LRB-3969/4
MDK&PJK:kjf&wlj:rs
2011 - 2012 LEGISLATURE
February 20, 2012 - Introduced by Senators Lasee, Olsen and Schultz,
cosponsored by Representatives
Nygren, LeMahieu, Bies and A. Ott. Referred
to Committee on Insurance and Housing.
SB492,1,4
1An Act to renumber subchapter II (title) of chapter 616 [precedes 616.71]; and
2to create 600.01 (1) (b) 12., 601.31 (1) (kr), subchapter III of chapter 616
3[precedes 616.50] and 628.02 (1) (b) 9. of the statutes;
relating to: regulating
4certain service contracts and granting rule-making authority.
Analysis by the Legislative Reference Bureau
This bill imposes requirements on service contracts that are enforced by the
Office of the Commissioner of Insurance (OCI). As discussed below, the bill defines
the service contracts that are subject to the bill, creates exemptions from the bill's
requirements, imposes requirements on providers of service contracts that are not
exempt from the bill, and imposes other requirements.
Service contracts. The bill defines "service contract" as a contract or
agreement for a separately stated consideration to perform, or provide
indemnification for, the repair, replacement, or maintenance of property for the
operational or structural failure of property that is due to a defect in materials or
workmanship, accidental damage from handling, or normal wear and tear. The
definition includes contracts or agreements with or without additional provisions for
incidental payment of indemnity under limited circumstances, including towing,
rental, and emergency road service and road hazard protection.
The bill specifies that a contract or agreement for the following is a service
contract: 1) repair, replacement, maintenance, or indemnification for damage
resulting from a power surge or interruption; 2) repair, replacement, or
indemnification for the operational or structural failure of motor vehicle parts or
systems that is brought about by the failure of an additive product to perform as
represented; 3) repair or replacement of motor vehicle tires or wheels that are
damaged by road hazards; and 4) removal of motor vehicle dents, dings, or creases
that can be repaired by specified processes. In addition, the bill specifies that a
contract or agreement for repairing motor vehicle windshield chips or cracks is a
service contract, but a contract or agreement for replacing an entire windshield is not
a service contract. Also, the bill specifies that a contract or agreement for repairing
damage to the interior components of a motor vehicle caused by wear and tear is a
service contract, but a contract or agreement for replacing any part or component of
a motor vehicle's interior is not a service contract.
Exemptions. The bill exempts certain service contracts from the bill's
requirements. A service contract is exempt if any of the following are satisfied: 1)
the service contract is sold or offered for sale to a person who is not a consumer; 2)
the service contract is for an inside wire protection plan associated with the offering
of telecommunications, video, cable programming, or Internet access service; or 3)
the service contract is offered by a public utility on its devices for transmitting service
to customers. However, the third exemption applies only to the extent that the
service contract is regulated by the Public Service Commission.
The bill also exempts maintenance agreements and certain warranties from the
bill's requirements. The bill defines "maintenance agreement" as a contract for a
specified duration that provides for scheduled maintenance without including repair
or replacement. The exemption for warranties covers warranties for certain
products for preventing loss or damage to motor vehicles, as well as warranties for
motor vehicle rustproofing, both of which are subject to regulation by OCI under
current law. In addition, any other type of warranty is exempt if it satisfies all of the
following: 1) the warranty is made solely by the manufacturer, importer, or seller of
property or services without consideration; 2) the warranty is not negotiated or
separated from the sale of the product or services; 3) the warranty is incidental to the
sale of the product or services; and 4) the warranty guarantees indemnity for
defective parts, mechanical or electrical breakdown, labor, or other remedial
measures.
The bill also allows a person who holds a valid certificate of authority under
OCI's rules regarding warranty plans to elect to either: 1) comply with the bill; or
2) exempt itself from the bill's requirements and continue to comply with those rules.
