UPDATE: On March 15, 2013, the Office of Insurance of the Commonwealth of Kentucky issued Advisory Opinion 2013-03 concerning motor vehicle service contracts. It did so in response to numerous inquiries regarding the repeal of its administrative regulation 806 KAR 5:050, as well as what the DOI described as inconsistencies in 304.5-070(1)(p) of Kentucky’s Insurance laws. This administrative regulation previously imposed registration requirements of certain motor vehicle service contract providers.
According to the DOI, these inconsistencies were brought about through amendments to 190.090, which is found in Kentucky’s law governing Motor Vehicle Sales. The opinion was issued to clarify the Department’s position regarding the requirements of motor vehicle service contract providers and providers of other products related to vehicle service contracts.
In its opinion, the Department explained that in light of the 2012 legislative changes, (House Bill 417 (2012) effective July 12, 2012), it concluded that the exemption from being considered insurance set forth in KRS 304.5-070(1)(p) was “no longer conditioned upon the contract covering defects in material and workmanship nor on the requirement that the maker hold an insurance policy to assure the performance of their duties.” Therefore, 806 KAR 5:050 had, by that time, been repealed and registration of VSC obligors/providers was no longer required.
However, recent communications with the Office of General Counsel of the Kentucky DOI has determined that the exemption from being considered insurance, as set forth in KRS 304.5-070(1)(p) continues to be conditioned upon the VSC (a.k.a. “automobile guaranty” ) being incidental to the business of selling or leasing a motor vehicle. This would seem to suggest that VSC sales that are not incidental to the business of buying or leasing a car (potentially direct sales via call centers or internet sales), are not exempt from being considered insurance, and thus, may only be offered as insurance products.