Bill Text: NJ S2983 | 2010-2011 | Regular Session | Introduced
Bill Title: Regulates certain service contracts to perform maintenance, repair, replacement, or service of property used for personal, family, or household purposes.
Spectrum: Slight Partisan Bill (Democrat 6-3)
Status: (Introduced - Dead) 2011-06-29 - Introduced in the Senate, Referred to Senate Commerce Committee [S2983 Detail]
Download: New_Jersey-2010-S2983-Introduced.html
Sponsored by:
Senator JOSEPH F. VITALE
District 19 (Middlesex)
SYNOPSIS
Regulates certain service contracts to perform maintenance, repair, replacement, or service of property used for personal, family, or household purposes.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning service contracts, and supplementing and amending P.L.1980, c.125.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. (New section) As used in this act:
"Administrator" means a person who performs the third-party administration of a service contract, pursuant to the provisions of section 5 of this act, on behalf of a provider.
"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.
"Director" means the Director of the Division of Consumer Affairs.
"Division" means the Division of Consumer Affairs in the Department of Law and Public Safety.
"Maintenance agreement" means a contract of limited duration that provides for scheduled maintenance only, and does not include repair or replacement of the property subject to the contract.
"Non-original manufacturer's part" means a replacement part not made for or by the original manufacturer of the property, commonly referred to as an "after market part."
"Person" means any natural person, company, corporation, association, society, firm, partnership, or other similar legal entity.
"Premium" means the consideration paid to an insurer for a reimbursement insurance policy, and is subject to any applicable premium tax.
"Provider" means a person who is contractually obligated to the service contract holder under the terms of the service contract. "Provider fee" means the consideration paid for a service contract, and is not subject to any premium tax.
"Reimbursement insurance policy" means a policy of insurance issued to a provider to either provide reimbursement to, or payment on behalf of, the provider under the terms of the insured service contracts issued or sold by the provider, or, in the event of the provider's non-performance, to provide or pay for, on behalf of the provider, all covered contractual obligations incurred by the provider.
"Service contract"
means a contract or agreement for a specific duration, for a provider fee or
other separately stated consideration, to perform the maintenance, repair,
replacement, or service of a motor vehicle or other property, or
indemnification for maintenance, repair, replacement, or service for the
operational or
structural failure of the motor vehicle, or residential or other property, due
to a defect in materials or workmanship, or normal wear and tear, and which may
include additional provisions for incidental payment of indemnity under limited
circumstances, including, but not limited to, towing, rental, and emergency
road services, and other road hazard protections. A service contract may
provide for the maintenance, repair, replacement, or service of the motor
vehicle or other property for damage resulting from power surges or
interruption, or accidental damage from handling. A service contract shall not
be considered to be an insurance contract, and shall not be subject to
regulation as insurance pursuant to Title 17 of the Revised Statutes.
"Service contract holder" or "contract holder" means a person who is the purchaser of a service contract or is entitled to the contractual obligations under the terms of the contract.
"Warranty" means a warranty made solely by the manufacturer, importer, or seller of property or services without consideration, that is incidental to, and not negotiated or separated from, the sale of the property or services, that guarantees indemnity for defective materials, parts, mechanical or electrical breakdown, labor, or workmanship, or provides other remedial measures, including repair or replacement of the property or repetition of services.
2. (New section) a. The purpose of this act is to create a legal framework within which service contracts may be issued, offered for sale, or sold in this State.
b. The following shall be exempt from the provisions of this act:
(1) warranties;
(2) maintenance agreements;
(3) service contracts on tangible property if the tangible property for which the service contract is sold has a purchase price of $250 or less, excluding sales tax;
(4) mechanical breakdown insurance policies offered by licensed insurers pursuant to the insurance laws of this State; and
(5) service contracts issued, offered, or sold:
(a) by a public utility to the extent that the public utility is regulated by the Board of Public Utilities, or by a person providing central heating and air conditioning services, but only with respect to a service contract regarding the product sold to a consumer, or installed or repaired for the consumer at the consumer's household, by the utility or by a person providing central heating and air conditioning services; or
(b) to any person other than a consumer.
c. The making, proposing to make, issuing, marketing, offering, selling, administering of, or providing contractual obligations for, a service contract shall not be construed to be the business of insurance and shall be exempt from regulation as insurance pursuant to Title 17 of the Revised Statutes, however nothing in this act shall be construed to exempt the making, issuing, marketing, offering, or selling of a reimbursement insurance policy from any applicable provisions of Title 17 of the Revised Statutes.
