LD 491
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Page 1 of 2 An Act Regarding Service Contracts LD 491 Title Page
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LR 1016
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§7002.__Definitions

 
As used in this chapter, unless the context otherwise
indicates, the following terms have the following meanings.

 
1.__Administrator.__"Administrator" means the person
responsible for the administration of the service contracts or
for any filings required by this chapter.

 
2.__Consumer.__"Consumer" means a natural person who buys
other than for purposes of resale any tangible personal property
that is distributed in commerce and that is normally used for
personal, family or household purposes and not for business or
research purposes.

 
3.__Maintenance agreement.__"Maintenance agreement" means a
contract of limited duration that provides for scheduled
maintenance only.

 
4.__Motor vehicle manufacturer.__"Motor vehicle manufacturer"
means a person that:

 
A.__Manufactures or produces motor vehicles and sells motor
vehicles under its own name or label;

 
B.__Is a wholly owned subsidiary of the person that
manufactures or produces motor vehicles;

 
C.__Is a corporation that owns 100% of the person that
manufactures or produces motor vehicles;

 
D.__Does not manufacture or produce motor vehicles, but
sells motor vehicles under the trade name or label of
another person that manufactures or produces motor vehicles;

 
E.__Manufactures or produces motor vehicles and sells such
motor vehicles under the trade name or label of another
person that manufactures or produces motor vehicles; or

 
F.__Does not manufacture or produce motor vehicles but,
pursuant to a written contract, licenses the use of its
trade name or label to another person that manufactures or
produces motor vehicles and that sells motor vehicles under
the licensor's trade name or label.

 
5.__Nonoriginal manufacturer's parts.__"Nonoriginal
manufacturer's parts" means replacement parts not made for or by
the original manufacturer of the property, commonly referred to
as "aftermarket parts."

 
6.__Person.__"Person" means an individual, partnership,
corporation, incorporated or unincorporated association, joint
stock company, reciprocal exchange, syndicate or any similar
entity or combination of entities acting in concert.

 
7.__Premium.__"Premium" means the consideration paid to an
insurer for a reimbursement insurance policy.

 
8.__Provider.__"Provider" means a person contractually
obligated to the service contract holder under the terms of the
service contract.

 
9.__Provider fee.__"Provider fee" means the consideration paid
for a service contract.

 
10.__Reimbursement insurance policy.__"Reimbursement insurance
policy" means a policy of insurance that is issued to a provider
to reimburse the provider or to pay on behalf of the provider all
covered contractual obligations incurred by the provider under
the terms of the insured service contracts issued or sold by the
provider.

 
11.__Service contract.__"Service contract" means a contract or
agreement for a separately stated consideration for a specific
duration to perform the repair, replacement or maintenance of
property or for indemnification for repair, replacement or
maintenance for 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, 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.

 
12.__Service contract holder or contract holder.__"Service
contract holder" or "contract holder" means a purchaser or holder
of a service contract.

 
13.__Warranty.__"Warranty" means a warranty made solely by the
manufacturer, importer or seller of property or services without
consideration that is not negotiated or separated from the sale
of the product and is incidental to the sale of the product and
that guarantees indemnity for defective parts, mechanical or
electrical breakdown, labor or other remedial measures, such as
repair or replacement of the property or repetition of services.

 
§7003.__Requirements for doing business

 
1. Administrator.__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 for
compliance with this chapter.

 
2. Service contract.__A service contract may not be issued,
sold or offered for sale in this State unless the provider has:

 
A.__Provided a receipt for, or other written evidence of,
the purchase of the service contract to the contract holder;
and

 
B.__Provided a copy of the service contract to the service
contract holder within a reasonable period of time from the
date of purchase.

 
3. Registration.__A provider of service contracts sold in this
State shall file a registration with the superintendent on a form
prescribed by the superintendent.__A provider shall pay to the
superintendent a fee in the amount of $200 annually.

