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| [ Senate Amendment 001 ] |
90_HB3464ham001
LRB9009408EGfgam01
1 AMENDMENT TO HOUSE BILL 3464
2 AMENDMENT NO. . Amend House Bill 3464 by replacing
3 the title with the following:
4 "AN ACT concerning service contracts."; and
5 by replacing everything after the enacting clause with the
6 following:
7 "Section 1. Short title. This Act may be cited as the
8 Service Contract Act.
9 Section 5. Definitions.
10 "Department" means the Department of Insurance.
11 "Director" means the Director of Insurance.
12 "Service Contract" means a contract or agreement whereby
13 a service contract provider undertakes for a specified period
14 of time, for separate and identifiable consideration, to
15 perform the repair, replacement, or maintenance, or
16 indemnification for such services, of any automobile, system,
17 or consumer product in connection with the operational or
18 structural failure due to a defect in materials or
19 workmanship, or normal wear and tear, with or without
20 additional provision for incidental payment or indemnity
21 under limited circumstances, for related expenses, including,
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1 but not limited to, towing, rental, and emergency road
2 service. Service contracts may provide for the repair,
3 replacement, or maintenance of such property for damage
4 resulting from power surges and accidental damage from
5 handling. Service contracts shall not include contracts of
6 limited duration that provide for scheduled maintenance only.
7 "Service contract holder" means the person who purchases
8 a service contract or a permitted transferee.
9 "Service contract provider" means a person who is
10 contractually obligated to the service contract holder under
11 the terms of the service contract. A service contract
12 provider does not include an insurer.
13 "Service contract reimbursement insurance policy" means a
14 policy of insurance that is issued to the service contract
15 provider to provide reimbursement to the service contract
16 provider or to pay on behalf of the service contract provider
17 all covered contractual obligations incurred by the service
18 contract provider under the terms and conditions of the
19 insured service contracts issued or sold by the service
20 contract provider.
21 "System" means the heating, cooling, plumbing,
22 electrical, ventilation, or any other similar system of a
23 home.
24 Section 10. Exemptions. Service contract providers and
25 related service contract sellers and administrators complying
26 with this Act are not required to comply with and are not
27 subject to any provision of the Illinois Insurance Code.
28 Section 15. Financial requirements. No service contract
29 shall be issued, sold, or offered for sale in this State
30 unless one of the following conditions are satisfied:
31 (1) (A) The service contract provider is insured under a
32 service contract reimbursement insurance policy issued by
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1 an insurer authorized to do business in this State and
2 providing that the insurer will pay to, or on behalf of,
3 the service contract provider all sums that the service
4 contract provider is legally obligated to pay according
5 to the service contract provider's contractual
6 obligations under the service contracts issued or sold by
7 the service contract provider;
8 (B) a true and correct copy of the service contract
9 reimbursement insurance policy has been filed with the
10 Director by the service contract provider;
11 (C) the service contract states that the
12 obligations of the service contract provider to the
13 service contract holder are covered under a service
14 contract reimbursement insurance policy; and
15 (D) the service contract states the name and
16 address of the issuer of the service contract
17 reimbursement insurance policy and states that in the
18 event covered service is not provided by the service
19 contract provider within 60 days of proof of loss by the
20 service contract holder, the service contract holder may
21 file directly with the service contract reimbursement
22 insurance company.
23 (2) (A) The service contract provider maintains a funded
24 reserve account for its obligations under its service
25 contracts issued and outstanding in this State. The
26 reserves shall not be less than 40% of the gross
27 consideration received, less claims paid, for all service
28 contracts sold and then in force;
29 (B) the service contract provider places in trust
30 with the Director a financial security deposit, having a
31 value of not less than 5% of the gross consideration
32 received, less claims paid, for all service contracts
33 sold and then in force, but not less than $25,000,
34 consisting of securities of the type eligible for deposit
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1 by authorized insurers in this State and;
2 (C) the service contract provider provides the
3 Director with an audited financial statement annually of
4 the service contract revenues and claims.
5 (3) (A) The service contract provider, or its parent
6 company in accordance with subdivision (3)(B), maintains
7 a net worth or stockholders' equity of $100,000,000; and
8 (B) the service contract provider provides the
9 Director with a copy of the service contract provider's
10 or the service contract provider's parent company's most
11 recent Form 10-K or Form 20-F filed with the Securities
12 and Exchange Commission within the last calendar year or,
13 if the service contract provider does not file with the
14 Securities and Exchange Commission, a copy of the service
15 contract provider's or the service contract provider's
16 parent company's audited financial statements that shows
17 a net worth of the service contract provider or its
18 parent company of at least $100,000,000. If the service
19 contract provider's parent company's Form 10-K, Form
20 20-F, or audited financial statements are filed to meet
21 the service provider's financial stability requirement,
22 then the parent company shall agree to guarantee the
23 obligations of the provider relating to service contracts
24 issued by the service contract provider in this State.
