Stricken language would be deleted from and underlined language would be added to present law.
*ANS268* 3/29/2023 12:48:34 PM ANS268
State of Arkansas 1
94th General Assembly A Bill 2
Regular Session, 2023 HOUSE BILL 1770 3
4
By: Representative G. Hodges 5
6
For An Act To Be Entitled 7
AN ACT TO REPEAL THE SERVIC E CONTRACTS ACT; TO 8
TRANSFER THE DUTIES OF REGULATION OF SER VICE 9
CONTRACTS TO THE INS URANCE COMMISSIONER; TO ESTABLISH 10
THE ARKANSAS SERVICE CONTRACTS ACT; TO RE QUIRE THE 11
INSURANCE COMMISSION ER TO REVIEW AND APP ROVE SERVICE 12
CONTRACTS OFFERED IN THIS STATE; TO REGULATE SERVICE 13
CONTRACTS; AND FOR O THER PURPOSES. 14
15
16
Subtitle 17
TO REPEAL THE SERVICE CONTRACTS ACT; TO 18
TRANSFER THE DUTIES OF REGULATION OF 19
SERVICE CONTRACTS TO THE INSURANCE 20
COMMISSIONER; TO ESTABLISH THE ARKANSAS 21
SERVICE CONTRACTS ACT; AND TO REGULATE 22
SERVICE CONTRACTS. 23
24
25
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 26
27
SECTION 1. Arkansas Code Title 4, Chapter 114, is repealed. 28
CHAPTER 114 — SERVICE CONTRACTS ACT 29
30
4-114-101. Title. 31
This chapter shall be known and may be cited as the “Service Contracts 32
Act”. 33
34
4-114-102. Scope and purpose. 35
(a) The purpose of this chapter is to: 36 HB1770
2 3/29/2023 12:48:34 PM ANS268
(1) Create a legal framework within which service contracts are 1
defined, may be sold, and are regulated in this state; 2
(2) Add significant consumer protections; and 3
(3) Eliminate unnecessary administration. 4
(b) A service contract under § 4 -114-103 is not insurance and is not 5
subject to the Arkansas Insurance Code. 6
(c) This chapter does not apply to: 7
(1) Warranties; 8
(2) Maintenance agreements; 9
(3) Commercial transactions; 10
(4) A person or entity or the affiliate of a person or entity 11
licensed or certificated by the Arkansas Public Service Commission or the 12
Federal Communications Commission with respect to war ranties, service 13
contracts, or maintenance agreements covering wiring, transmission devices, 14
equipment, or services offered or provided by the person, entity, or 15
affiliate to its customers; 16
(5) Service contracts sold or offered for sale to persons other 17
than consumers; 18
(6) Motor vehicle service contracts as defined in and regulated 19
pursuant to the Motor Vehicle Service Contract Act, § 4 -90-501 et seq.; or 20
(7) Mechanical breakdown insurance. 21
(d) Manufacturer's service contracts on the manufacturer's products 22
are subject only to §§ 4 -114-106(a), 4-114-106(d)-(g), 4-114-107, and 4-114-23
111. 24
(e) Other than mechanical breakdown insurance, the types of agreements 25
referred to in subsections (c) and (d) of this section and service contracts 26
governed under this chapter are not insurance and are not subject to 27
compliance with any provision of the insurance laws of this state. 28
29
4-114-103. Definitions. 30
As used in this chapter: 31
(1) “Administrator” means the person who is responsible for the 32
administration of a service contract; 33
(2) “Consumer” means an individual who buys other than for 34
purposes of resale any tangible personal property that is distributed in 35
commerce and that is normally used for personal, family, or household 36 HB1770
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purposes and not for business or resale purposes; 1
(3) “Maintenance agreement” means a contract of limited duration 2
that provides for scheduled maintenance only; 3
(4) “Manufacturer” means a person that: 4
(A) Manufactures or produces property and sells the 5
property under its own name or label; 6
(B) Is a wholly owned subsidiary of the person that 7
manufactures or produces that property; 8
(C) Is a corporation that owns one hundred percent (100%) 9
of the person that manufactures or produces the property; 10
(D) Does not manufacture or produce the property, but the 11
property is sold under its trade name label; 12
(E) Manufactures or produces the property, and the 13
property is sold under the trade name or label of another person; or 14
(F) Does not manufacture or p roduce the property but 15
licenses the use of its trade name or label under a written contract with 16
another person that sells the property under the licensor's trade name or 17
label; 18
(5) “Mechanical breakdown insurance” means a policy, a contract, 19
or an agreement issued by an authorized insurer that provides for the repair, 20
replacement, or maintenance of property or indemnification for repair, 21
replacement, or service for the operations or structural failure of the 22
property due to a defect in materials or wor kmanship or to normal wear and 23
tear; 24
(6) “Nonoriginal manufacturer's parts” means replacement parts 25
not made for or by the original manufacturer of the property, commonly 26
referred to as “after market parts”; 27
(7) “Person” means an individual, a partne rship, a corporation, 28
an incorporated or unincorporated association, a joint stock company, a 29
reciprocal, a syndicate, or any similar entity or combination of entities 30
acting in concert; 31
(8) “Premium” means the consideration paid to an insurer for a 32
reimbursement insurance policy; 33
(9) “Provider” means a person that is contractually obligated to 34
the service contract holder under the terms of the service contract; 35
(10) “Provider fee” means the consideration paid for a service 36 HB1770
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contract; 1
(11) “Reimbursement insurance policy” means a policy of insurance 2
issued to a provider to either: 3
(A) Provide reimbursement to the provider under the terms 4
of the insured service contracts issued or sold by the provider; or 5
(B) In the event of the provider's n onperformance, to pay 6
on behalf of the provider all covered contractual obligations incurred by the 7
provider under the terms of the insured service contracts issued or sold by 8
the provider; 9
(12)(A) “Service contract” means a contract or an 10
agreement for a separately stated consideration and for a specific duration 11
to perform the service, repair, replacement, or maintenance of property or 12
indemnification for service, repair, replacement, or maintenance for the 13
operational or structural failure of propert y due to a defect in materials, 14
workmanship, or normal wear and tear, with or without additional provision 15
for incidental payment of indemnity under limited circumstances, including 16
without limitation unavailability of parts, obsolescence, food spoilage, 17
rental, or shipping. 18
(B) “Service contract” does not include mechanical 19
breakdown insurance or maintenance agreements. 20