Regulation of providers. The bill regulates a "provider," which the bill
defines as a person who is contractually obligated to the holder or purchaser of a
service contract under the terms of the contract. Unless an exemption applies, the
bill prohibits a person from acting as a provider without a license issued by OCI. An
applicant for a license must pay an initial license fee of $400 and an annual $100 fee,
unless OCI specifies different amounts by rule. An applicant must also submit copies
of service contracts that it proposes to sell in the state. In addition, an applicant must
provide documentation that the applicant does one of the following in order to assure
performance of its obligations under the service contracts that it sells in the state:
1) obtains a reimbursement insurance policy that satisfies certain specified
requirements; or 2) provides OCI with a deposit of securities, an irrevocable letter
of credit, or a combination of the foregoing, in specified amounts. The bill generally
defines "reimbursement insurance policy" as an insurance policy issued to a provider
that, in the event of the provider's nonperformance under its service contracts, will
pay or perform on behalf of the provider all covered contractual obligations or
services. To satisfy the requirements necessary to assure performance of the
provider's obligations under its service contracts a reimbursement insurance policy
must state that a service contract holder may file a claim with the insurer if the
provider does not perform its obligations within 60 days after the service contract
holder provides proof of loss; that the insurer will administer and pay claims if the
provider or the provider's designated administrator fails to do so; and that the
insurer may not terminate or refuse to renew the policy unless the insurer has
provided at least 60 days' written notice to OCI before terminating or not renewing
the policy.
The bill requires providers to do the following: 1) obtain OCI approval of service
contracts and comply with requirements regarding contract language; 2) make
specified disclosures in service contracts; 3) comply with requirements regarding
cancellation of service contracts and refunds; 4) provide sample service contracts
prior to purchase upon request; 5) provide receipts and copies of service contracts to
purchasers; 6) subject to OCI's approval, include independent appraisal and
compulsory arbitration provisions in service contracts; 7) comply with payment of
claims requirements that apply to insurers under current law; and 8) comply with
record-keeping requirements. The bill prohibits providers from using certain terms
regarding insurance in the provider's name, unless the provider used an otherwise
prohibited term in its name prior to the bill's effective date, in which case the bill
requires the provider to disclose that its service contracts are not insurance
contracts. In addition, the bill prohibits a provider from making communications
about service contracts that are false or misleading. For motor vehicle service
contracts, the bill prohibits false or misleading statements regarding original
equipment warranties or affiliation with motor vehicle manufacturers.
Other requirements. The bill also does the following:
1. Allows, but does not require, a provider to appoint a person, whom the bill
refers to as an "administrator," to be responsible for administering service contracts
and complying with the bill's requirements. A provider is generally liable for acts of
an administrator regarding administration of the provider's service contracts,
except that the bill allows a provider to avoid liability for certain false or misleading
communications made by an administrator in cards, documents, or advertisements.
The bill also requires an applicant for licensure as a provider to identify any
administrators that the applicant has appointed, and requires administrators to
register with OCI.
2. Exempts motor vehicle manufacturers, as defined in the bill, who offer
service contracts from the following: 1) licensing by OCI: 2) registering
administrators; 3) providing sample service contracts prior to purchase upon
request; 4) providing receipts and copies of service contracts to purchasers; 5)
assuring performance of obligations by obtaining a reimbursement insurance policy
or providing OCI with a deposit of securities or an irrevocable letter of credit; and 6)
complying with record-keeping requirements.
3. Exempts service contract sellers from licensure or registration. The bill
generally defines a "service contract seller" as a person, including a real estate agent,
who is engaged only in the selling or soliciting of a service contract.
4. Subjects administrators, service contract sellers, and representatives of
providers to the prohibition on false or misleading communications that applies to
providers.
5. Prohibits any person from requiring the purchase of a service contract as a
condition of a loan or sale of property, except for a person buying or selling a home,
who may condition the purchase or sale on the procurement of a service contract
covering the home.
