BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2354|
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THIRD READING
Bill No: AB 2354
Author: Calderon (D)
Amended: 5/25/16 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 9-0, 6/22/16
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Mitchell, Wieckowski
ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for
vote
SUBJECT: Vehicle service contracts
SOURCE: Motor Vehicle Ancillary Products Association
DIGEST: This bill expands the types of services that may be
provided under a vehicle service contract (VSC).
ANALYSIS:
Existing law:
1)Provides for the regulation of insurance, VSCs, and motor
clubs by the California Department of Insurance (CDI), under
separate regulatory schemes, and prescribes various
requirements and conditions governing the services provided or
contractual terms involved.
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Page 2
2)Authorizes a car dealer and lessor-retailor licensed by the
Department of Motor Vehicles, and a person who sells or leases
watercraft, to sell VSCs.
3)Permits a VSC to cover a limited number of services specified
in statute related to the repair, replacement, or maintenance
of a motor vehicle or watercraft that arise from operational
or structural failure due to defect or normal wear and tear.
4)Authorizes a VSC to provide for incidental indemnity benefits
for specified expenses including towing, substitute
transportation, emergency road services, and rental car
reimbursement.
5)Authorizes a VSC to repair or replace a tire due to damage
caused by a road hazard and other reasons.
6)Authorizes manufacturers of motor vehicle lubricants and
treatments to provide a warranty for the product that guarantees
the repair and replacement of mechanical components of the vehicle
based on the use of the product, and declares that this warranty
does not constitute insurance and is not subject to licensing by
CDI.
This bill:
1)Clarifies which services offered by a VSC provider that are
not subject to the laws applicable to motor clubs.
2)Requires a VSC provider that offers incidental indemnity
benefits to certify that the cost to provide the indemnity
benefits are substantially less than the cost to provide all
of the primary VSC benefits.
3)Authorizes a VSC provider to replace a vehicle key or key fob
in the event that it is lost, stolen, or becomes inoperable.
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4)Defines the term "road hazard."
5)Exempts from the laws applicable to VSCs those arrangements
where an employer promises or contracts with a third party to
provide basic vehicle service reimbursements to employees
using their own personal vehicle on behalf of the employer.
6)Repeals the exemption from regulation for manufacturers of
certain motor vehicle lubricants and treatments that offer
warranties, as specified, and reclassifies those warranties as
VSCs.
Background
Auto insurance, VSCs, motor club memberships, and warranties
involve similar types of agreements but differ in their
magnitude, complexity, and purpose. These differences call for
specific regulatory structures to ensure that the consumer is
treated fairly without overburdening the provider.
Auto insurance involves risks related to liabilities arising
from bodily injury, death or property damage, legal defense
costs, and damage to the insured's vehicle. Because the risks
involved are so great and the important role insurance plays in
many transactions, insurers are highly regulated and subject to
sophisticated financial requirements and extensive consumer
protections.
But normal auto insurance does not pay for damage due to normal
mechanical breakdown. Auto maintenance and repairs are covered
under a VSC. These agreements are less complex and involve far
less risk. Under existing law, VSC providers are not treated as
insurers, but must still file their contracts with CDI, submit
evidence that they have the ability to follow through on the
promised services, usually by way of contractual liability
insurance, and must provide some consumer disclosures. (Motor
clubs may cover towing or roadside assistance and are also
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Page 4
subject to less stringent regulatory requirements than
insurers.)
This bill authorizes a VSC provider to offer some additional
services without being treated as an insurer or motor club,
including the replacement of lost or stolen keys and key fobs.
A warranty may also act like insurance. Some warranties simply
stand behind a product, such as a 100,000 mile warranty on a car
offered by the vehicle manufacturer or dealer. This bill
addresses warranties offered by a third-party that manufacturers
a product, such as an additive or lubricant, and promises to
repair certain vehicle components if the product fails to
prevent breakdown. The manufacturer is covering losses not
truly related to the failure or defect of the product and the
consumer is really paying for the warranty, not the product.
These warranties function like insurance but existing law
exempts them from any insurance-related regulation. CDI has no
authority to investigate complaints or wrongful conduct. This
bill eliminates that exemption and subjects the warrantor to the
laws applicable to VSC providers.
The bill also excludes some employer-provided vehicle
maintenance services from regulation as a VSC. Some employers
offer reimbursement for, or hire a contractor to make or
provide, non-collision repairs and routine maintenance and other
services on employee vehicles that were used on behalf of the
employer. These services are not offered to the general public,
and arise out of the employment relationship. This bill
explicitly exempts these arrangements from the laws that apply
to VSCs.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/27/16)
Motor Vehicle Ancillary Products Association (source)
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California New Car Dealers Association
OPPOSITION: (Verified6/27/16)
None received
ARGUMENTS IN SUPPORT: The Motor Vehicle Ancillary Products
Association states that this bill provides a balanced regulatory
framework with appropriate oversight of industry and consumer
protections while fostering regulatory certainty for contract
providers.
ASSEMBLY FLOOR: 78-0, 5/12/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon,
Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper,
Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Burke, Jones-Sawyer
Prepared by:Hugh Slayden / INS. / (916) 651-4110
6/30/16 8:50:22
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