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Sponsors: Senators Land, Martin, Alexander, Cromer, Fair, Jackson, Matthews, Moore, O'Dell, Reese and Setzler
Document Path: l:\council\bills\dka\3158dw07.doc
Introduced in the Senate on February 7, 2007
Introduced in the House on April 10, 2007
Last Amended on April 4, 2007
Currently residing in the House Committee on Labor, Commerce and Industry
Summary: Vehicle Protection Product Act
HISTORY OF LEGISLATIVE ACTIONS
Date Body Action Description with journal page number ------------------------------------------------------------------------------- 2/7/2007 Senate Introduced and read first time SJ-25 2/7/2007 Senate Referred to Committee on Banking and Insurance SJ-25 3/29/2007 Senate Committee report: Favorable with amendment Banking and Insurance SJ-8 3/30/2007 Scrivener's error corrected 4/4/2007 Senate Amended SJ-13 4/4/2007 Senate Read second time SJ-13 4/5/2007 Scrivener's error corrected 4/5/2007 Senate Read third time and sent to House SJ-14 4/10/2007 House Introduced and read first time HJ-19 4/10/2007 House Referred to Committee on Labor, Commerce and Industry HJ-19
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VERSIONS OF THIS BILL
COMMITTEE AMENDMENT ADOPTED
April 4, 2007
Introduced by Senators Land, Martin, Alexander, Cromer, Fair, Jackson, Matthews, Moore, O'Dell, Reese and Setzler
S. Printed 4/4/07--S. [SEC 4/5/07 12:20 PM]
Read the first time February 7, 2007.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY DESIGNATING SECTIONS 38-78-10 THROUGH 38-78-120 AS ARTICLE 1, CHAPTER 78, TITLE 38, ENTITLED "GENERAL PROVISIONS"; AND BY ADDING ARTICLE 3 TO CHAPTER 78, TITLE 38 SO AS TO ENACT THE "VEHICLE PROTECTION PRODUCT ACT", TO PROVIDE FOR DEFINITIONS, TO REQUIRE THE REGULATION OF VEHICLE PROTECTION PRODUCT WARRANTIES, TO REQUIRE A VEHICLE PROTECTION PRODUCT WARRANTY TO ADHERE TO THE PROVISIONS OF ARTICLE 3, AND TO AUTHORIZE THE DIRECTOR OF INSURANCE TO IMPOSE CIVIL PENALTIES FOR VIOLATIONS OF ARTICLE 3.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Sections 38-78-10 through 38-78-120 of the 1976 Code are designated as Article 1 of Chapter 78, Title 38 and entitled "General Provisions".
SECTION 2. Chapter 78, Title 38 of the 1976 Code is amended by adding:
Section 38-78-510. As used in this article:
(1) 'Administrator' means a third party other than the warrantor who is designated by the warrantor to be responsible for the administration of vehicle protection product warranties.
(2) 'Department' means the Department of Insurance of South Carolina.
(3) 'Director' means the person who is responsible for the operation and management of the Department of Insurance.
(4) 'Service contract' means a contract or agreement as defined under Section 38-78-20(12).
(5) 'Incidental costs' means expenses specified in the warranty incurred by the warranty holder related to the failure of the vehicle protection product to perform as provided in the warranty. Incidental costs may include, without limitation, insurance policy deductibles, rental vehicle charges, the difference between the actual value of a stolen vehicle at the time of theft and the cost of a replacement vehicle, sales taxes, registration fees, transaction fees, and mechanical inspection fees.
(6) 'Vehicle protection product' means a vehicle protection device, system, or service that is installed on or applied to a vehicle, is designed to prevent loss or damage to a vehicle from a specific cause, and includes a written warranty. For purposes of this article, the term 'vehicle protection product' includes, without limitation, alarm systems, body part marking products, steering locks, window etch products, and electronic, radio, and satellite tracking devices.
(7) 'Vehicle protection product warranty' or 'warranty' means a written agreement by a warrantor that provides that if the vehicle protection product fails to prevent loss or damage to a vehicle from a specific cause, then the warranty holder must be paid specified incidental costs by the warrantor as a result of the failure of the vehicle protection product to perform pursuant to the terms of the warranty. Incidental costs may be reimbursed under the provisions of the warranty in either a fixed amount specified in the warranty or sales agreement or by the use of a formula itemizing specific incidental costs incurred by the warranty holder.
