Insurance Law Article 79. Service Contracts
ARTICLE 79. SERVICE CONTRACTS
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NY CLS Ins § 7901 (2007)
§ 7901. Scope and purposes
(a) The purposes of this article are to:
(1) create a legal framework within which service contracts may be sold in this state;
(2) encourage the marketing and developing of more economical and effective means of providing services under service contracts; and
(3) permit and encourage fair and effective competition among different systems of providing and paying for these services.
(b) This article shall not apply to:
(1) Express or implied warranties;
(2) Maintenance agreements;
(3) Warranties, service contracts or maintenance agreements offered by public utilities on their transmission devices to the extent they are regulated by the public service commission; and
(4) Warranties, service contracts and maintenance agreements that are upon or otherwise associated with the sale or supply of heating fuel.
NY CLS Ins § 7902 (2007)
§ 7902. Definitions
As used in this article:
(a) "Appliances" may include but are not limited to electrical or mechanical appliances sold separately or included with the sale of residential real property such as refrigerators, stoves, ovens, clothes washers and dryers and dishwashers.
(b) "Administrator" means any person designated by a provider to be responsible for administration of service contracts, including servicing, claims management and processing, recordkeeping, customer service and collection of fees.
(c) "Incidental damages" has the meaning as set forth in subdivision one of section 2-715 of the uniform commercial code, as such definition may be amended from time to time.
(d) "Maintenance agreement" means a contract of limited duration that provides for scheduled maintenance of property, other than contracts providing for the repair or replacement of such property due to a defect in materials or workmanship or wear and tear.
(e) "Non-original manufacturers' parts" means replacement parts not made for or by the original manufacturer of the property, commonly referred to as "after market parts".
(f) "Person" means an individual, partnership, corporation, incorporated or unincorporated association, joint stock company, reciprocal, syndicate or any similar entity or combination of entities acting in concert.
(g) "Premium" means the consideration paid to an insurer for a service contract reimbursement insurance policy.
(h) "Provider" means a person who markets, sells, offers for sale, issues, makes or proposes to make or administers a service contract, and who is contractually obligated to provide service under a service contract.
(i) "Provider fee" means the total purchase price or consideration paid for a service contract.
(j) "Qualified United States financial institution" has the meaning set forth in the regulations as promulgated from time to time by the superintendent.
(k) "Service contract" means a contract or agreement, for a separate or additional consideration, for a specific duration to perform the repair, replacement or maintenance of property, or indemnification for repair, replacement or maintenance, due to a defect in materials or workmanship or wear and tear, with or without additional provision for indemnity payments for incidental damages, provided any such indemnity payment per incident shall not exceed the purchase price of the property serviced. Service contracts may include towing, rental and emergency road service, and may also provide for the repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling. Service contracts may also include contracts to repair, replace or maintain residential appliances and systems. Such term shall also mean a contract or agreement made by or for the manufacturer or seller of a motor vehicle tire for repair or replacement of the tire or wheel as the result of damage arising from a road hazard.
(l) "Systems" means plumbing, electrical, heating, cooling, ventilation, and other systems used in residential real property, including without limitation:
(A) plumbing systems which include gas supply lines and fittings, water supply, waste and vent pipes and their fittings, septic tanks and their drain fields, water, gas and sewer service piping, and their extensions to the tie-in of a public utility connection, or on-site well and sewage disposal system;
(B) electrical systems which include all wiring, electrical boxes, switches, outlets, and connections up to the public utility connection; and
(C) heating, cooling and ventilation systems which include all duct work, steam, water and refrigerant lines, registers, convectors, radiation elements and dampers.
(m) "Service contract holder" or "contract holder" means a person who is the purchaser or holder of a service contract.
(n) "Service contract reimbursement insurance policy" means a policy of service contract reimbursement insurance.
NY CLS Ins § 7903 (2007)
§ 7903. Requirements for doing business
(a) Nothwithstanding [Notwithstanding] [n1] any other provision of this chapter to the contrary, the marketing, sale, offering for sale, issuance, making, proposing to make and administration of service contracts by any provider, administrator or other person, shall be exempt from all other provisions of this chapter. 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 compliance with this article.
(b) Service contracts shall not be issued, sold or offered for sale in this state unless the provider:
(1) provides a receipt for, or other written evidence of, the purchase of the service contract and a copy of the terms and conditions of the service contract to the service contract holder where the sale takes place in a retail store or other place of business. A copy of the service contract in all cases shall be provided to the service contract holder within a reasonable period of time after the date of purchase of the service contract; and
(2) otherwise complies with this article.
