2005-2006 Bill 1172: Vehicle Protection Product Act - South Carolina Legislature Online

1 South Carolina General Assembly 2 116th Session, 2005-2006 3 4 S. 1172 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Senators Land, Martin, Alexander, Matthews, O'Dell, Fair and Setzler 10 Document Path: l:\council\bills\swb\6733cm06.doc 11 12 Introduced in the Senate on February 22, 2006 13 Currently residing in the Senate Committee on Banking and Insurance 14 15 Summary: Vehicle Protection Product Act 16 17 18 HISTORY OF LEGISLATIVE ACTIONS 19 20 Date Body Action Description with journal page number 21 2/22/2006 Senate Introduced and read first time SJ-16 22 2/22/2006 Senate Referred to Committee on Banking and Insurance SJ-16 23 24 25 VERSIONS OF THIS BILL 26 27 2/22/2006 28 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 12 1976, BY ADDING ARTICLE 12, CHAPTER 77 TO TITLE 38 13 SO AS TO ENACT THE VEHICLE PROTECTION PRODUCT 14 ACT. 15 16 Be it enacted by the General Assembly of the State of South 17 Carolina: 18 19 SECTION 1. Chapter 77, Title 38 of the 1976 Code is amended 20 by adding: 21 22 “Article 12 23 24 Vehicle Protection Product Act 25 26 Section 38-77-1210. As used in this article: 27 (1) ‘administrator’ means a third party other than the warrantor 28 who is designated by the warrantor to be responsible for the 29 administration of vehicle protection product warranties; 30 (2) ‘department’ means the Department of Insurance of South 31 Carolina; 32 (3) ‘director’ means the person who is responsible for the 33 operation and management of the Department of Insurance; 34 (4) ‘service contract’ means a contract or agreement as defined 35 under Section 38-78-20(12); 36 (5) ‘incidental costs’ means expenses specified in the warranty 37 incurred by the warranty holder related to the failure of the vehicle 38 protection product to perform as provided in the warranty. 39 Incidental costs may include, without limitation, insurance policy 40 deductibles, rental vehicle charges, the difference between the 41 actual value of a stolen vehicle at the time of theft and the cost of a

1 [1172] 1 1 replacement vehicle, sales taxes, registration fees, transaction fees, 2 and mechanical inspection fees; 3 (6) ‘vehicle protection product’ means a vehicle protection 4 device, system, or service that is installed on or applied to a 5 vehicle, is designed to prevent loss or damage to a vehicle from a 6 specific cause, and includes a written warranty. For purposes of 7 this article, the term vehicle protection product includes, without 8 limitation, alarm systems, body part marking products, steering 9 locks, window etch products, pedal and ignition locks, fuel and 10 ignition kill switches, and electronic, radio, and satellite tracking 11 devices; 12 (7) ‘vehicle protection product warranty’ or ‘warranty’ means 13 a written agreement by a warrantor that provides that if the vehicle 14 protection product fails to prevent loss or damage to a vehicle from 15 a specific cause, then the warranty holder must be paid specified 16 incidental costs by the warrantor as a result of the failure of the 17 vehicle protection product to perform pursuant to the terms of the 18 warranty. Incidental costs may be reimbursed under the provisions 19 of the warranty in either a fixed amount specified in the warranty 20 or sales agreement or by the use of a formula itemizing specific 21 incidental costs incurred by the warranty holder; 22 (8) ‘vehicle protection product warrantor’ or ‘warrantor’ means 23 a person who is contractually obligated to the warranty holder 24 under the terms of the vehicle protection product warranty 25 agreement. Warrantor does not include an authorized insurer 26 providing a warranty reimbursement insurance policy; 27 (9) ‘warranty holder’ means the person who purchases a 28 vehicle protection product or who is a permitted transferee; and 29 (10) ‘warranty reimbursement insurance policy’ means a policy 30 of insurance that is issued to the vehicle protection product 31 warrantor to provide reimbursement to the warrantor or to pay on 32 behalf of the warrantor all covered contractual obligations incurred 33 by the warrantor under the terms and conditions of the insured 34 vehicle protection product warranties sold by the warrantor. 35 36 Section 38-77-1220. (A) A vehicle protection product may not 37 be sold or offered for sale in this State unless the seller, warrantor, 38 and administrator, if any, comply with the provisions of this 39 article. 40 (B) Vehicle protection product warrantors and related vehicle 41 protection product sellers and warranty administrators complying 42 with this article are not required to comply with and are not subject 43 to any other provision of this title.