(C) A service contract may provide for the repair, 21
replacement, or maintenance of property for damage resulting from power 22
surges or accidental damage from handling. 23
(D) A service contract is not insurance in this state or 24
otherwise regulated under the Arkansas Insurance Code; 25
(13) “Service contract holder” means a person that is the 26
purchaser or holder of a service contract; and 27
(14) “Warranty” means a warranty made solely by the 28
manufacturer, importer, or seller of property or services without charge 29
that: 30
(A) Is not negotiated or separated from the sale of the 31
product; 32
(B) Is incidental to the sale of the product; and 33
(C) Guarantees indemnity for defective parts, mechanical 34
breakdown, or electrical breakdown and labor or other remedial measures, such 35
as repair or replacement of the property or repetition of services. 36 HB1770
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1
4-114-104. Requirements for doing business. 2
(a) A provider may appoint an administrator or other designee to be 3
responsible for all or part of the administration of service contracts and 4
compliance with this chapter. 5
(b) Service contracts shall not be issued, sold, or offered for sale 6
in this state unless the provider or its designee has: 7
(1) Provided a receipt or other written evidence of the purchase 8
of the service contract to the contract holder; 9
(2) Provided a copy of the service contract to the service 10
contract holder within a reasonable period of time from the date of purchase; 11
and 12
(3) Complied with this chapter. 13
(c)(1) Each provider of service contracts sold in this state shall 14
file a registration with the Insurance Commissioner consisting of its name, 15
full corporate address, telephone number and contact person, evidence of 16
compliance with subsection (d) of this section, a designation of a person in 17
this state for service of process, and any other information required to be 18
submitted by rule of the Insurance Commissioner . 19
(2) Each provider shall pay to the commissioner a fee in the 20
amount of two hundred dollars ($200) upon initial registration and every year 21
thereafter. 22
(3) The registration shall be updated by written notification to 23
the commissioner if material cha nges occur in the registration. 24
(d) In order to assure the faithful performance of a provider's 25
obligations to its contract holders, each provider that is contractually 26
obligated to provide service under a service contract shall: 27
(1) Insure all servic e contracts under a reimbursement insurance 28
policy issued by an insurer licensed, registered, or authorized to transact 29
insurance in this state or a surplus lines insurer that is authorized under § 30
23-65-310 and maintains statutory capital and surplus of a t least fifteen 31
million dollars ($15,000,000) at all times while the reimbursement insurance 32
policy is in force; 33
(2) Do both of the following: 34
(A)(i) Maintain a funded reserve account for its 35
obligations under its contracts issued and outstanding in this state. 36 HB1770
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(ii) The reserves shall not be less than forty 1
percent (40%) of gross consideration received less claims paid on the sale of 2
all unexpired service contracts. 3
(iii) The reserve account shall be subject to 4
examination and review by the c ommissioner; and 5
(B) Place in trust with the commissioner a financial 6
security deposit having a value of not less than five percent (5%) of the 7
gross consideration received less claims paid on the sale of all unexpired 8
service contracts, but not less t han twenty-five thousand dollars ($25,000), 9
consisting of a surety bond issued by an authorized surety; or 10
(3)(A) Maintain a net worth of one hundred million dollars 11
($100,000,000) on its own or together with its parent company if the parent 12
company executes a parental guarantee in a form acceptable to the 13
commissioner. 14
(B) Upon request, the provider shall provide the 15
commissioner with a copy of the provider's financial statements or, if the 16
provider's financial statements are consolidated with those of its parent 17
company, the provider's parent company's most recent Form 10 -K or Form 20-F 18
filed with the United States Securities and Exchange Commission within the 19
last calendar year, or if the company does not file with the United States 20
Securities and Exchange Commission, a copy of the company's audited financial 21
statements, which shows an independent net worth of the provider or its 22
parent company of at least one hundred million dollars ($100,000,000). 23
(C) If the provider's parent company's Form 10 -K, Form 20-24
F, or audited financial statements are filed to meet the provider's financial 25
stability requirement, then the parent company shall agree to guarantee the 26
obligations of the obligor relating to service contracts sold by the provider 27
in this state. 28
(e) Except for the requirements specified in subsection (d) of this 29
section, no other financial security requirements shall be required by the 30
commissioner for a provider. 31
(f)(1) Provider fees collected on service contracts shall not be 32
subject to premium taxes. 33
(2) Premiums for reimbursement insurance policies shall be 34
subject to applicable taxes. 35
(g) Except for the registration requirements in subsection (c) of this 36 HB1770
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section, persons marketing, selling, or offering to sell service contracts 1
for providers that comply with this chapter are exempt from this state's 2
licensing requirements. 3
(h) Providers complying with this chapter are not required to comply 4
with other provisions of the Arkansas Insurance Code. 5
6
4-114-105. Required disclosures — Reimbursement insurance policy. 7
(a) Reimbursement insurance policies insuring service contracts 8
issued, sold, or offered for sale in this state shall state that the insurer 9
that issued the reimbursement insurance policy shall: 10
(1) Reimburse or pay on behalf of the provider any covered sums 11
the provider is legally obligated to pay; or 12
(2) In the event of the provider's nonperformance, shall provide 13
the service that the provider is legally obligated to perform according to 14
the provider's contractual o bligations under the service contracts issued or 15
sold by the provider. 16
(b) In the event covered service is not provided by the provider 17
within sixty (60) days of proof of loss by the service contract holder, the 18
