SENATE, No. 246

SECTION 1. Sections 149F through 149L, inclusive, of

Chapter 175 of the Massachusetts General Laws as appearing inthe 2004 Official Edition are hereby repealed.

SECTION 2. Chapter 175 of the Massachusetts General Laws, as appearing in the 2004 Official Edition is hereby amended by inserting after Section 149L, the following new sections:— Section 149M. As used in sections 149M to 149W the following words shall, unless the context clearly requires otherwise, have the following meanings:— “Administrator”, the person who is responsible for the administration of the service contracts or the service contracts plan. “Commissioner”, the commissioner of insurance of this state. “Consumer”, a natural person who buys other than for purposes of resale and 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.

“Home Service Contract” or “service contract”, a contract or agreement for a separately stated consideration for a specific duration to perform the service, repair, replacement, or maintenance of property or indemnification for repair, replacement, or maintenance, for the operational or structural failure due to a defect in materials or workmanship, or normal wear and tear, with or

without additional provision for incidental payment or indemnity under limited circumstances, for related expenses, including, but not limited to, rental, and food spoilage. Service contracts may

provide for the service repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling; and may provide for leak or repair coverage

to house roofing systems. “Home service contract holder” or “contract holder”, a consumer who is the purchaser or holder of a service contract. “Person”, an individual, partnership, corporation, incorporated or unincorporated association, joint stock company, reciprocal, syndicate or any similar entity or combination or entities acting in concert. “Premium”, the consideration paid to an insurer for the reimbursement insurance policy. “Provider”, a person who is contractually obligated to the service contract holder under the terms of the home service contract. “Reimbursement insurance policy”, a policy of insurance

issued to a provider to either provide reimbursement to 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 pay on behalf of the provider all covered contractual obligations incurred by the provider under the terms of the insured home service contracts issued or sold by the provider.

“Warranty”, a warranty made solely by the manufacturer, importer or seller of property or services without consideration, that is not negotiated or separated from the sale of the product and

is incidental to the sale of the product, that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor or other remedial measures, such as repair or replacement of the

property or repetition of services. Section 149N. The following shall be exempt from sections 149M to 149W: (a) Warranties, service contracts of maintenance agreements offered by public utilities on their transmission devices to the extent they are regulated by the Department of Telecommunications and Energy; (b) Insurers otherwise licensed and regulated under the insurance laws and regulations; or (c)Warranties, service contracts or other agreements regarding automobiles. Section 149O (a) 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 sections 149M to 149W. (b) Service contracts shall not be issued, sold or offered for sale in this state unless the provider has: (1) Provided a receipt for, or other written evidence of, the purchase

of the service contract to the contract holder; and (2) Provided a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase. (c) Each provider of service contracts sold in this state shall file a registration with the commissioner consisting of their name, full corporate address, phone and contact person and designate a person in this state for service of process. Each provider shall pay to the commissioner a fee in the amount of six hundred dollars ($600) upon initial registration and every three years thereafter. (d) In order to assure the faithful performance of a provider’s obligations to its contract holders, each provider shall be responsible for complying with the requirements of one of the following subdivisions: (1) Insure all services contracts under a reimbursement insurance policy issued by an insurer that is authorized, registered or otherwise permitted to transact insurance in this state or a surplus lines insurer authorized pursuant to the laws of this state. The reimbursement insurance shall be obtained from an insurer that meets one of the following requirements i. at the time the policy is filed with the commissioner, and continuously thereafter, maintains surplus as to contract holders and paid-in capital of at least $15 million and annually file copies of the insurer’s financial statements, its NAIC annual statement, and the actuarial certification if required and filed in the insurer’s state of domicile; or ii. at the time the policy is filed with the director, and continuously thereafter, maintains surplus as to policyholders and paid-in capital of less than $15 million but at least equal to $10 million, demonstrates to the satisfaction of the commissioner that the insurer maintains a ratio of net written premiums, wherever written, to surplus as to contract holders and paid-in capital of not greater than three (3) to one (1), and annually files copies of the insurer’s financial statements, it NAIC annual statement, and the actuarial certification if required and filed in the insurer’s state of domicile; or (2) i. Maintain a funded reserve account for its obligations under its contracts issued and outstanding in this state. The reserve shall not be less than forty percent (40%) of gross consideration received, less claims paid, on the sale of the service contract

for all in-force service contracts. The reserve account shall be subject to examination and review by the commissioner; and ii. Place in trust with the commissioner a financial security

deposit, having a value of not less than five percent (5%) of the gross consideration received, less claims paid, on the sale of the service contract for all service contracts issued and in force, but

not less than $25,000.00, consisting of one of the following: a surety bond issued by an authorized surety; securities of the type eligible for deposit by authorized insurers in this state; cash; a letter of credit issued by a qualified financial institution; or another form of security prescribed by regulations issued by the

commissioner;

