SB318INTRODUCED
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SB318
3PNAGVZ-1
By Senator Singleton
RFD: Fiscal Responsibility and Economic Development
First Read: 08-Apr-25
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5 3PNAGVZ-1 03/19/2025 ZAK (L)ma 2025-1342
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First Read: 08-Apr-25
SYNOPSIS:
Generally, pursuant to the terms of a service
contract, a provider agrees to repair, replace, or
provide a refund for covered property that is
operationally or functionally failing.
This bill would require that when advertising a
service contract, the advertisement must disclose any
right to refund a contract holder in an amount less
than the provider's cost to repair or replace covered
property.
This bill would further provide for the
limitations, exceptions, and exclusions of service
contracts that must be disclosed.
This bill would also make nonsubstantive,
technical revisions to update the existing code
language to current style.
A BILL
TO BE ENTITLED
AN ACT
Relating to service contracts; to amend Sections
8-32-2, 8-32-3, and 8-32-5, Code of Alabama 1975, to require
certain disclosure when advertising contracts; to further
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certain disclosure when advertising contracts; to further
provide for the limitations, exceptions, and exclusions of
contracts that must be disclosed; and to make nonsubstantive,
technical revisions to update the existing code language to
current style.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. Sections 8-32-2, 8-32-3, and 8-32-5, Code of
Alabama 1975, are amended to read as follows:
"§8-32-2
As used in this chapter, the following terms shall have
the following meanings:
(1) ADMINISTRATOR. The person designated by a provider
to be responsible for the administration of service contracts
or the service contracts plan or to make the filings required
by this chapter.
(2) COMMISSIONER. The Commissioner of Insurance of this
state.
(3) CONSUMER. A natural person who buys, primarily for
personal, family, or household purposes, and not for resale,
any tangible personal property normally used for personal,
family, or household purposes and not for commercial or
research purposes.
(4) MAINTENANCE AGREEMENT. A contract of limited
duration that provides for scheduled maintenance only.
(5) MANUFACTURER. A person that is one of the
following:
a. A manufacturer or producer of property that sells
the property under its own name or label.
b. A subsidiary of the person who manufactures or
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b. A subsidiary of the person who manufactures or
produces the property.
c. A corporation which that owns at least 80 percent of
the person who that manufactures or produces the property.
d. A person who that manufactures or produces the
property even though the property is sold under the trade name
or label of another person.
(6) MECHANICAL BREAKDOWN INSURANCE. For purposes of
this chapter, a policy, contract, or agreement issued by an
authorized insurance company directly to a consumer or other
owner of property that provides for, among other coverages,
the repair, replacement, or maintenance of property or
indemnification for repair, replacement, or maintenance, for
the operational or structural failure of the property due to a
defect in materials or workmanship or due to normal wear and
tear.
(7) NON-ORIGINAL MANUFACTURER'S PARTS. Replacement
parts not made for or by the original manufacturer of the
property, commonly referred to as "after market parts."
(8) PERSON. An individual, partnership, corporation,
incorporated or unincorporated association, joint stock
company, reciprocal, syndicate, or any other entity, or
combination of persons acting in concert.
(9) PREMIUM. The consideration paid to an insurer for a
reimbursement insurance policy.
(10) PROVIDER. A person who administers, makes,
provides, sells, or offers to sell a service contract, who is
contractually obligated to provide service under a service
contract.
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contract.
(11) PROVIDER FEE. The total purchase price paid for a
service contract. In cases where a reimbursement insurance
policy is issued to a provider, the "provider fee" is the
total purchase price paid for a service contract net of the
premium.
(12) REFUND. To refund the price of covered property or
a component thereof, less reasonable depreciation, if:
a. The replacement or repair of the property is not
commercially practicable; or
b. The contract holder agrees to accept a refund in
place of the replacement or repair.
(12)(13) REIMBURSEMENT INSURANCE POLICY. A policy of
insurance issued to a provider pursuant to which the insurer
agrees, for the benefit of the service contract holders, to
discharge the obligations of the provider under the terms of
the service contracts in the event of non-performance
nonperformance by the provider.
(14) REPAIR. The restoration of operationally or
functionally failing covered property to sound or good
condition.
(15) REPLACE. The replacement of property or a
component thereof with a new and identical or equivalent
product or component.
(13)(16) ROAD HAZARD. A hazard that is encountered
while driving a motor vehicle, including, but not limited to,
potholes, rocks, wood debris, metal parts, glass, plastic,
curbs, or composite scraps.