3. (New section) a. A provider of service contracts issued, offered for sale, or sold in this State, shall not use in its name the words "insurance," "casualty," "surety," "mutual" or any other word descriptive of the insurance, casualty, or surety business, or a name deceptively similar to the name or description of any insurance or surety corporation, or to the name of any other provider registered pursuant to section 4 of this act, but may use the word "guaranty" or similar word.
b. This section shall not apply to the name of a provider of service contracts in effect prior to the effective date of this act.
4. (New section) a. A person shall not issue, offer to sell, or sell service contracts in this State unless the provider is registered with the director. A provider of service contracts issued, offered for sale, or sold in this State, shall file a registration, to be updated within 30 days of any change in the information included in or filed with the registration, and renewed at least annually, with the director, which shall include: the provider's name, which shall comply with the provisions of section 3 of this act; principal business address; name and telephone number of an appropriate contact person; and name and address of the provider's agent for service of process in this State, which may be the director, if the provider's principal business address is not in this State.
b. The registration shall also include an attestation from an owner, partner, proprietor, corporate officer or director, or member, as appropriate to the organizational structure of the provider as to the provider's compliance with at least one of the following means of assuring faithful performance to its contract holders:
(1) insuring each service contract under a reimbursement insurance policy issued by an insurer licensed, registered, or otherwise authorized to transact the business of insurance in this State, and which complies with the provisions of section 6 of this act;
(2) maintaining a funded reserve account for its obligations under each contract issued and outstanding in this State, with reserves not less than 20% of gross consideration received, less the amount of claims paid, under those contracts. The reserve account shall be subject to examination and review by the director pursuant to section 10 of this act; or
(3) maintaining, alone or together with the provider's parent or other affiliated corporation, a net worth or stockholders' equity of not less than $100,000,000. At the time of registration or any time upon request by the director, the provider shall provide the director with a copy of the provider's or its parent's or other affiliated corporation's most recent Form 10-K or Form 20-F, or successor form containing substantially the same information, filed with the Securities and Exchange Commission within the last 12-month period, or if the provider, or parent or other affiliated corporation, does not file this form with the Securities and Exchange Commission, a copy of the entity's audited financial statements, which show a net worth of the provider, or parent or other affiliated corporation, of not less than $100,000,000. If the provider's parent's or other affiliated corporation's form or financial statements are filed to meet the provider's means of assuring faithful performance to its contract holders, the parent or other affiliated corporation shall agree to guarantee the obligations of the provider.
c. Except for the requirements set forth in subsection b. of this section, the provider shall not be subject to any additional financial security requirements by the director in order to issue, offer, or sell service contracts in this State.
d. At the time of registration, and annually thereafter, the provider shall pay a fee to the director in the amount of $500, which the director may adjust pursuant to regulation to reflect the actual costs of administering the provisions of this act.
e. (1) Upon acceptance and approval of the registration, the director shall make appropriate information from the registration and any updates available to providers and sellers of service contracts, as well as the public, by posting the information on the division's official Internet website. The information shall include the provider's name, principal business address, telephone number, form of financial security as required pursuant to subsection b. of this section, and any other appropriate information as determined by the director.
(2) If the provider fails to comply with any provision of this act after the director's posting of information from the initial registration, the director, upon notice to the provider and opportunity for a hearing which concludes with a finding of noncompliance, shall post on the website that the provider is deemed noncompliant and that the provider or any other seller of the provider's contracts shall no longer offer for sale or sell those contracts until the provider's noncompliance is resolved.