service contract holder is entitled to app ly directly to the reimbursement 19
insurance company. 20
21
4-114-106. Required disclosure — Service contracts. 22
(a) A service contract issued, sold, or offered for sale in this state 23
shall: 24
(1) Be written in clear, understandable language that is easy to 25
read; and 26
(2) Conspicuously disclose the applicable requirements of this 27
section. 28
(b)(1) A service contract insured under a reimbursement insurance 29
policy under § 4-114-104(d)(1) shall contain the name and address of the 30
insurer and a statement in subst antially the following form: “Obligations of 31
the provider under this service contract are guaranteed under a service 32
contract reimbursement insurance policy. If the provider fails to pay or 33
provide service on a claim within sixty (60) days after proof of l oss has 34
been filed, the service contract holder is entitled to make a claim directly 35
against the insurance company.” 36 HB1770
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(2) A claim against the provider may include a claim for return 1
of the unearned provider fee. 2
(c)(1) A service contract not insured un der a reimbursement insurance 3
policy under § 4-114-104(d)(1) shall conspicuously state the name and address 4
of the provider and contain a statement in substantially the following form: 5
“Obligations of the provider under this service contract are backed onl y by 6
the full faith and credit of the provider (issuer) and are not guaranteed 7
under a service contract reimbursement insurance policy.” 8
(2) A claim against the provider shall also include a claim for 9
return of the unearned provider fee. 10
(d) A service contract shall identify the administrator, the provider 11
obligated to perform the service under the contract, the service contract 12
seller, and the service contract holder to the extent that the name and 13
address of the service contract holder have been furn ished by the service 14
contract holder. 15
(e)(1) A service contract or a service contract holder's receipt shall 16
state the total purchase price and the terms under which the service contract 17
is sold. 18
(2) The purchase price is not required to be preprinted on the 19
service contract and may be negotiated at the time of sale with the service 20
contract holder. 21
(f) If prior approval of repair work is required, a service contract 22
shall state the procedure for obtaining prior approval and for making a 23
claim, including a toll-free telephone number for claim service and a 24
procedure for obtaining emergency repairs performed outside of normal 25
business hours. 26
(g) A service contract shall: 27
(1) Disclose the deductible amount; 28
(2) Specify the merchandise and services to be provided and any 29
limitations, exceptions, or exclusions; 30
(3)(A) State the conditions upon which the use of the 31
nonoriginal manufacturer's parts or substitute service may be allowed. 32
(B) Conditions stated shall comply with applicable s tate 33
and federal laws; 34
(4) State any terms, restrictions, or conditions governing the 35
transferability of the service contract; 36 HB1770
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(5)(A) State the terms, restrictions, or conditions governing 1
termination of the service contract by the service contract h older. 2
(B)(i) The provider of the service contract shall mail a 3
written notice to the contract holder within fifteen (15) days of the date of 4
termination in the event the provider terminates the service contract. 5
(ii) Prior notice is not required i f the reason for 6
cancellation is nonpayment of the provider fee, a material misrepresentation 7
by the service contract holder to the provider, or a substantial breach of 8
duties by the service contract holder relating to the covered product or its 9
use. 10
(C) The notice shall state the effective date of the 11
cancellation and the reason for the cancellation. 12
(D) A pro rata refund of the unearned portion of the 13
provider fee less the amount or value of any claims paid shall accompany the 14
notice unless cancel lation is for nonpayment; 15
(6)(A) Require every provider to permit the service contract 16
holder to return the contract within no less than twenty (20) days of the 17
date of mailing of the service contract or no less than ten (10) days if the 18
service contract is delivered at the time of sale or within a longer time 19
period permitted under the service contract. 20
(B) If no claim has been made under the service contract, 21
the service contract is void and the provider shall refund to the service 22
contract holder the full purchase price of the service contract. 23
(C) A ten percent (10%) penalty per month shall be added 24
to a refund that is not paid within forty -five (45) days of return of the 25
service contract to the provider. 26
(D) The applicable free -look time period on service 27
contracts shall only apply to the original service contract purchaser and 28
only if no claim has been made prior to its return to the provider; 29
(7) Set forth all of the obligations and duties of the service 30
contract holder, such a s the duty to protect against any further damage and 31
the requirement for certain service and maintenance; and 32
(8) Clearly state whether or not the service contract provides 33
for or excludes consequential damages or preexisting conditions. 34
35
4-114-107. Prohibited acts. 36 HB1770
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(a)(1) A provider shall not use a name: 1
(A) With the words “insurance”, “casualty”, “surety”, 2
“mutual”, or any other words descriptive of the insurance, casualty, or 3
surety business; or 4
(B) Deceptively similar to the name or descri ption of any 5
insurance or surety corporation or any other provider. 6
(2)(A) This subsection shall not apply to a company that was 7
using any of the prohibited language in its name prior to October 1, 2007. 8
(B) However, a company using the prohibited l anguage in 9
its name shall conspicuously disclose in its service contracts that the 10
service contract is not an insurance contract. 11
(b) A provider or its representative shall not in its service 12
contracts or literature make or permit or cause to be made any false or 13
misleading statement or deliberately omit any material statement that would 14
be considered misleading if omitted in connection with the sale, offer to 15
sell, or advertisement of a service contract. 16
(c) A person, including without limitation a bank, savings and loan 17
association, lending institution, manufacturer, or seller of any product 18