(c) In order to assure the faithful performance of a provider's obligations to its contract holders, each provider who is contractually obligated to provide service under a service contract shall comply with one of the following paragraphs of this subsection:
(1) insure the performance of all its obligations under all service contracts pursuant to a service contract reimbursement insurance policy issued by an insurer authorized to issue service contract reimbursement insurance in this state or procured by an excess line licensee pursuant to section two thousand one hundred eighteen of this chapter. In the event the provider fails to insure its obligations pursuant to this paragraph or in the event that such insurance shall lapse or be terminated, the provider shall comply with either paragraph two or three of this subsection within forty-five days of the insurance lapse or termination;
(2) (A) maintain a funded reserve account for its obligations under its service contracts issued and outstanding in this state, which reserve account (i) contains reserves in an amount not less than forty percent of the gross consideration received upon the sale of, less claims paid under, all its service contracts then in force, but not less than zero, and (ii) shall be subject to examination and review by the superintendent; and
(B) place in trust with the superintendent a financial security deposit, having a value of not less than five percent of the gross consideration received upon the sale of, less claims paid under, all service contracts issued and then in force, but not less than fifty thousand dollars, consisting of one or more of the following:
(i) a surety bond issued by an authorized surety;
(ii) securities of the type eligible for deposit by authorized insurers in this state;
(iii) cash; or
(iv) a letter of credit issued by a qualified United States financial institution; or
(3) (A) maintain a net worth or stockholders' equity of at least one hundred million dollars; and
(B) provide the superintendent with a copy of the financial statements of the provider, either on a stand alone basis or consolidated with its consolidated affiliates, included in its or its direct or indirect parent company's most recent annual report on form 10-K or form 20-F filed with the securities and exchange commission within the last calendar year, or if the provider or its direct or indirect parent company is not required to file such reports with the securities and exchange commission, a copy of the audited financial statements of the provider, either on a stand alone basis or consolidated with its consolidated affiliates. If the net worth or stockholders' equity of the provider, on a stand alone basis or consolidated with its consolidated affiliates, as shown in the foregoing financial statements is at least one hundred million dollars, the provider shall be deemed to meet the requirements of this paragraph and there shall be no requirement of a guarantee, reimbursement insurance, or other form of financial stability arrangement. In the event the net worth or stockholders' equity of the provider, either on a stand alone basis or consolidated with its consolidated affiliates, is not at least one hundred million dollars, or the net worth or stockholders' equity of the provider, as aforesaid, is not determinable from the foregoing audited financial statements, the provider shall comply with paragraph one or two of this subsection within forty-five days of becoming aware of such deficiency. If the provider's direct or indirect 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.
(d) Premium taxes.
(1) Provider fees shall not be subject to premium taxes.
(2) Premiums collected on service contract reimbursement insurance policies shall be subject to applicable premium taxes.
(e) Service contracts shall require every provider to permit the service co ntract holder to return the contract within at least twenty days of the date of mailing of the service contract or within at least ten days if the service contract is delivered at the time of the sale or within a longer time period permitted under the contract. If no claim has been made under the contract, the contract shall be void and the provider shall refund to the contract holder the full purchase price of the contract. A ten percent penalty per month shall be added to a refund that is not made within thirty days of return of the contract to the provider. The provisions of this subsection only apply to the original purchaser of the service contract.
NY CLS Ins § 7904 (2007)
§ 7904. Required disclosures; service contract reimbursement insurance policy
Service contract reimbursement insurance policies insuring service contracts issued, sold or offered for sale in this state shall state that, upon failure of the provider to perform under the service contract, including failure to return the unearned provider fee thereunder, the insurer that issued the service contract reimbursement insurance policy shall pay on behalf of the provider any sums the provider is legally obligated to pay under the service contract or shall perform the service which the provider is legally obligated to perform according to the provider's contractual obligations under the service contracts issued or sold by the provider.
NY CLS Ins § 7905 (2007)
§ 7905. Required disclosures; service contract
(a) Service contracts marketed, sold or offered for sale, issued, made, proposed to be made or administered in this state shall be dated and written in clear, understandable language and the entire service contract shall be printed or typed in easy to read type and disclose the requirements of this section, as applicable. The date the service contract is issued is not required to be preprinted on the service contract and may be added or attached to the service contract at the time of sale.
(b) Service contracts insured under a service contract reimbursement insurance policy pursuant to paragarph [paragraph] [n1] one of subsection (c) of section seven thousand nine hundred three of this article shall 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. If the provider fails to pay or provide service on a claim within sixty days after proof of loss has been filed, the contract holder is entitled to make a claim directly against the insurer under the service contract reimbursement insurance policy." The service contract shall also state the name and address and a toll-free telephone number of the insurer under the related service contract reimbursement insurance policy.
(c) Service contracts not insured under a service contract reimbursement insurance policy pursuant to paragraph one of subsection (c) of section seven thousand nine hundred three of this article shall contain a statement substantially to the following effect: "Obligations of the provider under this service contract are backed by the full faith and credit of the provider." The service contract shall also state the name and address of the provider thereunder.