1 [1172] 2 1 (C) Service contract providers who do not sell vehicle 2 protection products are not subject to the requirements of Chapter 3 78, Title 38. 4 (D) Warranties, indemnity agreements, and guarantees that are 5 not provided as a part of a vehicle protection product are not 6 subject to the provisions of this article. 7 8 Section 38-77-1230. (A) A person may not operate as a 9 warrantor or represent to the public that the person is a warrantor 10 unless the person is registered with the department on a form 11 prescribed by the director. 12 (B) Warrantor registration records must be filed annually and 13 must be updated within thirty days of a change. The registration 14 records shall contain the following information: 15 (1) the warrantor’s name, any fictitious names under which 16 the warrantor does business in this State, principal office address, 17 and telephone number; 18 (2) the name and address of the warrantor’s agent for service 19 of process in this State if it is someone other than the warrantor; 20 (3) the names of the warrantor’s executive officer or officers 21 directly responsible for the warrantor’s vehicle protection product 22 business; 23 (4) the name, address, and telephone number of any 24 administrators designated by the warrantor to be responsible for 25 the administration of vehicle protection product warranties in this 26 State; 27 (5) a copy of the warranty reimbursement insurance policy or 28 policies or other financial information required by subsection (E); 29 (6) a copy of each warranty the warrantor proposes to use in 30 this State; and 31 (7) a statement indicating under which provision of Section 32 38-77-1240 the warrantor qualifies to do business in this State as a 33 warrantor. 34 (C) The director may charge each registrant a reasonable fee to 35 offset the cost of processing the registration and maintaining the 36 records in an amount not to exceed two hundred fifty dollars 37 annually. The information contained in subsections (B)(1) and (B) 38 (2) of this section must be made available to the public. 39 (D) If a registrant fails to register by the renewal deadline, the 40 director shall give a written notice of the failure and the registrant 41 will have thirty days to complete the renewal of his registration 42 before he is suspended from being registered in this State.

1 [1172] 3 1 (E) An administrator or person who sells or solicits a sale of a 2 vehicle protection product but who is not a warrantor, is not 3 required to register as a warrantor or be licensed under the 4 insurance laws of this State to sell vehicle protection products. 5 6 Section 38-77-1240. (A) A vehicle protection product must 7 not be sold, or offered for sale in this State unless the warrantor 8 meets one of the conditions in this section in order to ensure 9 adequate performance under the warranty. No other financial 10 security requirements or financial standards for warrantors are 11 required. 12 (B) The vehicle protection product warrantor must be insured 13 under a warranty reimbursement insurance policy issued by an 14 insurer authorized to do business in this State which provides that: 15 (1) the insurer will pay to, or on behalf of, the warrantor one 16 hundred percent of all sums that the warrantor is legally obligated 17 to pay according to the warrantor’s contractual obligations under 18 the warrantor’s vehicle protection product warranty; 19 (2) a true and corrected copy of the warranty reimbursement 20 insurance policy has been filed with the director by the warrantor; 21 and 22 (3) the policy contains the provision required in Section 23 38-77-1250. 24 (C) The vehicle protection product warrantor, or its parent 25 company shall maintain a net worth or stockholders’ equity of 26 $50,000,000.00. 27 (D) The warrantor shall provide the director with a copy of the 28 warrantor’s or the warrantor’s parent company’s most recent Form 29 10-K or Form 20-F filed with the Securities and Exchange 30 Commission within the last calendar year or, if the warrantor does 31 not file with the Securities and Exchange Commission, a copy of 32 the warrantor or the warrantor’s parent company’s audited 33 financial statements that show a net worth of the warrantor or its 34 parent company of at least $50,000,000.00. If the warrantor’s 35 parent company’s Form 10-K, Form 20-F, or audited financial 36 statements are filed to meet the warrantors financial stability 37 requirement, then the parent company shall agree to guarantee the 38 obligations of the warrantor relating to warranties issued by the 39 warrantor in this State. The financial information filed under this 40 subsection is confidential as a trade secret of the entity filing the 41 information and not subject to public disclosure. 42

