Legislation recently filed in New Jersey would establish a statutory framework for regulating motor vehicle, home and consumer goods service contracts in a manner similar to that which is place in a number of other states. Assembly Bill 1740, and its companion Senate Bill 854, define “Service Contract” as a contract that provides for the repair, replacement, maintenance or service of a motor vehicle or residential or other property, relating to the operational failure or structural failure of the motor vehicle or other property, due to a defect in materials or workmanship. Such contracts may include coverage for normal wear and tear. Under these bills, service contracts may include towing, rental and emergency road services and other road hazard protections. They may also include damage resulting from power surges or accidental damage from handling.
Providers (obligors) of such contracts would be required to register with the Department of Banking and Insurance and meet one of three financial responsibility requirements: 1) insure contracts under a reimbursement insurance policy; 2) maintain an unearned reserve; or 3) demonstrate and maintain a net worth of $100 million dollars.
While the disclosures within a service contract would be governed by the new law, the legislation does not deem them subject of filing with, or prior approval of, the Department. Under the new law, such contracts would be specifically exempt from treatment as insurance.
Further, the legislation provides that a violation of the new law constitutes an unlawful practice pursuant to the state’s Consumer Fraud Act, punishable by monetary penalties of up to $10,000 for the first offense and up to $20,000 for subsequent offenses, as well as, cease and desist orders issued by the state Attorney General.