shall not require the purchase of a service contract as a condition of a loan 19
or a condition for the sale of any property. 20
21
4-114-108. Recordkeeping requiremen ts. 22
(a)(1) A provider shall keep accurate accounts, books, and records 23
concerning transactions regulated under this chapter. 24
(2) A provider's accounts, books, and records shall include: 25
(A) A copy of each type of service contract issued; 26
(B) The name and address of each service contract holder 27
to the extent that the name and address have been furnished by the service 28
contract holder; 29
(C) A list of the provider locations where service 30
contracts are marketed, sold, or offered for sale; and 31
(D) Claims files containing at a minimum the dates, 32
amounts, and description of all receipts, claims, and expenditures related to 33
the service contracts. 34
(3) Except as provided in subsection (b) of this section, a 35
provider shall retain all records pert aining to each service contract holder 36 HB1770
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for at least three (3) years after the specified period of coverage has 1
expired. 2
(4)(A) A provider may keep all records required under this 3
chapter on a computer disk or other similar technology. 4
(B) If a provider maintains records in other than hard 5
copy, records shall be accessible from a computer terminal available to the 6
Insurance Commissioner and be capable of duplication to legible hard copy. 7
(b) A provider discontinuing business in this state shall main tain its 8
records until it furnishes the commissioner satisfactory proof that it has 9
discharged all obligations to service contract holders in this state. 10
(c) A provider shall make all accounts, books, and records concerning 11
transactions regulated under t his chapter or other pertinent laws available 12
to the commissioner upon request. 13
(d) The books and records requirement of this section may be delegated 14
by the provider to its administrator or other designee, but such delegation 15
shall not relieve the provider of its obligations to have the books and 16
records maintained and produced upon the commissioner's request. 17
18
4-114-109. Cancellation of reimbursement insurance policy. 19
(a) An insurer that issued a reimbursement insurance policy shall not 20
terminate the policy until at least sixty (60) days' notice of termination 21
has been mailed or delivered to the Insurance Commissioner and in accordance 22
with any other applicable law. 23
(b) The termination of a reimbursement insurance policy shall not 24
reduce the insurer's responsibility for service contracts issued by providers 25
prior to the date of the termination. 26
27
4-114-110. Obligation of reimbursement insurance policy insurers. 28
(a)(1) A provider is considered to be the agent of the insurer that 29
issued a reimbursement insurance policy for the purpose of obligating an 30
insurer for the acts of its agents, including the collection of moneys not 31
forwarded. 32
(2) If a provider is acting as an administrator and enlists 33
other providers, the provider acting as the admi nistrator shall notify the 34
insurer of the existence and identities of the other providers. 35
(b) This chapter shall not prevent or limit the right of an insurer 36 HB1770
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that issued a reimbursement insurance policy to seek indemnification or 1
subrogation against a p rovider if the insurer pays or is obligated to pay a 2
service contract holder sums that the provider was obligated to pay pursuant 3
to the provisions of the service contract or under a contractual agreement. 4
5
4-114-111. Enforcement provisions. 6
(a) The Insurance Commissioner may conduct investigations or 7
examinations of providers, administrators, insurers, or other persons to 8
enforce the provisions of this chapter and protect service contract holders 9
in this state. 10
(b)(1) The commissioner may take any action that is necessary or 11
appropriate to enforce the provisions of this chapter and the commissioner's 12
rules and orders to protect service contract holders in this state. 13
(2) The commissioner may order a provider to cease and desist 14
from committing violations of this chapter or the commissioner's rules or 15
orders, may issue an order prohibiting a provider from selling or offering a 16
service contract for sale, or may issue an order imposing a civil penalty, or 17
any combination of these, if the provider has violated this chapter or the 18
commissioner's rules or orders. 19
(3)(A) A person aggrieved by an order issued under this 20
subsection may request a hearing before the commissioner by filing a request 21
with the commissioner within twenty (20) days of the commi ssioner's order. 22
(B) Pending the hearing and the decision by the 23
commissioner, the commissioner shall suspend the effective date of the order. 24
(C)(i) At the hearing, the burden shall be on the 25
commissioner to show why the order is justified. 26
(ii) The provisions of § 23 -61-301 et seq. shall 27
apply to a hearing requested under this subsection. 28
(4)(A) The commissioner may bring an action in the Pulaski 29
County Circuit Court for an injunction or other appropriate relief for 30
threatened or existing violations of this chapter or of the commissioner's 31
rules or orders. 32
(B) An action filed under subdivision (b)(3)(A) of this 33
section may also seek restitution on behalf of persons aggrieved by a 34
violation of this chapter or a rule or an order of the co mmissioner. 35
(5)(A) A person in violation of this chapter or a rule or an 36 HB1770
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order of the commissioner may be assessed a civil penalty not to exceed five 1
hundred dollars ($500) per violation and no more than ten thousand dollars 2
($10,000) in the aggregate f or all violations of a similar nature. 3
(B) For purposes of this subdivision (b)(5), violations 4
shall be of a similar nature if the violation consists of the same or similar 5
course of conduct, action, or practice, irrespective of the number of times 6
the act, conduct, or practice that is determined to be a violation of this 7
chapter has occurred. 8
(c) The authority of the commissioner under this section is in 9
addition to other authorities of the commissioner. 10
11
4-114-112. Rules. 12
The Insurance Commission er may promulgate rules necessary to effectuate 13
this chapter. 14
15
SECTION 2. Arkansas Code Title 23, Chapter 66, is amended to add an 16
additional subchapter to read as follows: 17
Subchapter 8 — Arkansas Service Contracts Act 18