1 [1172] 4 1 Section 38-77-1250. (A) A warranty reimbursement insurance 2 policy must not be issued, sold, or offered for sale in this State 3 unless the policy meets the conditions contained in this section. 4 (B) The policy shall state that the issuer of the policy will 5 reimburse or pay on behalf of the vehicle protection product 6 warrantor all covered sums which the warrantor is legally 7 obligated to pay or will provide all services that the warrantor is 8 legally obligated to perform according to the warrantor’s 9 contractual obligations under the provisions of the insured 10 warranties sold by the warrantor. 11 (C) The policy shall state that in the event payment due under 12 the terms of the warranty is not provided by the warrantor within 13 sixty days after proof of loss has been filed according to the terms 14 of the warranty by the warranty holder, the warranty holder may 15 file directly with the warranty reimbursement insurance company 16 for reimbursement. 17 (D) The policy shall provide that a warranty reimbursement 18 insurance company that insures a warranty is considered to have 19 received payment of the premium if the warranty holder paid for 20 the vehicle protection product, and the insurer’s liability under the 21 policy must not be reduced or relieved by a failure of the 22 warrantor, for any reason, to report the issuance of a warranty to 23 the insurer. 24 (E) The policy must have the following provisions regarding 25 cancellation of the policy: 26 (1) the issuer of a reimbursement insurance policy shall not 27 cancel the policy until a notice of cancellation in writing has been 28 mailed or delivered to the director and each insured warrantor; 29 (2) the cancellation of a reimbursement insurance policy 30 shall not reduce the issuer’s responsibility for vehicle protection 31 products sold prior to the date of cancellation; and 32 (3) in the event an insurer cancels a policy that a warrantor 33 has filed with the director, the warrantor shall do either of the 34 following: 35 (a) file a copy of a new policy with the director, before the 36 termination of the prior policy, providing no lapse in coverage 37 following the termination of the prior policy; or 38 (b) discontinue acting as a warrantor as of the termination 39 date of the policy until a new policy becomes effective and is 40 accepted by the director. 41 42 Section 38-77-1260. (A) A vehicle protection product 43 warranty must be written in clear, understandable language and

1 [1172] 5 1 must be printed or typed in easy-to-read type, size, and style, and 2 must not be sold or offered for sale in this State unless the 3 warranty: 4 (1) states ‘the obligations of the warrantor to the warranty 5 holder are guaranteed under a warranty reimbursement insurance 6 policy’ if the warrantor elects to meet its financial responsibility 7 obligations under Section 38-77-1240(B), or states ‘the obligations 8 of the warrantor under this warranty are backed by the full faith 9 and credit of the warrantor’ if the warrantor elects to meet its 10 financial responsibility obligations under Section 38-77-1240(C); 11 (2) states that in the event a warranty holder must make a 12 claim against a party other than the warranty reimbursement 13 insurance policy issuer, the warranty holder is entitled to make a 14 direct claim against the insurer upon the failure of the warrantor to 15 pay any claim or meet any obligation under the terms of the 16 warranty within sixty days after proof of loss has been filed with 17 the warrantor, if the warrantor elects to meet its financial 18 responsibility obligations under Section 38-77-1240(B); 19 (3) states the name and address of the issuer of the warranty 20 reimbursement insurance policy. This information need not be 21 preprinted on the warranty form, but may be added to or stamped 22 on the warranty, if the warrantor elects to meet its financial 23 responsibility obligations under Section 38-77-1240(B) above; 24 (4) identifies the warrantor, the seller, and the warranty 25 holder; 26 (5) sets forth the total purchase price and the terms under 27 which it is to be paid. However, the purchase price is not required 28 to be preprinted on the vehicle protection product warranty and 29 may be negotiated with the consumer at the time of sale; 30 (6) sets forth the procedure for making a claim, including a 31 telephone number; 32 (7) states the existence of a deductible amount, if any; 33 (8) specifies the payments or performance to be provided 34 under the warranty including payments for incidental costs, the 35 manner of calculation or determination of payments or 36 performance, and any limitations, exceptions, or exclusions; 37 (9) sets forth all of the obligations and duties of the warranty 38 holder, including the duty to protect against any further damage to 39 the vehicle, the obligation to notify the warrantor in advance of 40 any repair, or other similar requirements, if any; 41 (10) sets forth any terms, restrictions, or conditions governing 42 transferability of the warranty, if any; and