6. Allows OCI to enforce the bill's requirements in the same manner that OCI
enforces other insurance requirements under current law, including allowing OCI to
conduct examinations of providers, administrators, service contract sellers, and
other persons, and allowing OCI to commence actions for injunctions and temporary
restraining orders.
7. Subjects persons who violate the bill to the same penalties that apply under
current law to other violations of insurance requirements. The penalties include
forfeitures of not more than $1,000 and restitutionary forfeitures, as well as fines of
not more than $10,000, imprisonment for not more than three years and six months,
or both.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB492, s. 1
1Section
1. 600.01 (1) (b) 12. of the statutes is created to read:
SB492,4,42
600.01
(1) (b) 12. Service contracts, as defined in s. 616.50 (11), or providers,
3service contract sellers, or administrators of service contracts under subch. III of ch.
4616.
SB492, s. 2
5Section
2. 601.31 (1) (kr) of the statutes is created to read:
SB492,4,86
601.31
(1) (kr) For processing and maintaining license records under s. 616.54
7(4), $400 upon initial licensure and $100 annually thereafter, unless the commission
8specifies a different amount by rule.
SB492, s. 3
1Section
3. Subchapter III of chapter 616 [precedes 616.50] of the statutes is
2created to read:
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SUBchapter III
4
property service contracts
SB492,5,5
5616.50 Definitions. In this subchapter:
SB492,5,7
6(1) "Administration" includes any of the following activities performed on
7behalf of a provider:
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(a) Approving or disapproving claims, paying claims, or controlling the claims
9adjustment process.
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(b) Arranging for or controlling the purchase of insurance associated with the
11offering of service contracts.
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(c) Maintaining records or submitting filings required under this subchapter
13on behalf of a provider.
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(d) Collecting provider fees from service contract sellers and remitting the
15provider fees to the provider.
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16(2) "Administrator" means a person appointed by a provider under s. 616.54
17(1) to be responsible for any or all of the administration of service contracts and
18compliance with this subchapter.
SB492,5,19
19(3) "Commissioner" means the commissioner of insurance.
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20(4) "Consumer" means an individual who buys other than for purposes of resale
21any tangible personal property that is distributed in commerce and that is normally
22used for personal, family, or household purposes and not for business or research
23purposes.
SB492,5,25
24(5) "Maintenance agreement" means a contract of a specified duration that
25provides for scheduled maintenance only and does not include repair or replacement.
SB492,6,2
1(6) "Motor vehicle manufacturer" means a person that does or satisfies any of
2the following:
SB492,6,43
(a) Manufactures or produces motor vehicles and sells motor vehicles under its
4own name or label.
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(b) Is a subsidiary of the person that manufactures or produces motor vehicles.
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(c) Is a corporation that owns 100 percent of the person that manufactures or
7produces motor vehicles.
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(d) Manufactures or produces motor vehicles and sells motor vehicles under the
9trade name or label of another person that manufactures or produces motor vehicles.
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(e) Does not manufacture or produce motor vehicles but, pursuant to a written
11contract, licenses the use of its trade name or label to another person that
12manufactures or produces motor vehicles and that sells motor vehicles under the
13licensor's trade name or label.
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14(7) "Nonoriginal manufacturer's parts" means replacement parts for property
15that are not made for or by the original manufacturer of the property.
SB492,6,17
16(8) "Provider" means a person that is contractually obligated to a service
17contract holder under the terms of a service contract.
SB492,6,18
18(9) "Provider fee" means the consideration paid for a service contract.
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19(10) "Reimbursement insurance policy" means any of the following:
SB492,6,2420
(a) A policy of insurance issued to a provider under the terms of the insured
21service contracts issued or sold by the provider that, in the event of the provider's or
22administrator's nonperformance, will pay or perform on behalf of the provider or
23administrator all covered contractual obligations or services under the terms of the
24insured service contracts issued or sold by the provider.