(14)(17) SERVICE CONTRACT. A contract or agreement for
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(14)(17) SERVICE CONTRACT. A contract or agreement for
a separately stated consideration for a specific duration to
perform the repair, replacement, or maintenance of property or
indemnification for repair, replacement, or maintenance, for
the operational or structural failure due to a defect in
materials or workmanship, or normal wear and tear, with or
without additional provision for incidental payment or
indemnity under limited circumstances, for related expenses,
including, but not limited to, towing, rental, and emergency
road service. Service contracts may provide for the repair,
replacement, or maintenance of property for damage resulting
from power surges and accidental damage from handling.
"Service contract" The term does not include warranties,
mechanical breakdown insurance, or maintenance agreements. A
service contract is not insurance for any purpose, including,
but not limited to, compliance with the Alabama Insurance
Code, other than for the purpose of a service contract
holder's claim against a service contract provider for failure
to comply with the provisions of the service contract if so
provided by other law. Service contract services include, but
are not limited to, the following:
a. The repair or replacement of tires or wheels, or
both, on a motor vehicle damaged as a result of coming into
contact with a road hazard.
b. The removal of dents, dings, or creases on a motor
vehicle that may be repaired using the process of paintless
dent removal without affecting the existing paint finish and
without replacing vehicle body panels, sanding, bonding, or
painting.
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painting.
c. The repair of chips or cracks in or the replacement
of a motor vehicle windshield as a result of damage caused by
a road hazard that is primary to the coverage offered by the
motor vehicle owner's motor vehicle insurance policy.
d. The replacement of a motor vehicle key or key-fob if
the key or key-fob becomes inoperable, lost, or stolen.
e. Other services which that may be approved by the
commissioner, if not inconsistent with this chapter.
(15)(18) SERVICE CONTRACT HOLDER or CONTRACT HOLDER. A
person who is the purchaser or holder of a service contract.
(16)(19) WARRANTY. A warranty made by the manufacturer,
importer, distributor, or seller of property or services
without consideration stated separately from the price of the
property or services sold, that is not negotiated separate
from the sale of the product and is incidental to the sale of
the product, that guarantees repair or replacement, or
indemnity for repair or replacement, for defective parts,
mechanical or electrical breakdown, labor or other remedial
measures, such as repair or replacement of the property or
repetition of services."
"§8-32-3
(a) Either the provider or its designee shall provide
both of the following to a contract holder :
(1) Provide a A receipt for, or other written evidence
of, the purchase of the service contract to the contract
holder.
(2) Provide a A copy of the service contract to the
service contract holder within a reasonable period of time
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service contract holder within a reasonable period of time
from the date of purchase.
(b) A provider may , but is not required to, appoint an
administrator or other designee to be responsible for any or
all of the administration of service contracts and compliance
with this chapter.
(c) Each provider of service contracts sold in this
state shall file a registration with the commissioner on a
form prescribed by the commissioner. Each provider shall pay
to the commissioner a fee in the amount of two hundred dollars
($200) annually. All fees collected shall be paid into a
special revolving fund to be set up by the State Treasurer
referred to as the "Service Contract Revolving Fund." The
Service Contract Revolving Fund shall be used in the
supervision and examination of providers and otherwise in the
administration of this chapter; provided , however, that
nothing in this section shall be construed to mean that all of
the expenses of supervision and examination of providers and
in the administration of this chapter incurred by the State
Insurance Department shall come from the Service Contract
Revolving Fund.
(d) All funds now or hereafter deposited in the State
Treasury to the credit of the Service Contract Revolving Fund
shall may not be expended for any purpose whatsoever unless
the same shall have been allotted and budgeted in accordance
with the provisions of Sections 41-4-80 to 41-4-96, inclusive,
and 41-19-1 to 41-19-12, inclusive, and only in the amounts
and for the purposes provided by the Legislature in the
general appropriation bill, other appropriations bills , or
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general appropriation bill, other appropriations bills , or
this chapter.
(e) There is hereby appropriated for the fiscal year
ending September 30, 1998, from the Service Contract Revolving
Fund to the State Department of Insurance those amounts as
deemed necessary to carry out the provisions of this chapter
as determined by the Commissioner of Insurance.