5. (New section) A provider of any service contract issued, offered for sale, or sold in this State may appoint an administrator to perform the third-party administration of any contract, which shall include, but not be limited to:
a. arranging or submitting the information and materials required for the provider's initial or updated registration pursuant to section 4 of this act;
b. maintaining the accounts, books, papers, documents, and other records concerning the provider's activities and transactions regulated under this act;
c. performing or arranging the collection, maintenance, or disbursement of payments on behalf of the provider, related to any claim arising under the provider's contracts; or
d. participating in the processing or adjustment of any claim arising under the provider's contracts.
6. (New section) a. An insurer issuing a reimbursement insurance policy to a provider for any service contract issued, offered for sale, or sold in this State shall:
(1) be deemed to have received the premium for the insurance policy:
(a) upon payment of a provider fee to the provider for the contract; or
(b) upon payment or other consideration to the provider by the seller of the contract;
(2) (a) provide reimbursement to, or payment on behalf of, the provider under the terms of the contract; or
(b) in the event of the provider's non-performance, provide or pay for, on behalf of the provider, all covered contractual obligations incurred by the provider;
(3) accept a claim arising under the contract directly from a contract holder, if the provider does not comply with any contractual obligation pursuant to the contract within 60 days of presentation of a valid claim by the contract holder; and
(4) terminate or not renew the policy covering the contract only after a notice of termination or nonrenewal is presented to the director, at least 10 days prior to the termination or nonrenewal of the policy, which termination or nonrenewal shall not reduce the insurer's responsibility for any insured contract issued or sold prior to the date of termination or nonrenewal.
b. This section shall not be construed to limit the right of the insurer to seek indemnification or subrogation against the provider if the insurer provides or pays, or is obligated to provide or pay, for any covered contractual obligation incurred by the provider.
7. (New section) A service contract issued, offered for sale, or sold in this State shall be written, printed, or typed in clear and understandable language, and shall contain the requirements set forth in this section, as applicable:
a. the provider's name, principal or other appropriate business address, and telephone number;
b. a statement accompanying the provider's name, if the name is exempt from any wording prohibitions pursuant to subsection b. of section 3 of this act, in substantially the following form: "This service contract is not an insurance contract.";
c. the administrator's name, principal or other appropriate business address, and telephone number;
d. the service contract holder's name and address, to the extent this information is furnished by the contract holder;
e. the provider fee, or a reference to any other documentation which contains the provider fee;
f. the property subject to coverage by the service contract, and the contractual obligations of the provider with respect to that property;
g. the amount of any deductible or service fee, as applicable;
h. whether the provider's use of refurbished, reconditioned, or non-original manufacturer's parts is permitted;
i. whether the service contract provides for consequential damages or preexisting conditions;
j. the contractual obligations of the service contract holder, including, but not limited to, the duty of the contract holder to comply with the provisions of the owner's manual for the property and to protect the property against any further damage;
k. the conditions governing the transferability of the service contract;
l. the conditions governing the cancellation of the service contract by the service contract holder, which shall:
(1) permit the contact holder, if the contract holder makes no claim arising under the contract, to cancel the contract:
(a) within 10 days of receipt of the contract, or a longer period specified in the contract, if delivered at the time of purchase; or
(b) within 20 days of receipt of the contract, or a longer period specified in the contract, if mailed; and
(2) require the provider:
(a) to provide the contract holder with the full purchase price of the contract by:
(i) refund; or
(ii) credit to the account of the contract holder; and
(b) to additionally pay the contract holder a 10% per month penalty, based upon the purchase price of the contract, if the refund or credit is not completed within 45 days of the cancellation of the contract;
m. the conditions governing cancellation of the service contract by the provider, prior to the expiration of the contract, which shall:
(1) require, except as provided in paragraph (2) of this subsection, that the provider mail a written notice to the contract holder at the contract holder's last known address:
(a) which contains the reason for the cancellation and the effective date of the cancellation; and
(b) is delivered at least five days prior to the effective date of the cancellation; and
(2) explain that a written notice shall not be required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation or omission, or a substantial breach of contractual obligations concerning the property or its use; and
n. whether the service contract is insured by a reimbursement insurance policy, and:
(1) if insured, the contract shall contain:
(a) the insurer's name, principal or other appropriate business address, and telephone number accompanied by a conspicuous statement in substantially the following form: "Obligations of the provider under this service contract are insured under a service contract reimbursement insurance policy."; and
(b) information concerning the procedure for the contract holder to present a claim arising under the contract directly to the reimbursement insurance company, pursuant to the insurer's obligations set forth in section 6 of this act, in the event that the provider does not comply with any contractual obligation pursuant to the contract within 60 days of presentation of a valid claim by the contract holder; or
(2) if not insured, the contract shall contain a conspicuous 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."
