Accordingly to materials published by the TLDR, the amendments being proposed are intended to clarify the general financial security requirements for a service contract provider that uses the funded reserve account and security deposit option. Specifically, whichever form of financial security the provider chooses to use, the amended rule language requires that the financial security must be maintained until the provider has fulfilled its obligations to Texas consumers, in instances where the provider elects to change to another available financial security option prospectively. 

Further,  proposed amendments will require that a provider’s funded reserve account must be clearly labeled with the provider’s name and “Texas Service Contracts Funded Reserve Account” and must be maintained to ensure that the provider’s financial obligations to its Texas service contract holders are satisfied.   It is not clear from the language, as proposed, whether a separate account must be maintained solely for Texas contracts.  Technical updates to the agency’s surety bond form are proposed as well as renumbering of certain rule provisions.  The full text of the rule is available on the TLDR’s website and public comment is welcome through September 13, 2010.

The bill would require standardized contract disclosures including a “free look” period, clear cancellation and deductible provisions as well as transferability information.   It does not appear that the service contract would be subject to prior approval or filing with the Department.  Lastly, the bill contains a “grandfather” provision addressing persons that have been engaged in the service contract business in the Commonwealth before the adoption of the bill.

As reported earlier, AB 2111 proposes numerous changes affecting both vehicle service contracts and consumer goods service contracts.   For example, existing law  requires that prior to incurring an obligation under a VSC, an obligor must file with the Insurance Commissioner,  a copy of an insurance policy covering 100% of the obligor’s VSC obligations.  An obligor is currently permitted to have only one active policy from one insurer at any time on file.  Any violation of this provision is a criminal violation. This bill would authorize an obligor to have more than one policy on file if the obligor annually files with the commissioner a report certified as accurate by an officer or director of the obligor that lists each of its insured VSC programs and the corresponding insurance policy under which each program is insured.   This bill also proposes changes regarding warranties of motor vehicle lubricants, treatments, fluids, or additives that cover incidental or consequential damage resulting from a failure of the lubricant, treatment, fluid, or additive.  

With regard to consumer goods service contracts, the bill proposes changes affecting administrators and sellers of such contracts by amending the definition of service contract,  and expanding the items a contract may cover to include accessories of electronic sets or appliances.  The bill also deletes the $250 per year limit on incidental payments.  The bill would also authorize a service contract administrator to be an obligor on a service contract where all service contracts are insured under a reimbursement insurance policy.

Further,  existing law prohibits a service contract covering any motor vehicle, home appliance, or home electronic product from being offered for sale or sold unless the contract is cancelable by the purchaser under certain conditions. This bill would change the required conditions of a cancellation in that the seller would no longer be required to indicate in the contract which of specified bases for a pro rata refund the seller is using.

Key provisions of the legislation include:

• Exempts, from regulation under the Florida Insurance Code, motor vehicle service agreements that are sold to “non-consumers”,  i.e., commercial entities or purposes

• Broadens the definition of home warranty service agreements.

• Eliminates the requirement to file warranty service agreements with the Office of Insurance Regulation (OIR) for approval; however, the amendment provides that OIR may order a form not to be used if it doesn’t meet  statutory requirements for content.  This applies to all forms of service agreements or service warranties.

• Eliminates the requirement for home warranty associations and motor vehicle service agreement companies to file rates with OIR

• Requires that all forms of warranty contracts sold in Florida must be accompanied by a written disclosure to the consumer that the rate charged for the contract is not subject to regulation by the OIR. This particular requirement is effective July 1, 2011.

• Eliminates requirement to file quarterly financial reports in favor or an annual financial report requirements for warranty associations

• Makes periodic OIR examinations discretionary and provides factors to consider in choosing to conduct an examination

• Provides that there is no violation for knowingly overcharging the cost of a motor vehicle service agreement if a service agreement company refunds any excess premium within 45 days

• Makes a failure to provide a complete sample copy of the terms and conditions of a service or warranty agreement prior to sale an unfair practice, but provides that this information may be provided online

• Allows premium increases in renewal home warranty contracts if supported by claims history or claims cost data

• Removes OIR’s ability to require additional regular or special reports from home warranty associations

• Provides that unlicensed activity by warranty associations is a first-degree misdemeanor