19
23-66-801. Title. 20
This subchapter shall be known and may be cited as the "Arkansas 21
Service Contracts Act". 22
23
23-66-802. Scope and purpose. 24
(a) The purpose of this subchapter is to: 25
(1) Create a legal framework within which service contracts are 26
defined, may be sold, and are regulated in this state; 27
(2) Add significant consumer protections; and 28
(3) Eliminate unnecessary administration. 29
(b) A service contract under § 23 -66-803 is not insurance but is 30
subject to regulation by the Insurance Commissioner. 31
(c) This subchapter does not apply to: 32
(1) Warranties; 33
(2) Maintenance agreements; 34
(3) Commercial transactions; 35
(4) A person or entity or the affiliate of a person or entity 36 HB1770
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licensed or certificated by the Arkansas Public Service Commission or the 1
Federal Communications Commission with respect to warranties, service 2
contracts, or maintenance agreements covering wiring, transmission devices, 3
equipment, or services offered or provided by the person, entity, or 4
affiliate to its customers; 5
(5) Service contracts sold or offered for sale to persons other 6
than consumers; 7
(6) Motor vehicle service contracts as defined in and regulated 8
pursuant to the Motor Vehicle Service Contract Act, § 4 -90-501 et seq.; or 9
(7) Mechanical breakdown insurance. 10
(d) Manufacturer's service contracts on the manufacturer's products 11
are subject only to § 23 -66-806(a), § 23-66-806(d)-(g), § 23-66-807, and § 12
23-66-811. 13
14
23-66-803. Definitions. 15
As used in this subchapter: 16
(1) "Administrator" means a person who is responsible for the 17
administration of a service contract; 18
(2) "Consumer" means an individual who buys, other than for 19
purposes of resale, any tangible personal property that is: 20
(A) Distributed in commerce; and 21
(B) Normally used for personal, family, or household 22
purposes and not for business or resale purposes; 23
(3) "Maintenance agreement" means a contract of limited duration 24
that provides for scheduled maintenance only; 25
(4) "Manufacturer" means a person that: 26
(A) Manufactures or produces proper ty and sells the 27
property under the manufacturer's own name or label; 28
(B) Is a wholly owned subsidiary of the person that 29
manufactures or produces that property; 30
(C) Is a corporation that owns one hundred percent (100%) 31
of the person that manufactu res or produces the property; 32
(D) Does not manufacture or produce the property, but the 33
property is sold under the manufacturer's trade name label; 34
(E) Manufactures or produces the property, and the 35
property is sold under the trade name or label of another person; or 36 HB1770
15 3/29/2023 12:48:34 PM ANS268
(F) Does not manufacture or produce the property but 1
licenses the use of manufacturer's trade name or label under a written 2
contract with another person that sells the property under the licensor's 3
trade name or label; 4
(5) "Mechanical breakdown insurance" means a policy, a contract, 5
or an agreement issued by an authorized insurer that provides for the repair, 6
replacement, or maintenance of property or indemnification for repair, 7
replacement, or service for the operations or struct ural failure of the 8
property due to a defect in materials or workmanship or to normal wear and 9
tear; 10
(6) "Nonoriginal manufacturer's parts" means aftermarket or 11
replacement parts not made for or by the original manufacturer of the 12
property; 13
(7) "Person" means: 14
(A) An individual; 15
(B) A partnership; 16
(C) A corporation; 17
(D) An incorporated or unincorporated association; 18
(E) A joint stock company; 19
(F) A reciprocal; 20
(G) A syndicate; or 21
(H) Any similar entity or combination o f entities acting 22
in concert; 23
(8) "Premium" means the consideration paid to an insurer for a 24
reimbursement insurance policy; 25
(9) "Provider" means a person that is contractually obligated to 26
the service contract holder under the terms of the service c ontract; 27
(10) "Provider fee" means the consideration paid for a service 28
contract; 29
(11) "Reimbursement insurance policy" means a policy of 30
insurance issued to a provider to either: 31
(A) Provide reimbursement to the provider under the terms 32
of the insured service contracts issued or sold by the provider; or 33
(B) In the event of the provider's nonperformance, to pay 34
on behalf of the provider all covered contractual obligations incurred by the 35
provider under the terms of the insured service contract s issued or sold by 36 HB1770
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the provider; 1
(12)(A) "Service contract" means a contract or an 2
agreement: 3
(i) For a separately stated consideration; 4
(ii) For a specific duration to perform the service, 5
repair, replacement, or maintenance of property or indemnification for 6
service, repair, replacement, or maintenance for the operational or 7
structural failure of property due to a defect in materials, workmanship, or 8
normal wear and tear; and 9
(iii) With or without additional provision for 10
incidental payment of indemnity under limited circumstances, including 11
without limitation unavailability of parts, obsolescence, food spoilage, 12
rental, or shipping. 13
(B) "Service contract" does not include mechanical 14
breakdown insurance or maintenance agreements. 15
(C) A service contract may provide for the repair, 16
replacement, or maintenance of property for damage resulting from power 17
surges or accidental damage from handling. 18
(D) A service contract is not insurance; 19
(13) "Service contract holder" means a p erson that is the 20
purchaser or holder of a service contract; and 21
(14) "Warranty" means a warranty made solely by the 22
manufacturer, importer, or seller of property or services without charge 23
that: 24
(A) Is not negotiated or separated from the sale of t he 25
product; 26
(B) Is incidental to the sale of the product; and 27
(C) Guarantees indemnity for defective parts, mechanical 28
breakdown, or electrical breakdown and labor or other remedial measures, 29
including the repair or replacement of the property or repetition of 30
services. 31
32
23-66-804. Requirements for doing business. 33
(a) A provider may appoint an administrator or other designee to be 34
responsible for the administration of service contracts and compliance with 35
this subchapter. 36 HB1770
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(b) A service contra ct shall not be issued, sold, or offered for sale 1
