New York
Summary
Statutes
Insurance
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SERVICE CONTRACTS
Section 7901. Scope and purposes.
7902. Definitions.
7903. Requirements for doing business.
7904. Required disclosures; service contract reimbursement
insurance policy.
7905. Required disclosures; service contract.
7906. Prohibited acts.
7907. Registration of providers.
7908. Recordkeeping requirements.
7909. Termination of service contract reimbursement insurance policy.
7910. Enforcement provisions.
7911. Authority to develop regulations.
7912. Transition.
7913. Separability provision.
S 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
conditioned upon or otherwise associated with the sale or supply of
heating fuel.
S 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.
(1) "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.
S 7903. Requirements for doing business. (a) Nothwithstanding 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 three 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, either 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 contract 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.
S 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.
S 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 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.
S 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 superintendent may promulgate regulations necessary to effectuate this subsection as authorized by section seven thousand ninehundred eleven of this article.
S 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 beneficial 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.
S 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.
S 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.
S 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.
S 7911. Authority to develop regulations. The superintendent may
promulgate regulations necessary to effectuate this article.
S 7912. Transition. Providers who have submitted an application for
approval of registration pursuant to section seven thousand nine hundred
seven of this article who have been previously engaged in New York
state, for not less than two years immediately prior to the effective
date of this section in the business of marketing, selling, offering for
sale, issuing, making, proposing or administering a service contract
which otherwise was in compliance with all applicable laws of the state
of New York immediately prior to the effective date of this section, may
engage in such business in the state of New York until such time as the
superintendent has issued a determination on such application for
approval of registration provided that such application is received by
the superintendent within sixty days of the effective date of this
section.
S 7913. Separability provision. If any provision of this article, or
the application of any such provision to any person or circumstances,
shall be held invalid, the remainder of this article, and the
application of the provision to any person or circumstances other than
those as to which it is held invalid, shall not be affected.
