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ARIZONA STATE SENATE
Fifty-Fourth Legislature, Second Regular Session
REVISED
AMENDED
home service warranty contracts
Purpose
Modifies service contract coverage and eligibility criteria for approval from the Arizona Department of Insurance (DOI).
Background
A service company must obtain a permit from the Director of the DOI in order to offer or issue service contracts in Arizona (A.R.S. § 20-1095.01). To qualify for a service company permit, an applicant must provide proof of managerial competency and either: 1) file a surety bond or alternative to a surety bond in the form of U.S. securities or bonds; or 2) be insured by a mechanical reimbursement insurance policy issued by an insurer authorized to do business in Arizona (A.R.S. §§ 20-1095.03 and 20-1095.04). In addition to obtaining a permit, a service company must have a service contract filed with and approved by the Director of DOI prior to selling the service contract. All service contracts must disclose specific criteria, including any material acts or omissions committed by a contract holder that cancel or void coverage. Additionally, a service contract may not exclude preexisting conditions if such conditions were known or should reasonably have been known by the service company or a person selling the service contract on the service company's behalf (A.R.S. § 20-1095.06).
Statute outlines certain exemptions from service company permit requirements, including corporations that: 1) are affiliates of a consumer product manufacturer that issue warranties or service contracts; and 2) submit to the Director of DOI an annual audited financial statement in which one officer of the corporation attests and a certified public accountant certifies that the corporation maintains a net worth over $100,000,000 (A.R.S. § 20-1095.02).
A service contract may only cover the repair, replacement or maintenance of a consumer product or indemnification for the repair, replacement or maintenance for the operational or structural failure of a consumer product due to a defect in materials, workmanship, accidental damage from handling, power surge or interruption or normal wear and tear. Incidental indemnity payments may be provided under limited circumstances, including towing, rental and emergency road services and road hazard protections (A.R.S. § 20-1095).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Definitions
1. Modifies the definition of consumer product as any property, rather than only tangible personal property, that:
a) is normally used for personal, family or household purposes; and
b) becomes part of the intended usefulness of real property or is typically transferred with real property as an integral functioning utility appliance or system.
2. Modifies the definition of service contract as a written contract or agreement that covers, either in whole or in part, the repair, replacement or maintenance for the operational or structural failure of a consumer product due to a defect in materials, workmanship, accidental damage from handling, a power surge or interruption or normal wear and tear, with or without additional indemnity payments.
3. Removes the limitation on circumstances that a service contract may provide for indemnity payments and adds a roof leak to the list of circumstances.
4. Includes lessees in the definition of consumer.
DOI Regulations
5. Decreases, from $100,000,000 to $25,000,000, the minimum net worth that certain corporations must maintain to qualify for exemption from DOI service company permit requirements.
6. Removes the requirement that a corporation's annual financial statement be independently audited and certified by a public accountant to qualify for exemption from DOI service company permit requirements.
7. Prohibits the Director of DOI from approving a service company's service contract that may be canceled by the service company or its representatives for failing to state the extent to which preexisting conditions will or will not be covered.
8. Removes the prohibition on the Director of DOI from approving a service company's service contract that may be canceled or voided by the service company or its representatives for:
a) preexisting conditions that were known or that reasonably should have been known by the service company or a person selling the contract on the service company's behalf; or
b) prior use or unlawful acts relating to the product.
9. Removes the prohibition on the Director of DOI from approving a service company's service contract, if the service contract may be voided by the service company for misrepresentation by the service company or the person selling the service contract on the service company's behalf.
Disclosure
10. Allows a service contract's disclosure of any material acts or omissions of a contract holder that cancel or void coverage to include:
a) fraudulent or unlawful acts by the contract holder arising out of or relating to the service contract; and
b) the contract holder's use of a covered consumer product in an unintended manner that is likely to increase the likelihood that the consumer product will be damaged or require repairs.
11. Requires a service contract to disclose whether the service contract covers or excludes preexisting conditions.
12. Prohibits a service contract from excluding preexisting conditions if such conditions were known or should reasonably have been known by a visual inspection, operation of the system or appliance and a mechanical test, rather than by the service company or a person selling the service contract on the service company's behalf.
13. Prohibits administrative expenses associated with a service contract cancellation from exceeding the lesser of $75 or 10 percent of the service contract purchase price, rather than 10 percent of the gross amount paid by a service contract holder for the service contract.
14. Prohibits any administrative expense assessed for a cancellation of a service contract from exceeding the refund amount due to a service contract holder.
Miscellaneous
15. Makes technical and conforming changes.
16. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Requires a service contract to disclose whether it covers or excludes preexisting conditions.
2. Modifies service contract disclosure of preexisting conditions.
3. Prohibits administrative expenses associated with a service contract cancellation from exceeding the lesser of $75 or 10 percent of the service contract purchase price, rather than 10 percent of the gross amount paid by a service contract holder for the service contract.
4. Removes the prohibition on the Director of DOI from approving a service company's service contract, if the service contract may be voided for certain criteria.
Revisions
· Corrects the provisions to include the prohibition on the Director of DOI from approving a service company's service contract, if the service contract may be voided for certain criteria.
Senate Action
FIN 2/12/20 DPA 9-0-1
Prepared by Senate Research
March 11, 2020
MG/AB/gs