(f) In order to assure the faithful performance of a
provider's obligations to its service contract holders, each
provider shall be responsible for complying with the
requirements of one of the following subdivisions:
(1) Insure all service contracts under a reimbursement
insurance policy issued by an insurer authorized to transact
insurance in this state or issued pursuant to Chapter 10,
Title 27.
(2) Do both of the following:
a. Maintain a funded reserve account for its
obligations under its service contracts sold and outstanding
in this state. The reserves shall be based on the loss
experience of the provider as certified by an actuary or, at
the election of the provider, the reserves shall be 30 percent
of the aggregate provider fees for all service contracts sold
and then in force. The reserve account shall be subject to
examination and review by the commissioner.
b. Place in trust with the commissioner a financial
security deposit, having a value of not less than five percent
of the aggregate provider fees, less claims paid, for all
service contracts sold and then in force, but not less than
twenty-five thousand dollars ($25,000) consisting of one of
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twenty-five thousand dollars ($25,000) consisting of one of
the following:
(i)1. A surety bond issued by an authorized surety.
(ii)2. Securities of the type eligible for deposit by
authorized insurers in this state.
(iii)3. Cash.
(iv)4. A letter of credit issued by a qualified
financial institution.
(v)5. Another form of security prescribed by
regulations issued by the commissioner.
(3) Do both of the following:
a. Maintain a net worth or stockholders' equity of one
hundred million dollars ($100,000,000).
b. Upon request, provide the commissioner with a copy
of the financial statement of the provider included in its
most recent annual report on Form 10-K or Form 20-F filed with
the Securities and Exchange Commission (SEC) within the last
calendar year, or if the provider does not file with the SEC,
a copy of the audited financial statements of the provider,
which shows a net worth of the provider of at least one
hundred million dollars ($100,000,000). A consolidated Form
10-K, Form 20-F, or audited financial statements shall meet
the requirements of this chapter for the provider if it shows
a net worth or stockholders' equity of the provider of at
least one hundred million dollars ($100,000,000) and there
shall be no requirement of a parent company guarantee,
reimbursement insurance, or other form of financial stability
requirement. However, if the Form 10-K, Form 20-F , or audited
financial statements of the parent company of the provider are
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financial statements of the parent company of the provider are
filed to meet the provider's financial stability requirement
because the provider's net worth or stockholders' equity of
the provider is not at least one hundred million dollars
($100,000,000), or because the net worth or stockholders'
equity is not determinable from the consolidated Form 10-K,
Form 20-F, or audited financial statements of the parent
company, then the parent company shall agree to guarantee the
obligations of the provider relating to service contracts sold
by the provider in this state.
(g) Service contracts shall require the provider to
permit the service contract holder to return the service
contract within no less than 20 days of the date the service
contract was mailed to the service contract holder or within
no less than 10 days of delivery if the service contract is
delivered to the service contract holder at the time of sale.
Upon return of the service contract to the provider within the
applicable time period, if no claim has been made under the
service contract prior to its return to the provider, the
service contract is void and the provider shall refund to the
service contract holder the full purchase price of the service
contract including any premium paid for any applicable
reimbursement insurance policy. Any refund due a service
contract holder may be credited to any outstanding balance of
the account of the service contract holder, and the excess, if
any, shall be refunded to the service contract holder. The
right to void the service contract provided in this subsection
(g) is not transferable and shall apply only to the original
service contract purchaser, and only if no claim has been made
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service contract purchaser, and only if no claim has been made
prior to its return to the provider. A 10 percent penalty per
month shall be added to a refund that is not paid or credited
within 45 days after return of the service contract to the
provider.
(h) In the event the original service contract holder
makes a written demand for cancellation of a service contract
pursuant to the terms of the service contract, the provider
shall refund to the service contract holder the unearned
portion of the full purchase price of the service contract
including the unearned portion of any premium paid for any
applicable reimbursement insurance policy. Any refund due a
service contract holder may be credited to any outstanding
balance of the account of the service contract holder, and the
excess, if any, shall be refunded to the service contract
holder. If the original contract purchaser or a contract
holder elects cancellation, the provider may retain an
administrative fee of up to twenty-five dollars ($25) for
issuance of the service contract if such the fee is provided
for in the service contract; however, this amount may not be
deducted in the event the service contract is terminated
pursuant to the provisions of subsection (g).
(i)(1) Provider fees are not subject to premium taxes.
(2) Premiums for reimbursement insurance policies are
subject to applicable taxes.