(8) 'Vehicle protection product warrantor' or 'warrantor' or 'licensee' means a person who contractually is obligated to the warranty holder under the terms of the vehicle protection product warranty agreement. Warrantor does not include an authorized insurer providing a warranty reimbursement insurance policy.
(9) 'Warranty holder' means the person who purchases a vehicle protection product or who is a permitted transferee.
(10) 'Warranty reimbursement insurance policy' means a policy of insurance that is issued to the vehicle protection product warrantor to provide reimbursement to the warrantor or to pay on behalf of the warrantor all covered contractual obligations incurred by the warrantor under the terms and conditions of the insured vehicle protection product warranties sold by the warrantor.
(11) 'Seller' means a person who sells vehicle protection products.
Section 38-78-520. (A) A vehicle protection product may not be sold or offered for sale in this State unless the seller, warrantor, and administrator, if any, comply with the provisions of this article.
(B) Vehicle protection product warrantors and related vehicle protection product sellers and warranty administrators complying with this article are not required to comply with other provisions of this article as considered appropriate by the director.
(C) Warranties, indemnity agreements, and guarantees that are not provided as a part of a vehicle protection product are not subject to the provisions of this article.
Section 38-78-530. (A) A person may not operate as a warrantor or represent to the public that the person is a warrantor unless the person is licensed pursuant to the requirements established by the department under its authority to promulgate regulations for the administration of this article.
(B) Warrantor registration records must be filed annually and must be updated within thirty days of a change. The registration records must contain:
(1) the warrantor's name, fictitious names under which the warrantor does business in this State, principal office address, and telephone number;
(2) the name and address of the warrantor's agent for service of process in this State if it is someone other than the warrantor;
(3) the names of the warrantor's executive officer or officers directly responsible for the warrantor's vehicle protection product business;
(4) the name, address, and telephone number of administrators designated by the warrantor to be responsible for the administration of vehicle protection product warranties in this State;
(5) a copy of the warranty reimbursement insurance policy or policies or other financial information required by Section 38-78-540;
(6) a copy of each warranty the warrantor proposes to use in this State; and
(7) a statement indicating under which provision of Section 38-78-540 the warrantor qualifies to do business in this State as a warrantor.
(C) The director shall charge each warrantor an initial fee of six hundred dollars, which is retained by the department to offset the cost of processing the registration and maintaining the records. In addition, the director shall charge a biennial renewal license fee of six hundred dollars after the initial fee. The renewal date is determined by the department. The information contained in Section 38-78-530 is subject to Chapter 4, Title 30 (the Freedom of Information Act).
(D) If a warrantor fails to renew by the renewal deadline, the director shall give a written notice of the failure and the warrantor has thirty days to complete the renewal of his license before he is suspended or revoked from being licensed as a warrantor under the article.
(E) An administrator or person who sells or solicits a sale of a vehicle protection product but who is not a warrantor, is not required to register as a warrantor or be licensed under the insurance laws of this State to sell vehicle protection products.
Section 38-78-540. (A) A vehicle protection product must not be sold, or offered for sale in this State unless the warrantor meets one of the conditions of subsection (B) or (C) in order to ensure adequate performance under the warranty.
(B) The vehicle protection product warrantor must be insured under a warranty reimbursement insurance policy issued by an insurer authorized to do business in this State which provides that:
(1) the insurer shall pay to, or on behalf of, the warrantor one hundred percent of all sums that the warrantor is legally obligated to pay according to the warrantor's contractual obligations under the warrantor's vehicle protection product warranty;
(2) a true and corrected copy of the warranty reimbursement insurance policy has been filed with the director by the warrantor; and
(3) the policy contains the provision required in Section 38-78-550.
(C) The vehicle protection product warrantor or its parent company shall maintain a net worth or stockholders' equity of fifty million dollars.