1 [1172] 6 1 (11) contains a disclosure that reads substantially as follows: 2 ‘this agreement is a product warranty and is not insurance’. 3 (B) At the time of sale, the seller or warrantor shall provide to 4 the purchaser: 5 (1) a copy of the vehicle protection product warranty, or 6 (2) a receipt or other written evidence of the purchase of the 7 vehicle protection product and a copy of the warranty within thirty 8 days of the date of purchase. 9 10 Section 38-77-1270. (A) A vehicle protection product may not 11 be sold or offered for sale in this State unless the vehicle protection 12 product warranty clearly states the terms and conditions governing 13 the cancellation of the sale and warranty, if any. 14 (B) The warrantor only may cancel the warranty if the warranty 15 holder: 16 (1) fails to pay for the vehicle protection product; 17 (2) makes a material misrepresentation to the seller or 18 warrantor; 19 (3) commits fraud; or 20 (4) substantially breaches the warranty holder’s duties under 21 the warranty. 22 (B) A warrantor canceling a warranty shall mail written notice 23 of cancellation to the warranty holder at the last address of the 24 warranty holder in the warrantor’s records at least thirty days 25 before the effective date of the cancellation. The notice shall state 26 the effective date of the cancellation and the reason for the 27 cancellation. 28 29 Section 38-77-1280. (A) Unless licensed as an insurance 30 company, a vehicle protection product warrantor shall not use in 31 its name, contracts, or literature, the words ‘insurance’, ‘casualty’, 32 ‘surety’, ‘mutual’, or any other words descriptive of the insurance, 33 casualty, or surety business or description of an insurance or surety 34 corporation, or any other vehicle protection product warrantor. A 35 warrantor may use the term ‘guaranty’ or a similar work in the 36 warrantor’s name. 37 (B) A vehicle protection product seller or warrantor must not 38 require as a condition of sale or financing that a retail purchaser of 39 a motor vehicle purchase a vehicle protection product that is not 40 installed on the motor vehicle at the time of sale. 41

1 [1172] 7 1 Section 38-77-1290. (A) All vehicle protection product 2 warrantors must keep accurate accounts, books, and records 3 concerning transactions regulated under this chapter. 4 (B) A vehicle protection product warrantor’s accounts, books, 5 and records shall include: 6 (1) copies of all vehicle protection product warranties; 7 (2) the name and address of each warranty holder; and 8 (3) the dates, amounts, and descriptions of all receipts, 9 claims, and expenditures. 10 (C) A vehicle protection product warrantor shall retain all 11 required accounts, books, and records pertaining to each warranty 12 holder for at least two years after the specified period of coverage 13 has expired. A warrantor discontinuing business in this State shall 14 maintain its records until it furnishes the director satisfactory proof 15 that it has discharged all obligations to warranty holders in this 16 State. 17 (D) Vehicle protection product warrantors shall make all 18 accounts, books, and records concerning transactions regulated 19 under this act available to the director for examination. 20 21 Section 38-77-1300. (A) The director may conduct 22 examinations of warrantors, administrators, or other persons to 23 enforce the provision of this chapter and protect warranty holders 24 in this State. Upon request of the director, a warrantor shall make 25 available to the director all accounts, books, and records 26 concerning vehicle protection products sold by the warrantor that 27 are necessary to enable the director to reasonably determine 28 compliance or noncompliance with this chapter. 29 (B) The director may take action that is necessary or 30 appropriate to enforce the provisions of this chapter and the 31 director’s rules and orders and to protect warranty holders in this 32 State. If a warrantor engages in a pattern or practice of conduct 33 that violates this chapter and that the director reasonably believes 34 threatens to render the warrantor insolvent or cause irreparable loss 35 or injury to the property or business of any person or company 36 located in this State, the director may issue: 37 (1) an order directed to the warrantor to cease and desist 38 from engaging in further acts, practices, or transactions that are 39 causing the conduct; 40 (2) an order prohibiting that warrantor from selling or 41 offering for sale vehicle protection products in violation of this 42 article; 43 (3) an order imposing a civil penalty on that warrantor; or