(j) Except for the registration requirement in
subsection (c), providers, administrators, and other persons
marketing, selling, or offering to sell service contracts for
providers are exempt from any licensing requirements of this
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providers are exempt from any licensing requirements of this
state.
(k) Providers are not required to comply with any
provision of Title 27.
(l) A provider shall disclose in an advertisement for a
service contract, in boldface print larger than the body of
the advertisement, any right of the provider to refund a
contract holder in an amount less than the provider's cost for
repair or replacement of covered property. "
"§8-32-5
(a) Service contracts sold or offered for sale in this
state, in their entirety, shall be written, printed, or typed
in eight point type size , or larger, and shall comply with the
requirements set forth in this section, as applicable .
(b)(1) Service contracts insured under a reimbursement
insurance policy pursuant to subdivision (1) of subsection (f)
of Section 8-32-3 8-32-3(f)(1) shall contain a statement in
substantially the following form:
"Obligations of the provider under this service
contract are guaranteed under a service contract reimbursement
insurance policy."
(2) If the provider fails to pay or to provide service
on a claim within 60 days after proof of loss has been filed,
the service contract holder is entitled to may make a claim
directly against the reimbursement insurance company. The
service contract shall state the name and address of the
reimbursement insurance company.
(c) Service contracts not insured under a reimbursement
insurance policy pursuant to subdivision (1) of subsection (f)
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insurance policy pursuant to subdivision (1) of subsection (f)
of Section 8-32-3 8-32-3(f)(1) shall contain a statement in
substantially the following form:
"Obligations of the provider under this service
contract are backed by the full faith and credit of the
provider."
(d) Service contracts shall state the name and address
of the provider, and shall identify any administrator, the
service contract seller, and the service contract holder to
the extent that the name and address of the service contract
holder has been furnished by the service contract holder.
Neither the name of the service contract seller nor other
provisions are The information described in this subsection is
not required to be preprinted on the service contract and may
be added to the service contract at the time of sale.
(e) Service contracts shall state the purchase price of
the service contract, the term of the service contract , and
any applicable renewal provisions. Neither the purchase price
nor any other provisions are The information described in this
subsection is not required to be pre-printed preprinted on the
service contract and may be negotiated at the time of sale
with the service contract holder.
(f) If the provider will reimburse the contract holder
for repair work performed by third parties and if prior
approval of repair work is required ,: (i) the service contract
shall state the procedure for obtaining prior approval and for
making a claim, including a toll-free telephone number for
claim service; and (ii) if the service contract provides
services essential to public health, safety, or welfare, the
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services essential to public health, safety, or welfare, the
service contract shall either provide for 24-hour telephone
assistance, or state the procedure for obtaining emergency
repairs performed outside of normal business hours.
(g) Service contracts shall state the existence of any
deductible amount.
(h) Service contracts shall describe the property upon
which the services are to be provided, the services to be
provided, and, in boldface print larger than the body of the
contract, any limitations, exceptions, or exclusions to the
services to be provided , including both of the following:
(1) Any limit on the repair, replacement, or refund of
covered property.
(2) Any right of the provider to refund a contract
holder in an amount less than the provider's cost for repair
or replacement of the property .
(i) Service contracts shall state whether the use of
non-original manufacturer's parts is allowed.
(j) Service contracts shall state any restrictions
governing the transferability of the service contract.
(k) Service contracts shall state the terms,
restrictions, or conditions governing cancellation of the
service contract prior to the termination or expiration date
of the service contract by either the provider or by the
service contract holder. The provider of the service contract
shall mail a written notice to the service contract holder at
the last known address of the service contract holder
contained in the records of the provider at least five days
prior to cancellation by the provider. Prior notice is not
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prior to cancellation by the provider. Prior notice is not
required if the reason for cancellation is nonpayment of the
provider fee or a material misrepresentation by the service
contract holder to the provider relating to the covered
property or its use. The notice shall state the effective date
of the cancellation and the reason for the cancellation.
(l) Service contracts shall set forth the obligations
and duties of the service contract holder relating to the
property covered by the service contract.
(m) Service contracts shall state whether or not the
service contract provides for or excludes consequential
damages or preexisting conditions, to the extent applicable.
(n) Service contracts may contain other provisions as
determined by the provider.
(o) Service contracts shall provide, in boldface print
larger than the body of the contract, the procedures that a
contract holder shall take to receive the repair, replacement,
or refund of operationally or structurally failing covered
property."
Section 2. This act shall become effective on October
1, 2025.
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