The warrantor shall provide the director with a copy of the warrantor's or the warrantor's parent company's most recent Form 10-K or Form 20-F filed with the Securities and Exchange Commission within the last calendar year or, if the warrantor does not file with the Securities and Exchange Commission, a copy of the warrantor or the warrantor's parent company's audited financial statements that show a net worth of the warrantor or its parent company of at least fifty million dollars. If the warrantor's parent company's Form 10-K, Form 20-F, or audited financial statements are filed to meet the warrantor's financial stability requirement, then the parent company shall agree to guarantee the obligations of the warrantor relating to warranties issued by the warrantor in this State and provide a copy of the guarantee to the director. The financial information filed under this subsection is confidential as a trade secret of the entity filing the information and not subject to public disclosure. The warrantor shall notify and secure the department's approval if there are any material changes to the application, business plan, or financial security instruments it files for licensure. An annual statement must be filed each renewal date established by the department.
Section 38-78-550. (A) A warranty reimbursement insurance policy must not be issued, sold, or offered for sale in this State unless the policy meets the conditions contained in this section.
(B) The policy must state that the issuer of the policy shall reimburse, or pay on behalf of the vehicle protection product warrantor, all covered sums which the warrantor is legally obligated to pay or shall provide all services that the warrantor is legally obligated to perform according to the warrantor's contractual obligations under the provisions of the insured warranties sold by the warrantor.
(C) The policy must state that if the payment due under the terms of the warranty is not provided by the warrantor within sixty days after proof of loss has been filed according to the terms of the warranty by the warranty holder, the warranty holder may file directly with the warranty reimbursement insurance company for reimbursement.
(D) The policy must provide that a warranty reimbursement insurance company that insures a warranty is considered to have received payment of the premium if the warranty holder paid for the vehicle protection product, and the insurer's liability under the policy must not be reduced or relieved by a failure of the warrantor, for any reason, to report the issuance of a warranty to the insurer.
(E) The policy must comply with the provisions in Article 9, Chapter 75, Title 38 regarding cancellation, nonrenewal, or property casualty insurance.
Section 38-78-560. (A) A vehicle protection product warranty must be written in at least ten point font and must not be sold or offered for sale in this State unless the warranty:
(1) states 'the obligations of the warrantor to the warranty holder are guaranteed under a warranty reimbursement insurance policy' if the warrantor elects to meet its financial responsibility obligations under Section 38-78-540(B), or states 'the obligations of the warrantor under this warranty are backed by the full faith and credit of the warrantor' if the warrantor elects to meet its financial responsibility obligations under Section 38-78-540(C);
(2) states that if a warranty holder makes a claim against a party other than the warranty reimbursement insurance policy issuer, the warranty holder is entitled to make a direct claim against the insurer upon the failure of the warrantor to pay a claim or meet an obligation under the terms of the warranty within sixty days after proof of loss has been filed with the warrantor, if the warrantor elects to meet its financial responsibility obligations under Section 38-78-540(B);
(3) states the name and address of the issuer of the warranty reimbursement insurance policy. This information does not have to be preprinted on the warranty form, but may be added to or stamped on the warranty, if the warrantor elects to meet its financial responsibility obligations under Section 38-78-540(B);
(4) identifies the warrantor, the seller, and the warranty holder;
(5) sets forth the total purchase price and the terms under which it is to be paid. However, the purchase price is not required to be preprinted on the vehicle protection product warranty and may be negotiated with the consumer at the time of sale;
(6) sets forth the procedure for making a claim, including a telephone number;
(7) states the existence of a deductible amount, if any;
(8) specifies the payments or performance to be provided under the warranty including payments for incidental costs, the manner of calculation or determination of payments or performance, and any limitations, exceptions, or exclusions;
(9) sets forth all of the obligations and duties of the warranty holder, including the duty to protect against further damage to the vehicle, the obligation to notify the warrantor in advance of any repair, or other similar requirements, if any;
(10) sets forth any terms, restrictions, or conditions governing transferability of the warranty, if any; and
(11) contains a disclosure that reads substantially as follows: 'This agreement is a product warranty and is not insurance'.
(B) At the time of sale, the seller or warrantor shall provide to the purchaser:
(1) a copy of the vehicle protection product warranty; or
(2) a receipt or other written evidence of the purchase of the vehicle protection product and a copy of the warranty within thirty days of the date of purchase.
Section 38-78-570. (A) A vehicle protection product may not be sold or offered for sale in this State unless the vehicle protection product warranty clearly states the terms and conditions governing the cancellation of the sale and warranty, if any.