(d) Service contracts shall identify any administrator if different from the provider or seller, the provider, and the service contract seller. The identities of such parties are not required to be preprinted on the service contract and may be added to the service contract at the time of sale. Service contracts shall clearly state the procedure that the service contract holder must take to obtain service under the terms and conditions of the service contract.
(e) Service contracts shall state the total purchase price and the terms and conditions 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.
(f) If prior approval of repair work is required, the service contracts shall state the procedure for obtaining prior approval and for making a claim, including a toll free telephone number for claim service and if the service contracts provide services essential to public health, safety or welfare, the service contracts shall either provide for twenty-four hour telephone assistance or state the procedure for obtaining emergency repairs performed outside of normal business hours. The superintendent may promulgate regulations necessary to effectuate this subsection as authorized by section seven thousand nine hundred eleven of this article.
(g) Service contracts shall state the existence of any deductible amount thereunder if applicable.
(h) Service contracts shall specify the merchandise and services to be provided and any limitations, exceptions or exclusions from coverage thereunder if applicable.
(i) Service contracts covering motor vehicles shall state whether the use of non-original manufacturers' parts may be allowed. Conditions stated shall comply with applicable state and federal laws.
(j) Service contracts shall state any terms, restrictions or conditions governing the transferability of such service contracts.
(k) Service contracts shall state the terms, restrictions or conditions governing termination of the service contract by the parties to the service contract. 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 fifteen days prior to cancellation by the provider. The notice shall state the effective date of the cancellation and the reason for the cancellation. Written notice is not required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation, or a substantial breach of duties by the service contract holder relating to the covered property or its use.
(l) Service contracts shall set forth all of the obligations and duties of the service contract holder, such as the duty to protect against any further damage and any requirement to follow owner's manual instructions.
(m) Service contracts shall clearly state whether or not the service contract provides for or excludes preexisting conditions.
(n) Service contracts shall contain a statement of the service contract holder's right to return the contract within at least twenty days of the date of mailing of the service contract or within at least ten days if the service contract is delivered at the time of the sale or within a longer time period permitted under the contract. If no claim has been made under the contract, the contract shall be void and the provider shall refund to the contract holder the full purchase price of the contract. The service contract shall also contain a statement that a ten percent penalty per month shall be added to a refund that is not made within thirty days of return of the contract to the provider.
NY CLS Ins § 7906 (2007)
§ 7906. Prohibited acts
(a) A provider shall not use in its name the words insurance, casualty, guaranty, surety, mutual or any other words descriptive of the insurance, casualty, guaranty or surety business, or a name deceptively similar to the name or description of any insurance or surety corporation or any other provider.
(b) A provider shall 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 make the service contracts or literature misleading if omitted, in connection with the sale, offer to sell, or advertisement of a service contract.
(c) A person, including a bank, savings and loan association, lending institution, manufacturer or seller of any product, shall not require the purchase of a service contract as a condition of a loan or other extension of credit or a condition for the sale or other disposition of any property. The super intendent may promulgate regulations necessary to effectuate this subsection as authorized by section seven thousand nine hundred eleven of this article.
NY CLS Ins § 7907 (2007)
§ 7907. Registration of providers
(a) No person shall act as a provider pursuant to this article without having first obtained an approval of a registration to do so from the superintendent. The application for approval of registration shall contain the following information;
(1) the name and address of the principal office of the provider;
(2) the name and address of the providers' agent for service of process in this state, if other than the provider;
(3) the identities of the provider's executive officer or officers directly responsible for such provider's service contract business, and, if more than fifty percent of the provider's revenue is derived from the sale of service contracts, the identities of the provider's directors and stockholders having ownership of five percent or more of any class of securities registered under the federal securities law;
(4) the name, location and telephone number of any administrators designated by the provider to be responsible for the administration of service contracts in this state, together with an acknowledgment by each such administrator (who is not employed by the provider) of such administrator's obligations under this article;
(5) a statement indicating under subsection (c) of section seven thousand nine hundred three of this article the provider qualifies to do business as a service contract provider in this state.
(b) The registration application shall be accompanied by a fee of two hundred fifty dollars for each year or fraction of a year in which the registration shall be in effect.
(c) A provider shall keep current the information required to be disclosed in its registration under this section by reporting all material changes or additions within thirty days after the end of the month in which the provider learns of such change or addition.
(d) The superintendent shall render a determination on the application for registration within forty-five days of the date of filing. The superintendent may not approve the application for registration if the provider is not trustworthy or has otherwise given cause that the superintendent determines that to
approve such registration would not promote the health, safety and welfare of the public. In the event the registration application is disapproved, the superintendent shall state the reason or reasons therefor. In the event the application was incomplete, the applicant may file an amended registration application. The superintendent shall render a decision on the amended application within thirty days of receipt thereof.