 
4. Performance.__In order to ensure the faithful performance
of a provider's obligations to its service contract holders, a
provider shall:

 
A. 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 19;

 
B. Undertake to:

 
(1)__Maintain a funded reserve account for its
obligations under its service contracts issued and
outstanding in this State.__The reserves may not be
less than 40% of the gross consideration received, less
claims paid, on the sale of the service contract for
all contracts in force.__The reserve account is subject
to examination and review by the superintendent; and

 
(2)__Place in trust with the superintendent a financial
security deposit, having a value of not less than 5% of
the gross consideration received, less claims paid, on
the sale of the service contract for all service
contracts issued and in force, but not less than
$25,000, consisting of:

 
(a)__A surety bond issued by an authorized surety;

 
(b)__Securities of the type eligible for deposit
by authorized insurers in this State;

 
(c)__Cash;

 
(d)__A letter of credit issued by a qualified
financial institution; or

 
(e)__Another form of security prescribed by rule
issued by the superintendent; or

 
C.__Undertake to:

 
(1)__Maintain, or have its parent company maintain, a
net worth or stockholders' equity of at least
$100,000,000; and

 
(2)__Upon request, provide the superintendent with a
copy of the provider's or its parent company's most
recent Form 10-K or Form 20-F filed with the United
States Securities and Exchange Commission within the
last calendar year or, if the company does not file
with the United States Securities and Exchange
Commission, a copy of the provider's or its parent
company's audited financial statements that show a net
worth of the provider or its parent company of at least
$100,000,000.__If the parent company's Form 10-K, Form
20-F or audited financial statements are filed to meet
the provider's financial stability requirement, then
the parent company shall agree to guarantee the
obligations of the provider relating to service
contracts sold by the provider in this State.

 
Except for the requirement specified in this subsection, other
financial security requirements may not be required by the
superintendent for service contract providers.

 
5.__Right to void.__Service contracts must require the
provider to permit the service contract holder to return the
service contract within 20 days of the date the service contract
was mailed to the service contract holder or within 10 days of
delivery if the service contract is delivered to the service
contract holder at the time of sale or within a longer time
period permitted under the service contract.__ Upon return of the
service contract to the provider within the applicable time
period, if a claim has not 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, or
credit the account of the service contract holder with, the full
purchase price of the service contract.__The right to void the
service contract provided in this subsection is not transferable
and applies only to the original service contract purchaser and
only if a claim has not been made prior to its return to the
provider.__A 10% penalty per month must be added to a refund that
is not paid or credited within 45 days after return of the
service contract to the provider.

 
6.__Premium taxes.__Provider fees collected on service
contracts are not subject to premium taxes.__Premiums for
reimbursement insurance policies are subject to applicable taxes.

 
7. Licensing exemptions.__Except for the registration
requirement in subsection 3, providers and related service
contract sellers, administrators and other persons marketing,
selling or offering to sell service contracts are exempt from any
licensing requirements of this State.

 
§7004.__Required provisions; reimbursement insurance policy

 
1. Statement of policy.__Reimbursement insurance policies
insuring service contracts issued, sold or offered for sale in
this State must state that the insurer that issued the
reimbursement insurance policy shall reimburse or pay on behalf
of the provider any covered sums the provider is legally
obligated to pay or shall provide the service that the provider
is legally obligated to perform according to the provider's
contractual obligations under the insured service contracts
issued or sold by the provider.

 
2.__Application to reimbursement insurance company.__In the
event covered service is not provided by the service contract
provider within 60 days of proof of loss by the service contract
holder, the contract holder is entitled to apply directly to the
reimbursement insurance company.

 
§7005.__Required disclosures; service contracts

 
1.__Disclosures.__Service contracts marketed, sold, offered
for sale, issued, made, proposed to be made or administered in
this State must be written, printed or typed in clear,
understandable language that is easy to read and must disclose
the requirements set forth in this section, as applicable.

 
A.__Service contracts insured under a reimbursement
insurance policy pursuant to section 7003, subsection 4,
paragraph A must contain a statement in substantially the
following form:__"Obligations of the provider under this
service contract are insured under a service contract
reimbursement insurance policy."__The service contract must
state the name and address of the insurer.

 
B.__Service contracts not issued under a reimbursement
insurance policy pursuant to section 7003, subsection 4,
paragraph A must 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."

 
C.__Service contracts must state the name and address of the
provider and must identify any administrator other than the
provider, the service contract seller and the service
contract holder to the extent that the name of the service
contract holder has been furnished by the service contract
holder.__The identities of the parties are not required to
be preprinted on the service contract and may be added to
the service contract at the time of sale.