in this state unless the provider or the provider's designee has: 2
(1) Provided a receipt or other written evidence of the purchase 3
of the service contract to the service contract holder; 4
(2) Provided a copy of the service contract to the service 5
contract holder within a reasonable period of time from the date of purchase; 6
(3) Established a business location in this state and submitted 7
to the Insurance Commissioner for review and approval the name an d contact 8
information for a representative of the provider or the provider's designee 9
who is located in this state; 10
(4) Obtained approval from the commissioner of the business 11
location and any service contract offered in this state; and 12
(5) Complied with this subchapter. 13
(c)(1) A provider of service contracts sold in this state shall file a 14
registration with the commissioner. 15
(2) The registration required under subdivision (c)(1) of this 16
section shall include: 17
(A) The name of the provider; 18
(B) The full corporate address of the provider; 19
(C) Telephone number and contact person of the provider at 20
the corporate office; 21
(D) The physical address and mailing address of the 22
business location in this state; 23
(E) The contact information of a representative of the 24
provider who resides and operates in this state, including without limitation 25
the telephone number and electronic mail; 26
(F) Evidence of compliance with subsection (d) of this 27
section; 28
(G) A designation of a person in thi s state for service of 29
process; and 30
(H) Any other information required to be submitted by rule 31
of the commissioner. 32
(2) A provider shall pay to the commissioner a fee in the amount 33
of two hundred dollars ($200) upon initial registration and annually 34
thereafter. 35
(3) The registration shall be updated by written notification to 36 HB1770
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the commissioner if material changes occur in the registration. 1
(d) In order to assure the faithful performance of a provider's 2
obligations to the provider's service contrac t holders, the provider that is 3
contractually obligated to provide service under a service contract shall: 4
(1) Insure all service contracts under a reimbursement insurance 5
policy issued by an insurer licensed, registered, or authorized to transact 6
insurance in this state or a surplus lines insurer that is authorized under § 7
23-65-310 and maintains statutory capital and surplus of at least fifteen 8
million dollars ($15,000,000) at all times while the reimbursement insurance 9
policy is in force; 10
(2) Do both of the following: 11
(A)(i) Maintain a funded reserve account for the 12
provider's obligations under the provider's service contracts issued and 13
outstanding in this state. 14
(ii) The reserves shall not be less than forty 15
percent (40%) of gross conside ration received less claims paid on the sale of 16
all unexpired service contracts. 17
(iii) The reserve account is subject to examination 18
and review by the commissioner; and 19
(B) Place in trust with the commissioner a financial 20
security deposit having a value of not less than five percent (5%) of the 21
gross consideration received less claims paid on the sale of all unexpired 22
service contracts, but not less than twenty -five thousand dollars ($25,000), 23
consisting of a surety bond issued by an authorized sur ety; or 24
(3)(A) Maintain a net worth of one hundred million dollars 25
($100,000,000) on its own or together with the provider's parent company if 26
the parent company executes a parental guarantee in a form acceptable to the 27
commissioner. 28
(B) Upon request, the provider shall provide the 29
commissioner with a copy of the provider's financial statements or, if the 30
provider's financial statements are consolidated with those of its parent 31
company, the provider's parent company's most recent Form 10 -K or Form 20-F 32
filed with the United States Securities and Exchange Commission within the 33
last calendar year, or if the company does not file with the United States 34
Securities and Exchange Commission, a copy of the company's audited financial 35
statements, which shows a n independent net worth of the provider or its 36 HB1770
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parent company of at least one hundred million dollars ($100,000,000). 1
(C) If the provider's parent company's Form 10 -K, Form 20-2
F, or audited financial statements are filed to meet the provider's financial 3
stability requirement, then the parent company shall agree to guarantee the 4
obligations of the obligor relating to service contracts sold by the provider 5
in this state. 6
(e) Except for the requirements under subsection (d) of this section, 7
no other financial security requirements shall be required by the 8
commissioner for a provider. 9
(f)(1) Provider fees collected on service contracts shall not be 10
subject to premium taxes. 11
(2) Premiums for reimbursement insurance policies shall be 12
subject to applicable taxes. 13
(g) Except for the registration requirements under subsection (c) of 14
this section, persons marketing, selling, or offering to sell service 15
contracts for providers that comply with this subchapter are exempt from this 16
state's licensing requirements. 17
(h) The commissioner may examine the books and records of a provider 18
as necessary to ensure compliance with this subchapter. 19
20
23-66-805. Required disclosures — Reimbursement insurance policy. 21
(a) A reimbursement insurance policy insuring service contracts 22
issued, sold, or offered for sale in this state shall state that the insurer 23
that issued the reimbursement insurance policy shall: 24
(1) Reimburse or pay on behalf of the provider any covered sums 25
the provider is legally obligated to pa y; or 26
(2) In the event of the provider's nonperformance, shall provide 27
the service that the provider is legally obligated to perform according to 28
the provider's contractual obligations under the service contracts issued or 29
sold by the provider. 30
(b) If covered service is not provided by the provider within sixty 31
(60) days of proof of loss by the service contract holder, the service 32
contract holder is entitled to apply directly to the reimbursement insurance 33
company. 34
35
23-66-806. Required disclosure — Service contracts. 36 HB1770
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(a) A service contract issued, sold, or offered for sale in this state 1
shall: 2
(1) Be written in clear, understandable language that is easy to 3
read; and 4