(3) i. Maintain, or together with its parent company maintain, a

net worth or stockholders’ equity of $25 million; and ii. Upon request, provide the commissioner with a copy of the provider’s or the provider’s parent company’s most recent Form

10-K or Form 20-F filed with the Securities and Exchange Commission

(SEC) within the last calendar year, or if the companydoes not file with the SEC, a copy of the company’s financial statements, which shows a net worth of the provider or its parent

company of at least $25 million. If the provider’s parent company’s Form 10-K, Form 20-F, or 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. (e) Except for the requirements specified in sections c and above, no other registration submissions or financial security

requirements shall be required by the commissioner for service contract providers. (f) Service contracts shall require the provider to permit the service contract holder to return the service contract within 20 days of the date the service contract was mailed to the service contract holder or within 10 days of delivery if the service contract is delivered to the service contract holder at the time of sale or within a longer time period permitted under the service con-tract. Upon return of the service contract to the provider within the applicable time period, if no claim has been made under the service contract prior to its return to the provider, the service contact is void and the provider shall refund to the service contract holder, or credit the account of the service contract holder or other payer of record, if different, the full purchase price of the service contract. The right to void the service contract provided in this subsection is not transferable and shall apply only to the original service contract purchaser, and only if no claim has been made prior to its return to the provider. A ten per cent penalty per month shall be added to a refund that is not paid or credited within 45 days after return of the service contract to the provider.

(g) Premium Taxes: (1) Provider fees collected on service contracts shall not be

subject to premium taxes. (2) Premiums for reimbursement insurance policies shall be

subject to premium and all other applicable taxes. (h) Except for the registration requirements in section c, providers and related service contracts sellers, administrators, and other persons marketing, selling or offering to sell service contracts are exempt from any licensing requirements of this state.

(i) A service contract is not insurance for any purpose, including, but not limited to, compliance with the Massachusetts general laws, other than for the purpose of a service contract holder’s claim against a service contract provider for failure to comply with the provisions of the service contract if so provided by other law. (j) The marketing, sale, offering for sale, issuance, making,

proposing to make and administration of service contracts by providers and related service contract sellers, administrators, and other persons shall be exempt from all other provisions of this state’s insurance law. This shall include any non consumer, commercial service contract. Any persons not licensed and regulated under this chapter shall subject to the Massachusetts Consumer Protection Act.

Section 149P. (a) Reimbursement insurance policies insuring service contracts issued, sold or offered for sale in this state shall state that the insurer that issued the reimbursement insurance policy shall either reimburse or pay on behalf of the provider any covered sums the provider is legally obligated to pay or, in the event of the provider’s non-performance, shall provide 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. (b) In the event covered service is not provided by the service contract provider within 60 days of proof of loss by the service contract holder, the contract holder is entitled to apply directly to the reimbursement insurance company.

Section 149Q. (a) Service contracts marketed, sold, offered for sale, issued, made proposed to be made, or administered in this state shall be written, printed, or typed in clear, understandable language that is easy to read, and shall disclose the requirements set forth in this section, as applicable. (b) Service contracts insured under a reimbursement insurance policy pursuant to section 149(d)(1) of this Act 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.” The service contract shall also state the name and address of the insurer.

(c) Service contracts not insured under a reimbursement insurance policy pursuant to section 149(d)(1) of this Act shall contain a statement in substantially the following form: “Obligations of the provider under this service contact are backed by the full faith and credit of the provider.”

(d) Service contracts shall state the name and address of the provider, and shall identify any administrator if different from the provider, the service contract seller, and the service contract holder to the extent that the name of the service contract holder has been furnished by the service contract holder. The identities of such parties are not required to be preprinted on the service contract and may be added to the service contact at the time of sale. (e) Service contracts shall state the total purchase price and the terms under which service contract is sold. The purchase price is not required to be pre-printed on the service contract and may be negotiated at the time of sale with the service contract holder. (f) Service contracts shall state the existence of any deductible amount, if applicable. (g) Service contracts shall specify the property and services to

be provided and any limitations, exceptions, or exclusions. (h) Service contracts shall state any restrictions governing the transferability of the service contract, if applicable. (i) Service contracts shall state the terms, restrictions or conditions governing cancellation of the service contract prior to the termination or expiration date of the service contract by either the provider or the service contract holder. The provider of the service contract shall mail a written notice to the contract holder at the last known address of the service contract holder contained in the records of the provider at least five (5) days prior to cancellation by the provider. Prior notice is not required if the reason for cancellation is nonpayment of the provider, material misrepresentation, or a substantial breach of duties by the service contract holder relating to the covered product or its use. The notice shall state the effective date of the cancellation and the reason for the

cancellation. (j) 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 requirements to follow owner’s manual. (k) Service contracts shall state whether or not the service contract provides for any preexisting conditions, if applicable.