 
D.__Service contracts must state the purchase price of the
service contract and the terms under which the service
contract is sold.__The purchase price is not required to be
preprinted on the service contract and may be negotiated at
the time of sale with the service contract holder.

 
E.__Service contracts must state the existence of any
deductible amount, if applicable.

 
F.__Service contracts must specify the merchandise and
services to be provided and any limitations, exceptions or
exclusions.

 
G.__Service contracts covering automobiles must state
whether the use of nonoriginal manufacturer's parts is
allowed.

 
H.__Service contracts must state any restrictions governing
the transferability of the service contract, if applicable.

 
I.__Service contracts must 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 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 5 days prior to
cancellation by the provider.__Prior notice is not required
if the reason for cancellation is nonpayment of the provider
fee, a material misrepresentation by the service contract
holder to the provider or a substantial breach of duties by
the service contract holder relating to the covered product
or its use.__The notice must state the effective date of the
cancellation and the reason for the cancellation.

 
J.__Service contracts must set forth the obligations and
duties of the service contract holder, such as the duty to
protect against any further damage and any requirement to
follow instructions in an owner's manual.

 
K.__Service contracts must state whether or not the service
contract provides for or excludes consequential damages or
preexisting conditions, if applicable.

 
§7006.__Prohibited acts

 
1.__Prohibited names.__A provider may not use in its name the
words "insurance," "casualty," "surety," "mutual" or any other
words descriptive of the insurance, casualty or surety business
and may not use a name deceptively similar to the name or
description of any insurance or surety corporation or to the name
of any other provider.__The word "guaranty" or similar word may
be used by a provider.__This section does not apply to a company
that was using any of the prohibited language in its name prior
to the effective date of this chapter; however, a company using
the prohibited language in its name shall include in its service
contracts a statement in substantially the following form:__"This
agreement is not an insurance contract."

 
2.__Misleading statements.__A provider or its representative
may not in its service contracts or literature make, permit or
cause to be made any false or misleading statement or
deliberately omit any material statement that would be considered
misleading if omitted.

 
3.__Prohibited conditions of sale.__A person, such as a bank,
savings and loan association, lending institution, manufacturer
or seller of any product, may not require the purchase of a
service contract as a condition of a loan or a condition for the
sale of any property.

 
§7007.__Record-keeping requirements

 
1.__Books and records.__A provider shall keep books and
records in accordance with this section.

 
A.__The provider shall keep accurate accounts, books and
records concerning transactions regulated under this
chapter.

 
B.__The provider's accounts, books and records must include:

 
(1)__Copies of each type of service contract sold;

 
(2)__The name and address of each service contract
holder, to the extent that the name and address have
been furnished by the service contract holder;

 
(3)__A list of the locations where service contracts
are marketed, sold or offered for sale; and

 
(4)__Written claims files, which must contain at least
the dates and description of claims related to the
service contracts.

 
C.__Except as provided in subsection 2, the provider shall
retain all records required to be maintained by this
subsection for at least one year after the specified period
of coverage has expired.

 
D.__The records required under this chapter may be, but are
not required to be, maintained on a computer disk or other
record-keeping medium.__If the records are maintained in
other than hard copy, the records must be capable of
duplication to legible hard copy at the request of the
superintendent.

 
2.__ Discontinuance of business.__A provider discontinuing
business in this State shall maintain its records until it
furnishes the superintendent satisfactory proof that it has
discharged all obligations to service contract holders in this
State.

 
§7008.__Cancellation of reimbursement insurance policy

 
1.__Termination.__An insurer that issued a reimbursement
insurance policy may not terminate the policy until a notice of
cancellation in accordance with the provisions of section 7005
has been mailed or delivered to the superintendent.__The
cancellation of a reimbursement insurance policy does not reduce
the issuer's responsibility for service contracts issued by
providers prior to the date of the cancellation.

 
§7009.__Obligations of reimbursement insurance policy insurers

 
1.__Receipt of premiums for insurers issuing reimbursement
insurance.__Insurers issuing reimbursement insurance to providers
are deemed to have received the premiums for such insurance upon
the payment of provider fees by consumers for service contracts
issued by such insured providers.