(2) Conspicuously disclose the applicable requirements of this 5
section. 6
(b)(1) A service contract insured under a reimbursement insurance 7
policy under § 23-66-804(d)(1) shall contain the name and address of the 8
insurer and a statement in substantially the following form: 9
"Obligations of the provider under this service contract ar e guaranteed under 10
a service contract reimbursement insurance policy. If the provider fails to 11
pay or provide service on a claim within sixty (60) days after proof of loss 12
has been filed, the service contract holder is entitled to make a claim 13
directly against the insurance company." 14
(2) A claim against the provider may include a claim for return 15
of the unearned provider fee. 16
(c)(1) A service contract not insured under a reimbursement insurance 17
policy under § 23-66-804(d)(1) shall conspicuously state t he name and address 18
of the provider and contain a statement in substantially the following form: 19
"Obligations of the provider under this service contract are backed only by 20
the full faith and credit of the provider (issuer) and are not guaranteed 21
under a service contract reimbursement insurance policy." 22
(2) A claim against the provider shall also include a claim for 23
return of the unearned provider fee. 24
(d) A service contract shall identify the administrator, the provider 25
obligated to perform the servic e under the contract, the service contract 26
seller, and the service contract holder to the extent that the name and 27
address of the service contract holder have been furnished by the service 28
contract holder. 29
(e)(1) A service contract or a service contract holder's receipt shall 30
state the total purchase price and the terms under which the service contract 31
is sold. 32
(2) The purchase price is not required to be preprinted on the 33
service contract and may be negotiated at the time of sale with the service 34
contract holder. 35
(f) If prior approval of repair work is required, a service contract 36 HB1770
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shall state the procedure for obtaining prior approval and for making a 1
claim, including a toll -free telephone number for claim service and a 2
procedure for obtaining emerge ncy repairs performed outside of normal 3
business hours. 4
(g) A service contract shall: 5
(1) Disclose the deductible amount; 6
(2) Specify the merchandise and services to be provided and any 7
limitations, exceptions, or exclusions; 8
(3)(A) State the conditions upon which the use of the 9
nonoriginal manufacturer's parts or substitute service may be allowed. 10
(B) Conditions stated shall comply with applicable state 11
and federal laws; 12
(4) State any terms, restrictions, or conditions governing the 13
transferability of the service contract; 14
(5)(A) State the terms, restrictions, or conditions governing 15
termination of the service contract by the service contract holder. 16
(B)(i) The provider of the service contract shall mail a 17
written notice to the se rvice contract holder within fifteen (15) days of the 18
date of termination if the provider terminates the service contract. 19
(ii) Prior notice is not required if the reason for 20
cancellation is nonpayment of the provider fee, a material misrepresentation 21
by the service contract holder to the provider, or a substantial breach of 22
duties by the service contract holder relating to the covered product or its 23
use. 24
(C) The notice shall state the effective date of the 25
cancellation and the reason for the cancellation. 26
(D) A pro rata refund of the unearned portion of the 27
provider fee less the amount or value of any claims paid shall accompany the 28
notice unless cancellation is for nonpayment; 29
(6)(A) Contain a provision under which every provider is 30
required to permit the service contract holder to return the contract within 31
no less than twenty (20) days of the date of mailing of the service contract 32
or no less than ten (10) days if the service contract is delivered at the 33
time of sale or within a longe r time period permitted under the service 34
contract. 35
(B) If no claim has been made under the service contract, 36 HB1770
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the service contract is void, and the provider shall refund to the service 1
contract holder the full purchase price of the service contract. 2
(C) A penalty of ten percent (10%) per month shall be 3
added to a refund that is not paid within forty -five (45) days of return of 4
the service contract to the provider. 5
(D) The applicable free -look time period on service 6
contracts shall apply only to the original service contract purchaser and 7
only if no claim has been made before its return to the provider; 8
(7) State all of the obligations and duties of the service 9
contract holder, including the duty to protect against any further damage and 10
the requirement for certain service and maintenance; and 11
(8) Clearly state whether or not the service contract provides 12
for or excludes consequential damages or preexisting conditions. 13
14
23-66-807. Prohibited acts. 15
(a)(1) A provider shall not use a name: 16
(A) With the words "insurance", "casualty", "surety", 17
"mutual", or any other words descriptive of the insurance, casualty, or 18
surety business; or 19
(B) Deceptively similar to the name or description of any 20
insurance or surety corporation or any other provider. 21
(2)(A) This subsection does not apply to a company that was 22
using any of the prohibited language in its name before October 1, 2007. 23
(B) However, a company using the prohibited language in 24
its name shall conspicuously disclose in its servi ce contracts that the 25
service contract is not an insurance contract. 26
(b) A provider or its representative shall not in its service 27
contracts or literature make or permit or cause to be made any false or 28
misleading statement or deliberately omit any mater ial statement that would 29
be considered misleading if omitted in connection with the sale, offer to 30
sell, or advertisement of a service contract. 31
(c) A person, including without limitation a bank, savings and loan 32
association, lending institution, manufac turer, or seller of any product, 33
shall not require the purchase of a service contract as a condition of a loan 34
or a condition for the sale of any property. 35
36 HB1770
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23-66-808. Recordkeeping requirements. 1
(a)(1) A provider shall keep accurate accounts, books, and records 2
concerning transactions regulated under this subchapter. 3