1 [1172] 8 1 (4) any combination of the foregoing orders, as applicable. 2 (C) Before the effective date of an order issued pursuant to this 3 section, the director must provide written notice of the order to the 4 warrantor and the opportunity for a hearing to be held within ten 5 business days after receipt of the notice, except prior notice and 6 hearing is not required if the director reasonably believes that the 7 warrantor has become, or is about to become, insolvent. 8 (D) A person aggrieved by an order issued under this section 9 may request a hearing before the director. The hearing request 10 must be filed with the director within twenty days after the date the 11 director’s order is effective, and the director must hold the hearing 12 within fifteen days after receipt of the hearing request. 13 (E) At the hearing, the burden is on the director to show why 14 the order issued pursuant to this section is justified. 15 (F) The director may bring an action in any court of competent 16 jurisdiction for an injunction or other appropriate relief to enjoin 17 threatened or existing violations of this chapter or of the director’s 18 orders or rules. An action filed under this section also may seek 19 restitution on behalf of persons aggrieved by a violation of this 20 chapter or orders or rules of the director. 21 (G) A person who is found to have violated this article or 22 orders or rules of the director may be ordered to pay to the director 23 a civil penalty in an amount determined by the director, of not 24 more than five hundred dollars per violation and not more than ten 25 thousand dollars in the aggregate for all violations of a similar 26 nature. For purposes of the section, violations are of a similar 27 nature if the violation consists of the same or similar course of 28 conduct, action, or practice, irrespective of the number of times the 29 conduct, action, or practice that is determined to be a violation of 30 this act occurred. 31 32 Section 38-77-1310. The director may adopt administrative 33 rules and promulgate regulations consistent with the provision of 34 this article that are necessary to implement them. The rules and 35 regulations shall include disclosures for the benefit of the warranty 36 holder, recordkeeping, and procedures for public complaints. The 37 rules and regulations also shall include the conditions under which 38 surplus lines insurers may be rejected for the purpose of 39 underwriting vehicle protection product warranty agreements. 40 41 Section 38-77-1320. This article applies to all vehicle 42 protection products sold or offered for sale on or after the effective 43 date of this chapter. The failure of a person to comply with this

1 [1172] 9 1 chapter before its effective date is not admissible in a court 2 proceeding, administrative proceeding, arbitration, or alternative 3 dispute resolution proceeding and must not be used to prove that 4 the action of a person or the affected vehicle protection product 5 was unlawful or improper. The adoption of this article does not 6 imply that a vehicle protection product warranty was insurance 7 before the effective date of this article. The penalty provisions of 8 this article do not apply to a violation of this article relating to or in 9 connection with the sale or failure to disclose in a retail installment 10 contract or lease, or contract or agreement that provides for 11 payments under a vehicle protection product warranty as long as 12 the sale of the product, contract, or agreement was otherwise 13 disclosed to the purchaser in writing at the time of the purchase or 14 lease. In the event of a violation for which the penalty provisions 15 of this article do not apply, the court shall award actual damages 16 and costs, including reasonable attorney’s fees. Nothing in this 17 section must be construed to require the application of the penalty 18 provisions where this section is not applicable.” 19 20 SECTION 2. If any section, subsection, paragraph, subparagraph, 21 sentence, clause, phrase, or word of this act is for any reason held 22 to be unconstitutional or invalid, such holding shall not affect the 23 constitutionality or validity of the remaining portions of this act, 24 the General Assembly hereby declaring that it would have passed 25 this act, and each and every section, subsection, paragraph, 26 subparagraph, sentence, clause, phrase, and word thereof, 27 irrespective of the fact that any one or more other sections, 28 subsections, paragraphs, subparagraphs, sentences, clauses, 29 phrases, or words hereof may be declared to be unconstitutional, 30 invalid, or otherwise ineffective. 31 32 SECTION 3. This act takes effect upon approval by the 33 Governor. 34 ----XX---- 35

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