 
2.__Other rights.__This chapter does not prevent or limit the
right of an insurer that issued a reimbursement insurance policy
to seek indemnification or subrogation against a provider if the
insurer pays or is obligated to pay the service contract holder
sums that the provider was obligated to pay pursuant to the
provisions of the service contract.

 
§7010.__Enforcement provisions

 
1.__Examinations.__The superintendent may conduct examinations
of providers, administrators, insurers or other persons to
enforce this chapter and protect service contract holders in this
State.__Upon request of the superintendent, the provider shall
make available to the superintendent all accounts, books and
records concerning service contracts sold by the provider that
are necessary to enable the superintendent to reasonably
determine compliance or noncompliance with this chapter.

 
2.__Enforcement.__The superintendent may take action as
necessary or appropriate to enforce the provisions of this
chapter and the superintendent's rules and orders adopted
pursuant to this chapter and to protect service contract holders
in this State.

 
A.__If a provider has violated this chapter or the
superintendent's rules or orders, the superintendent may:

 
(1) Issue an order directed to that provider to cease
and desist from committing violations of this chapter
or the superintendent's rules or orders;

 
(2)__Issue an order prohibiting that provider from
selling or offering for sale service contracts in
violation of this chapter;

 
(3)__Issue an order imposing a civil penalty on that
provider; or

 
(4)__Issue any combination of orders, as applicable.

 
B. A person aggrieved by an order issued under this section
may request a hearing before the superintendent.__The
hearing request must be filed with the superintendent within
20 days of the date the superintendent's order is effective.

 
C.__If a hearing is requested, an order issued by the
superintendent under this section must be suspended from the
original effective date of the order until completion of the
hearing and final decision of the superintendent.

 
D.__At the hearing, the burden is on the superintendent to
show why the order issued pursuant to this section is
justified.__The provisions of the Maine Administrative
Procedure Act apply to a hearing requested under this
section.

 
3.__Civil action.__The superintendent may bring an action in
any court of competent jurisdiction for an injunction or other
appropriate relief to enjoin threatened or existing violations of
this chapter or of the superintendent's rules.__An action filed
under this section also may seek restitution on behalf of persons
aggrieved by a violation of this chapter or rules of the
superintendent.

 
4.__Penalties.__A person who is found to have violated this
chapter or rules of the superintendent may be ordered in an
adjudicatory proceeding to pay to the superintendent a civil
penalty in an amount determined by the superintendent of not more
than $500 per violation and not more than $10,000 in the
aggregate for all violations of a similar nature.__For purposes
of this section, violations are of a similar nature if the
violations consist of the same or similar course of conduct,
action or practice, irrespective of the number of times the act,
conduct or practice that is determined to be a violation of this
chapter occurred.

 
§7011.__Authority to develop rules

 
The superintendent may adopt rules necessary to implement this
chapter.__Rules adopted pursuant to this section are routine
technical rules as defined in Title 5, chapter 375, subchapter
II-A.

 
§7012.__Effective date

 
Service contracts entered into prior to January 1, 2002 and
renewals of those contracts may but are not required to comply
with this chapter.__Providers and other persons are not required
to comply with this chapter until January 1, 2002.__A provider or
other person may but is not required to implement the
requirements of this chapter prior to January 1, 2002.__The
failure of a provider or other person to comply with this chapter
or otherwise to administer a service contract in the manner
required by this chapter prior to January 1, 2002 is not
admissible in any court, arbitration or alternative dispute
resolution proceedings and that failure may not be otherwise used
to prove that the action of any person or the service contract
was unlawful or otherwise improper.

 
SUMMARY

 
This bill establishes regulatory standards for providers of
service contracts and exempts these contracts from all other
provisions of the Maine Insurance Code. It also exempts from
the Maine Insurance Code:

 
1. Warranties;

 
2. Maintenance agreements;

 
3. Warranties, service contracts and maintenance agreements
offered by public utilities on their transmission devices to the
extent they are regulated by the Public Utilities Commission;

 
4. Service contracts sold or offered for sale to persons other
than consumers; and

 
5. Service contracts on tangible property purchased for $350
or less.


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