25 Section 20. Reimbursement policy; required provisions.
26 (a) No service contract reimbursement insurance policy
27 shall be issued, sold, or offered for sale in this State
28 unless the policy states that the issuer of the policy will
29 reimburse or pay on behalf of the service contract provider
30 all covered sums which the service contract provider is
31 legally obligated to pay or will provide the service that the
32 service contract provider is legally obligated to perform
33 according to the service contract provider's contractual
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1 obligations under the provisions of the insured service
2 contracts issued or sold by the service contract provider.
3 (b) If covered service is not provided by the service
4 contract provider within 60 days of proof of loss by the
5 service contract holder, the service contract holder may
6 file directly with the insurance company writing the service
7 contract reimbursement insurance policy.
8 (c) A service contract reimbursement insurance company
9 that insures a service contract shall be deemed to have
10 received payment of the premium if the service contract
11 holder paid for the service contract coverage.
12 (d) If a service contract is canceled by a service
13 contract holder, the service contract reimbursement insurance
14 company shall be required to return the unearned service
15 contract reimbursement insurance premium for that contract to
16 the insured service contract provider. If the service
17 contract provider fails to refund the amounts required under
18 Section 35 of this Act, the service contract reimbursement
19 insurance company shall be responsible for the refund to the
20 service contract holder.
21 Section 25. Registration requirements for service
22 contract providers.
23 (a) No service contract shall be issued or sold in this
24 State until the following information has been submitted to
25 the Department:
26 (1) the name of the service contract provider;
27 (2) a list identifying the service contract
28 provider's executive officer or officers directly
29 responsible for the service contract provider's service
30 contract business;
31 (3) the name and address of the service contract
32 provider's agent for service of process in this State, if
33 other than the service contract provider;
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1 (4) a true and accurate copy of all service
2 contracts to be sold in this State; and
3 (5) a statement indicating under which provision of
4 Section 15 the service contract provider qualifies to do
5 business in this State as a service contract provider.
6 (b) The service contract provider shall pay an initial
7 registration fee of $500 and a renewal fee of $75 each year
8 thereafter. All fees and penalties collected under this Act
9 shall be paid to the Director and deposited in the Insurance
10 Financial Regulation Fund.
11 Section 30. Required service contract disclosures. All
12 service contracts issued or sold in this State shall contain
13 the following disclosures written in clear and understandable
14 language.
15 (1) the name and address of the service contract
16 provider;
17 (2) the total consideration for the service contract
18 paid by the service contract holder;
19 (3) the conditions and procedures for obtaining service
20 under the service contract, including the name, address, and
21 local or toll-free telephone number of any person from whom
22 approval is required before covered repairs may be commenced;
23 (4) the existence and amount of a deductible, if any;
24 (5) merchandise and services to be provided and any
25 limitations, exceptions, or exclusions;
26 (6) the terms, conditions, and restrictions governing
27 transferability of the service contract, if any;
28 (7) the provisions governing cancellation and refunds in
29 accordance with Section 35 of this Act; and
30 (8) whether or not the service contract covers failure
31 resulting from normal wear and tear.
32 Section 35. Cancellation and refunds. No service
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1 contract may be issued, sold, or offered for sale in this
2 State unless the service contract clearly states that the
3 service contract holder is allowed to cancel the service
4 contract. If the service contract holder elects
5 cancellation, the service contract provider may retain a
6 cancellation fee not to exceed the lesser of 10% of the
7 service contract price or $50. The service contract
8 cancellation provision must provide that the service contract
9 may be cancelled:
10 (1) within 30 days after its purchase if no service has
11 been provided and that a full refund of the service contract
12 consideration, less any cancellation fee stated in the
13 service contract will be paid to the service contract holder;
14 or
15 (2) at any other time and a pro rata refund of the
16 service contract consideration for the unexpired term of the
17 service contract, based on the number of elapsed months,
18 miles, hours, or such other reasonably applicable measure
19 which is clearly disclosed in the service contract, less the
20 value of any service received, and any cancellation fee
21 stated in the service contract will be paid to the service
22 contract holder.
23 Section 40. Incidental benefits. A service contract may
24 provide full or partial reimbursement for other expenses
25 incurred by the service contract holder as a direct and
26 proximate result of an operational or structural failure if
27 covered by the service contract. A reimbursement for these
28 expenses shall not exceed the purchase price of the property
29 serviced per incident.