Section 149R. (a) A provider shall not use in its name the words insurance, casualty, surety, mutual or any other words 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 or any other provider. The words “guaranty, “warranty” or similar words may be used by the provider. This section shall not apply to a company that was using any of the prohibited language in its name prior to the effective date sections 149M through 149W. However, a company using the prohibited language in its name shall include in its service contracts a statement in substantially the following form: “This agreement is not an insurance contract.”

(b) A provider or its representative 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 be considered misleading if omitted.  (c) A person, such as 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 a condition for the sale of any property, but may promote, endorse or recommend the purchase unless otherwise prohibited

by law.

Section 149S. (a)Books and Records: (1) The provider shall keep accurate accounts, books, and

records concerning transactions regulated under sections 149M through 149W. (2) The provider’s accounts, books, and records shall include the following: i. Copies of each type of service contracts sold; ii. The name and address of each service contract holder to the extent that the name and address have been furnished to the service contract provider; iii. Written or electronic claims files which shall contain at least the dates and description of claims related to the service contract. (3) Except as provided in section 149S(b), the provider shall retain all records required to be maintained by section 7 for at least one (1) year after the specified period of coverage has

expired. (4) The records required under sections 149M through 149Wmay be, but are not required to be maintained on a computer disk or other record keeping 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 commissioner. (b) A provider discontinuing business in this state shall maintain its records until it furnishes the commissioner satisfactory proof that is has discharged all obligations to contact holders in this state.

Section 149T. As applicable, an insurer that issued a reimbursement insurance policy shall not terminate the policy until a notice of termination in accordance with Chapter 175 has been mailed or delivered to the commissioner. The termination of a reimbursement insurance policy shall not reduce the issuer’s responsibility for service contracts issued by providers prior to the date of the

termination.

Section 149U. (a) Insurers issuing reimbursement insurance to providers are deemed to have received the premiums for such insurance upon the payment of provider fees by consumers for service contracts issued by such insured providers. (b) This sections 149M through 149W shall not prevent or limit the right of an insurer which issued a reimbursement insurance policy to seek indemnification or subrogation against a provider if the issuer pays or is obligated to pay the service contract holder sums that the provider was obligated to pay pursuant to the provisions

of the service contract.

Section 149V. (a) The commissioner may conduct examinations of providers, administrators, insurers or other persons to enforce the provisions of sections 149M through 149W and protect service contract holders in this state. Upon request of the commissioner, the provider shall make all accounts, books, and records concerning service contracts sold by the provider in this state available to the commissioner which are necessary to enable the commissioner to reasonably determine compliance or noncompliance with sections 149M through 149W. (b) The commissioner may take action which is necessary or appropriate to enforce the provisions of sections 149M through 149W and to protect service contract holders in this state. 1. If a provider has violated the sections 149M through 149W, the commissioner may issue an order directed to that provider to cease and desist from committing violations of said sections; may issue an order prohibiting a service contract provider from selling or offering for sale service contracts in violation of said sections; or may issue an order imposing a civil penalty on that provider, or

any combination of the foregoing, as applicable. i. A person aggrieved by an order issued under this paragraph may request a hearing before the commissioner. The hearing request shall be filed with the commissioner within 20 days of the date the commissioner’s order is effective: ii. If a hearing is requested, an order issued by the commissioner under this section shall be suspended from the original effective date of the order until completion of the hearing and

final decision of the commissioner; and iii. At the hearing, the burden shall be on the commissioner to show why the order issued pursuant to this paragraph is justified.

The provisions of Chapter 175 shall apply to a hearing request under this section.

2. The commissioner may bring an action in any court of competent jurisdiction for an injunction or other appropriate relief to enjoin threatened or existing violations of sections 149M through

149W. An action filed under this paragraph may also seek restitution on behalf of persons aggrieved by a violation of said sections or orders or regulations of the commissioner.

3. A person who is found to have violated sections 149M through 149W or orders or regulation of the commissioner may be assessed a civil penalty in an amount determined by the commissioner of not more that five hundred dollars ($500.00) per violation and no more than ten thousand dollars ($10,000) in the aggregate for all violations of a similar nature. For purposes of this section, violations shall be of a similar nature if the violation consists of the same or similar course of conduct, action, or practice, irrespective of the number of times the act, conduct, or practice which is determined to be a violation of said sections occurred.

Section 149W. The Commissioner may promulgate reasonable rules and regulations necessary to implement this Act but may not enlarge upon the authority provided by this Act.

SECTION 3. This Act shall govern all home service contacts issued after the effective date of this Act. Contracts in effect at the time of adoption shall become covered upon any renewal thereof.

SECTION 4. This Act shall become effective immediately upo its passage and approval by the Governor, or upon its otherwise becoming a law.