8. (New section) A service contract shall not be issued, offered for sale, or sold in this State unless the provider or seller, if not the provider, presents:
a. a receipt for, or other written evidence of, the purchase of the service contract to the contract holder, which shall include the provider's registration number; and
b. a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase.
9. (New section) a. A provider of any service contract issued, offered for sale, or sold in this State shall keep accurate accounts, books, papers, documents, and other records concerning the activities and transactions regulated under this act.
b. The provider's accounts, books, papers, documents, and other records shall include:
(1) a copy of each contract issued or sold;
(2) the name and address of each service contract holder, to the extent this information is furnished by the contract holder; and
(3) information concerning any claim arising under each contract, which shall include, but not be limited to, the date of claim filing, claim description, and provider's response.
c. (1) Except as provided by paragraph (2) of this subsection, the provider shall retain all records related to a contract required by the provisions of this section for at least one year after the expiration of all contractual obligations under the terms of the contract.
(2) A provider discontinuing business in this State shall maintain the means of assuring faithful performance to its contract holders as required by subsection b. of section 4 of this act and all records related to each contract issued or sold in this State until the provider submits appropriate proof, satisfactory to the director, that it discharged or transferred its contractual obligations for all contracts so issued or sold.
d. The records required and maintained pursuant to this section may be maintained electronically or through other record keeping technology, but if maintained in a format other than by hard copy, the records shall be capable of duplication to legible hard copy at the request of the director.
10. (New section) a. A violation of any of the provisions of this act shall be an unlawful practice and a violation of P.L.1960, c.39 (C.56:8-1 et seq.).
b. In order to enforce the provisions of this act, the director may conduct examinations of any provider, administrator, seller, or other person subject to the provisions of this act. Upon request by the director, a provider, administrator, seller, or other person shall make any accounts, books, papers, documents and other records required and maintained pursuant to section 9 of this act available to the director for inspection which are necessary to enable the director to reasonably determine compliance with this act.
11. Section 1 of P.L.1980, c.125 (C.56:12-1) is amended to read as follows:
1. As used in this act:
"Consumer contract" means a written agreement in which an individual:
a. Leases or licenses real or personal property;
b. Obtains credit;
c. Obtains insurance coverage, except insurance coverage contained in policies subject to the "Life and Health Insurance Policy Language Simplification Act," [(P.L.1979, c.167, C.17B:17-17 et seq.)] P.L.1979, c.167 (C.17B:17-17 et seq.);
d. Borrows money;
e. Purchases real or personal property;
f. Contracts for services including professional services ;
g. Enters into a service contract, as defined in section 1 of P.L. , c. (C. ) (pending before the Legislature as this bill), for cash or on credit and the money, property or services are obtained for personal, family or household purposes. "Consumer contract" includes writings required to complete the consumer transaction. "Consumer contract" does not include a written agreement involving a transaction in securities with a broker-dealer registered with the Securities and Exchange Commission, or a transaction in commodities with a futures commission merchant registered with the [Commodities] Commodity Futures Trading Commission.
(cf: P.L.1982, c.195, s.1)
12. This act shall take effect on the 365th day following enactment; except that the director may take any anticipatory administrative action in advance thereof as shall be necessary for the implementation of this act, and the act shall remain inoperative until the final adoption by the director of all regulations necessary for the implementation of this act.