30 Section 45. Record keeping requirements.
31 (a) The service contract provider shall keep accurate
32 accounts, books, and records concerning transactions
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1 regulated under this Act.
2 (b) The service contract provider's accounts, books, and
3 records shall include the following:
4 (1) copies of each type of service contract sold;
5 (2) the name and address of each service contract
6 holder, to the extend that the name and address has been
7 furnished by the service contract holder;
8 (3) a list of the locations where service contracts
9 are marketed, sold, or offered for sale; and
10 (4) written claims files which shall contain at
11 least the date and description of claims related to the
12 service contracts.
13 (c) Except as provided in subsection (e) of this
14 Section, the service contract provider shall retain all
15 records required to be maintained by Section 45 for at least
16 3 years after the specified period of coverage has expired.
17 (d) The records required under this Act may be, but are
18 not required to be, maintained on a computer disk or other
19 record keeping technology. If the records are maintained in
20 other than hard copy, the records shall be capable of
21 duplication to legible hard copy at the request of the
22 Director.
23 (e) A service contract provider discontinuing business
24 in this State shall maintain its records until it furnishes
25 the Director satisfactory proof that it has discharged all
26 obligations to service contract holders in this State.
27 Section 50. Examinations and enforcement provisions.
28 (a) The Director may conduct examinations of service
29 contract providers, administrators, or other persons to
30 enforce this Act and protect service contract holders in this
31 State. Upon request of the Director, a service contract
32 provider shall make available to the Director all accounts,
33 books, and records concerning service contracts sold by the
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1 service contract provider that are necessary to enable the
2 Director to reasonably determine compliance or noncompliance
3 with this Act.
4 (b) The Director may take action that is necessary or
5 appropriate to enforce the provisions of this Act and the
6 Director's rules and orders and to protect service contract
7 holders in this State. If a service contract provider engages
8 in a pattern or practice of conduct that violates this Act
9 and that the Director reasonably believes threatens to render
10 the service contract provider insolvent or cause irreparable
11 loss or injury to the property or business of any person or
12 company located in this State, the Director may (i) issue an
13 order directed to that service contract provider to cease and
14 desist from engaging in further acts, practices, or
15 transactions that are causing the conduct; (ii) issue an
16 order prohibiting that service contract provider from selling
17 or offering for sale service contracts in violation of this
18 Act; (iii) issue an order imposing a civil penalty on that
19 service contract provider; or (iv) issue any combination of
20 the foregoing, as applicable. Prior to the effective date of
21 any order issued pursuant to this subsection, the Director
22 must provide written notice of the order to the service
23 contract provider and the opportunity for a hearing to be
24 held within 10 business days after receipt of the notice,
25 except prior notice and hearing shall not be required if the
26 Director reasonably believes that the service contract
27 provider has become, or is about to become, insolvent.
28 A person aggrieved by an order issued under this Section
29 may request a hearing before the Director. The hearing
30 request shall be filed with the Director within 20 days after
31 the date the Director's order is effective, and the Director
32 must hold such a hearing within 15 days after receipt of the
33 hearing request.
34 (c) At the hearing, the burden shall be on the Director
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1 to show why the order issued pursuant to this Section is
2 justified. The provisions of Section 10-25 of the Illinois
3 Administrative Procedure Act shall apply to a hearing request
4 under this Section.
5 (d) The Director may bring an action in any court of
6 competent jurisdiction for an injunction or other appropriate
7 relief to enjoin threatened or existing violations of this
8 Act or of the Director's orders or rules. An action filed
9 under this Section also may seek restitution on behalf of
10 persons aggrieved by a violation of this Act or orders or
11 rules of the Director.
12 (e) A person who is found to have violated this Act or
13 orders or rules of the Director may be ordered to pay to the
14 Director a civil penalty in an amount, determined by the
15 Director, of not more than $500 per violation and not more
16 than $10,000 in the aggregate for all violations of a similar
17 nature. For purposes of this Section, violations shall be of
18 a similar nature if the violation consists of the same or
19 similar course of conduct, action, or practice, irrespective
20 of the number of times the conduct, action, or practice that
21 is determined to be a violation of this Act occurred.
22 Section 55. Rulemaking power. The Director may adopt
23 such administrative rules as are necessary to implement the
24 provisions of this Act.
25 Section 60. Applicability. This Act applies to all
26 service contracts sold or offered for sale 90 or more days
27 after the effective date of this Act.
28 Section 99. Effective date. This Act takes effect upon
29 becoming law.".