(e) The registration shall continue in force until suspended or revoked by the superintendent on the grounds that the provider is not trustworthy or has violated any provision of this chapter or has given cause for the revocation or suspension of such registration or the provider has failed to comply with any prerequisite for the issuance of such registration approved, or terminated at the request of the provider, subject, however, to the biennial renewal of the registration, by filing a renewal application and payment, prior to March first of each odd numbered year following that in which its original registration application is filed, of a fee of five hundred dollars.
(f) Except for the registration requirement in this section, providers and administrators of service contracts are exempt from any licensing requirements.
(g) The biennial renewal application shall contain such information as required by the superintendent including, but not limited to information to demonstrate that the applicant continues to satisfy all requirements of section seven thousand nine hundred three of this article.
NY CLS Ins § 7908 (2007)
§ 7908. Recordkeeping requirements
(a) Books and records.
(1) A provider or its administrator shall keep accurate accounts, books and records concerning transactions regulated under this article.
(2) A provider's or its administrator's accounts, books and records shall include:
(A) copies of each type of service contract issued;
(B) 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 to the provider;
(C) a list of the provider locations where service contracts are marketed, sold, offered for sale, issued, made or proposed to be made or administered; and
(D) written claims filed which shall contain at least the dates and description of all claims related to the service contracts.
(3) Except as provided in subsection (b) of this section, a provider or its administrator shall retain all of the service contract records required under paragraph two of this subsection pertaining to each service contract holder for at least three years after the specified period of coverage thereunder has expired.
(4) A provider may keep all records required under this article on a computer disk or other similar technology. If the records are maintained in other than hard copy, the records shall be capable of duplication to legible hard copy at the request of the superintendent.
(b) A provider discontinuing business in this state shall maintain its records until it furnishes to the superintendent satisfactory proof that it has discharged all obligations to service contract holders in this state.
NY CLS Ins § 7909 (2007)
§ 7909. Termination of service contract reimbursement insurance policy
An insurer that issues a service contract reimbursement insurance policy shall not terminate the policy except in accordance with section three thousand four hundred twenty-six of this chapter and upon notice to the superintendent. The termination of a service contract reimbursement insurance policy shall not reduce the issuer's responsibility for service contracts issued in this state by providers prior to the date of the termination.
NY CLS Ins § 7910 (2007)
§ 7910. Enforcement provisions
(a) The superintendent may conduct investigations or examinations of providers, administrators, insurers or other persons to enforce the provisions of this article and protect service contract holders in this state. Upon request of the superintendent, the provider shall make all accounts, books and records concerning service contracts sold in this state by the provider available to the superintendent which are necessary to enable the superintendent to reasonably determine compliance or noncompliance with this article.
(b) The superintendent may take action which is necessary or appropriate to enforce the provisions of this article and the superintendent's regulations and orders, and to protect service contract holders in this state.
(1) If the provider has violated this article or the superintendent's regulations or orders, the superintendent may order a service contract provider to cease and desist from committing violations of this article or the superintendent's regulations or orders, may issue an order suspending a provider's registration under this article or prohibiting a service contract provider from marketing, selling, offering for sale, issuing, making or proposing to make service contracts, or may issue an order imposing a civil penalty, or any combination of these. An order issued under this paragraph may be delivered to the provider at its principal office or to the provider's designated agent for service of process indicated in the provider's registration materials pursuant to paragraph two of subsection (a) of section seven thousand nine hundred seven of this article.
(A) A person aggrieved by an order issued under this paragraph may request a hearing before the superintendent. The hearing request shall be filed with the superintendent within twenty days of the date the superintendent's order is effective;
(B) If a hearing is requested, an order issued under this paragraph shall be suspended from the original effective date of the order until completion of the hearing and delivery of the final decision thereon by the superintendent, except that where the provider has demonstrated a consistent pattern or practice of gross misconduct in connection with the marketing, sale, offering for sale, issuance, making or proposing to make of service contracts, the effective date of the order shall not be suspended pending the hearing and decision by the superintendent; and
(C) At the hearing, the burden shall be on the superintendent to show why the order issued pursuant to this paragraph is justified. The provisions of section three hundred four of this chapter shall apply to a hearing requested under this paragraph.
(2) 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 article or of the superintendent's orders or regulations. An action filed under this paragraph may also seek restitution on behalf of persons aggrieved by a violation of this article or orders or regulations of the superintendent.
(3) A person in violation of this article may be subject to a monetary penalty of not more than five hundred dollars per violation. If the violation is not willful, such person may in lieu of paying such monetary penalty, provide restitution to the persons aggrieved by the violation or otherwise remedy the violation within sixty days after becoming aware of the violation.
(c) The authority of the superintendent under this section is in addition to any other authority of the superintendent.