STATEMENT
This bill regulates the sale and implementation of certain service contracts for the repair, replacement, maintenance, or service of property used for personal, family or household purposes.
As defined in the bill, a service contract is a contract or agreement for a specific duration, for a provider fee or other separately stated consideration, which covers repair, replacement, maintenance, or service of a motor vehicle, or residential or other property, due to defects or normal wear and tear, and may include additional provisions concerning towing, rental, and emergency road services, and other road hazard protections. The bill exempts from its requirements: (1) warranties and maintenance agreements; (2) service contracts on tangible property if the tangible property for which the service contract is sold has a purchase price of $250 or less, excluding sales tax; (3) mechanical breakdown insurance policies offered by licensed insurers pursuant to the insurance laws of this State; (4) service contracts offered or sold by public utilities regulated by the Board of Public Utilities, or by a person providing central heating and air conditioning services with respect to those contracts which concern a product sold to a private consumer, or installed or repaired at the consumer's household, by such utilities or persons providing heating and air conditioning services; and (5) service contracts offered or sold to persons other than private consumers.
The bill prohibits any person from issuing, offering to sell, or selling service contracts in this State unless the provider is registered with the Director of the Division of Consumer Affairs.
The bill requires providers of service contracts, or sellers of such contracts if not the actual providers, to provide contract purchasers with receipts or other written evidence of such contracts, including the provider's registration number, and to provide copies of such contracts to the purchaser within a reasonable period of time following the date of purchase. The bill establishes certain specifications as to the form and contents of service contracts, including requirements that service contracts be written in plain language and provide disclosures concerning matters such as the provider's permitted use of refurbished, reconditioned, or non-original manufacturer's parts or coverage for preexisting conditions. Additionally, providers shall provide contract holders with the right to return a service contract within a period of no less than 10 days from receipt of the contract, and obtain a full refund of the contract's purchase price from that provider, so long as the contract holder makes no claim arising under the contract.
Service contract providers shall also meet certain financial security requirements demonstrating the providers' ability to ensure the performance of providers' obligations to contract holders. In order to demonstrate this ability, providers may: 1) maintain a funded reserve account for any obligations, with reserves of not less than 20% of gross consideration received, less the amount of claims paid, under its service contracts; 2) maintain, alone or together with the providers' parent or other affiliated corporation, a net worth or stockholders' equity of not less than $100,000,000; or 3) insure each service contract under a reimbursement insurance policy, which reimburses a service provider upon fulfilling contract obligations, or pays others on behalf of a provider in the event of the provider's non-performance. A provider discontinuing business in this State shall maintain these means of assuring faithful performance to its contract holders, and all records related to each contract issued or sold in the State, until the provider submits appropriate proof that it discharged or transferred all of its contractual obligations.
The bill also places certain requirements on insurers issuing reimbursement insurance policies in this State, including the requirement that an insurer cannot terminate a reimbursement insurance policy without notice to the division. In addition, the bill provides a right to contract holders to apply directly to the reimbursement insurance company in the event of non-performance by a provider.
A violation of the bill's provisions constitutes an unlawful practice pursuant to the consumer fraud act, P.L.1960, c.39 (C.56:8-1 et seq.). Such an unlawful practice is punishable by a monetary penalty of not more than $10,000 for the first offense, and not more than $20,000 for the second and any subsequent offense. In addition, a violation can result in cease and desist orders issued by the Attorney General, the assessment of punitive damages, and the awarding of treble damages and costs to an injured party.
The Division of Consumer Affairs shall oversee the implementation and enforcement of the bill's provisions. The bill's effective date is 365 days following its enactment into law, however, the bill's provisions shall remain inoperative until the final adoption by the Director of the Division of Consumer Affairs of all regulations necessary for the implementation of the bill. The intent of the bill's delayed effective date, and inoperability in the absence of finalized regulations, is to allow service contract providers to continue to engage in their respective service contracting businesses, including having their service contracts offered for sale or sold by others, pursuant to current law, until the time that the division can effectively regulate the operation of current service contract providers and others under the bill's new provisions.
