BILL ANALYSIS                                                                                                                                                                                                    Ó

          |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  

           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).  


          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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          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  

          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  
           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  


          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  

          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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          subject to less stringent regulatory requirements than  

          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  

          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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