the comprehensive
23coverage section of an automobile insurance policy, a homeowner’s
24policy, or a marine or inland marine policy, except as expressly
25authorized in subdivision (c) of Section 12800.
26(2) Locksmith services, unless offered as part of an emergency
27road service benefit.
28(d) This section shall become operative on January 1, 2017.