(2) A provider's accounts, books, and records shall include: 4
(A) A copy of each type of service contract issued; 5
(B) The name and address of each service contract holder, 6
to the extent that the name and address have been furnished by the service 7
contract holder; 8
(C) A list of the provider locations where service 9
contracts are marketed, sold, or offered for sale; and 10
(D) Claims files containing at a minimum the dates, 11
amounts, and description of all receipts, claims, and expenditures related to 12
the service contracts. 13
(3) Except as provided in subsection (b) of this section, a 14
provider shall retain all records pertaining to each service contract holder 15
for at least three (3) years after the specified period of coverage has 16
expired. 17
(4)(A) A provider may keep all records required under this 18
subchapter on a computer disk or other similar technology. 19
(B) If a provider maintains records in other than hard 20
copy, records shall be accessible from a computer terminal available to the 21
Insurance Commissioner and be capable of duplication to legible hard copy. 22
(b) A provider discontinuing business in this state shall maintain its 23
records until it furnishes the commissioner s atisfactory proof that it has 24
discharged all obligations to service contract holders in this state. 25
(c) A provider shall make all accounts, books, and records concerning 26
transactions regulated under this subchapter or other pertinent laws 27
available to the commissioner upon request. 28
(d) The books and records requirement under this section may be 29
delegated by the provider to its administrator or other designee, but the 30
delegation shall not relieve the provider of its obligations to have the 31
books and records maintained and produced upon the commissioner's request. 32
33
23-66-809. Cancellation of reimbursement insurance policy. 34
(a) An insurer that issued a reimbursement insurance policy shall not 35
terminate the policy until at least sixty (60) days' notice o f termination 36 HB1770
24 3/29/2023 12:48:34 PM ANS268
has been mailed or delivered to the Insurance Commissioner and according to 1
any applicable law. 2
(b) The termination of a reimbursement insurance policy shall not 3
reduce the insurer's responsibility for service contracts issued by providers 4
before the date of the termination. 5
6
23-66-810. Obligation of reimbursement insurance policy insurers. 7
(a)(1) A provider is considered to be the agent of the insurer that 8
issued a reimbursement insurance policy for the purpose of obligating an 9
insurer for the acts of its agents, including without limitation the 10
collection of moneys not forwarded. 11
(2) If a provider is acting as an administrator and enlists 12
other providers, the provider acting as the administrator shall notify the 13
insurer of the existe nce and identities of the other providers. 14
(b) This subchapter does not prevent or limit the right of an insurer 15
that issued a reimbursement insurance policy to seek indemnification or 16
subrogation against a provider if the insurer pays or is obligated to pay a 17
service contract holder sums that the provider was obligated to pay pursuant 18
to the service contract or under a contractual agreement. 19
20
23-66-811. Enforcement. 21
(a) The Insurance Commissioner shall enforce this subchapter. 22
(b) The commissioner may: 23
(1) Examine or audit the books and records of a provider 24
offering service contracts in this state; 25
(2) Conduct investigations of providers, administrators, 26
insurers, or other persons to: 27
(A) Enforce this subchapter; 28
(B) Protect service c ontract holders in this state; and 29
(C) Determine if the provider is in compliance with this 30
subchapter. 31
(c)(1) The commissioner may take any action that is necessary or 32
appropriate to enforce this subchapter and the commissioner's rules and 33
orders to protect service contract holders in this state. 34
(2) The commissioner may: 35
(A) Order a provider to cease and desist from committing 36 HB1770
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violations of this subchapter or the commissioner's rules or orders; 1
(B) Issue an order prohibiting a provider from selling or 2
offering a service contract for sale; 3
(C) Issue an order imposing a civil penalty; or 4
(D) Issue an order to impose any combination of the 5
actions described under subdivision (c)(2)(A) -(C) of this section, if the 6
provider has violated this subchapter or the commissioner's rules or orders. 7
(d)(1) After notice and opportunity for hearing, the commissioner may 8
impose a penalty of up to five hundred dollars ($500) per violation against a 9
provider if the commissioner finds that the provider has violated this 10
subchapter. 11
(2)(A) The penalty under subdivision (d)(1) of this section 12
shall be no more than ten thousand dollars ($10,000) in the aggregate for all 13
violations of a similar nature. 14
(B) For purposes of this subdivision (d)(2), violations 15
shall be of a similar nature if the violation consists of the same or similar 16
course of conduct, action, or practice, irrespective of the number of times 17
the act, conduct, or practice that is determine d to be a violation of this 18
subchapter has occurred. 19
(e)(1) A person aggrieved by an order issued under this section may 20
request a hearing before the commissioner by filing a request with the 21
commissioner within twenty (20) days of the commissioner's ord er. 22
(2) Pending the hearing and the decision by the commissioner, 23
the commissioner shall suspend the effective date of the order. 24
(3)(A) At the hearing, the burden shall be on the commissioner 25
to show why the order is justified. 26
(B) Section 23-61-301 et seq. shall apply to a hearing 27
requested under this subsection. 28
(4)(A) The commissioner may bring an action in the Pulaski 29
County Circuit Court for an injunction or other appropriate relief for 30
threatened or existing violations of this subchapter or of the commissioner's 31
rules or orders. 32
(B) An action filed under subdivision (e)(3)(A) of this 33
section may also seek restitution on behalf of persons aggrieved by a 34
violation of this subchapter or a rule or an order of the commissioner. 35
(c) The authority of the commissioner under this section is in 36 HB1770
26 3/29/2023 12:48:34 PM ANS268
addition to other authorities of the commissioner. 1
2
23-66-812. Rules. 3
The Insurance Commissioner may promulgate rules necessary to implement 4
and administer this subchapter. 5
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