Amended in Senate May 25, 2016

Amended in Assembly April 11, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 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 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 begin insert routine end insert vehicle maintenance or begin insert noncollision end insert 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 1.  

Section 116.5 of the Insurance Code is repealed.

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) An admitted insurer.

(c) An association of motor carriers.

(d) 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 paragraphs
(1) to (4), inclusive, of 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 (7) of
subdivision (a) of Section 12805 to the extent that person is
providing the services described therein.

(g) An agreement 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.

(B) A provider seeking to offer a vehicle service contract,
including any of the benefits described in subparagraph (A), shall,
when filing a specimen of the contract in accordance with
subdivision (a) of Section 12820, certify that the indemnity benefits
provided are incidental. For purposes of subparagraph (A) and this
certification, 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), (3), (4), and
(5). The commissioner may request the historical or projected data
at any time.

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

(4) 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.

(5) “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.

(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, 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 covering watercraft or motor
vehicles 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 promises, or a third
party contracted by the employer and acting on the employer’s
behalf provides, mileage reimbursement or begin insert routine end insert vehicle
maintenance or begin insert noncollision end insert repairs, or any combination of these
benefits, to the employer’s employees for personal vehicles used
in the employer’s business.

(b) The types of agreements described in paragraphs (4) to (7),
inclusive, 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, 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.