(B) The warrantor only may cancel the warranty if the warranty holder:
(1) fails to pay for the vehicle protection product;
(2) makes a material misrepresentation to the seller or warrantor;
(3) commits fraud; or
(4) substantially breaches the warranty holder's duties under the warranty.
(C) A warrantor canceling a warranty shall mail written notice of cancellation to the warranty holder at the last address of the warranty holder in the warrantor's records at least thirty days before the effective date of the cancellation. The notice must state the effective date of the cancellation and the reason for the cancellation.
Section 38-78-580. (A) Unless licensed as an insurance company, a vehicle protection product warrantor may not use in its name, contracts, or literature, the words 'insurance', 'casualty', 'surety', 'mutual', or any other words descriptive of the insurance, casualty, or surety business or description of an insurance or surety corporation, or any other vehicle protection product warrantor. A warrantor may use the term 'guaranty' or a similar word in the warrantor's name.
(B) A vehicle protection product seller or warrantor may not require, as a condition of financing, that a retail purchaser of a motor vehicle purchase a vehicle protection product or require, as a condition of sale, that a purchaser of a motor vehicle purchase a vehicle protection product that is not installed on the motor vehicle at the time of sale.
Section 38-78-590. (A) A vehicle protection product warrantor shall keep accurate accounts, books, and records concerning transactions regulated under this article.
(B) A vehicle protection product warrantor's accounts, books, and records must include:
(1) copies of all vehicle protection product warranties;
(2) the name and address of each warranty holder; and
(3) the dates, amounts, and descriptions of all receipts, claims, and expenditures.
(C) A vehicle protection product warrantor shall retain required accounts, books, and records pertaining to each warranty holder for at least two years after the specified period of coverage has expired. A warrantor discontinuing business in this State shall maintain its records until it furnishes the director satisfactory proof that it has discharged all obligations to warranty holders in this State.
(D) Vehicle protection product warrantors shall make accounts, books, and records concerning transactions regulated under this article available to the director for examination.
Section 38-78-600. (A) The director shall conduct examinations of warrantors, administrators, or other persons or entities licensed under this article to enforce the provisions of this article and protect warranty holders in this State. The provisions of Chapter 13, Title 38 apply to the examination of warrantors, administrators, or other individuals and entities governed under this chapter to the extent the director considers appropriate. Upon request of the director, a warrantor shall make available to the director accounts, books, and records concerning vehicle protection products sold by the warrantor that are necessary to enable the director to reasonably determine compliance or noncompliance with this article.
(B) The director may take action that is necessary or appropriate to enforce the provisions of this article and the director's rules and orders and to protect warranty holders in this State. If a warrantor engages in a pattern or practice of conduct that violates this article and that the director reasonably believes threatens to render the warrantor insolvent or cause irreparable loss or injury to the property or business of a person or company located in this State, the director may issue:
(1) an order directed to the warrantor to cease and desist from engaging in further acts, practices, or transactions that are causing the conduct;
(2) an order prohibiting the warrantor from selling or offering for sale vehicle protection products in violation of this article;
(3) an order suspending or revoking the license of the warrantor;
(4) an order imposing a civil penalty on the warrantor; or
(5) any combination of the foregoing orders, as applicable.
(C) Before the effective date of an order issued pursuant to this section, the director shall provide written notice of the order to the warrantor and the opportunity for a hearing to be held within thirty business days after receipt of the notice, except prior notice and hearing is not required if the director reasonably believes that the warrantor has become, or is about to become, insolvent.
(D) A person aggrieved by an order issued under this section may request a hearing pursuant to Section 38-3-210.
(E) The director may bring an action in a court of competent jurisdiction for an injunction or other appropriate relief to enjoin threatened or existing violations of this article or of the director's orders or rules. An action filed under this section also may seek restitution on behalf of persons aggrieved by a violation of this article or orders or rules of the director.
(F) Instead of supervision or revocation of a license as authorized in this article, a person or entity who is found to have violated this article or orders of the director may be ordered to pay to the director a civil penalty in an amount determined by the director, of not more than ten thousand dollars for each violation and not more than twenty-five thousand dollars in the aggregate for all violations of a similar nature. For purposes of the section, violations are 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 conduct, action, or practice that is determined to be a violation of this article occurred.
Section 38-78-610. The director may promulgate regulations consistent with the provisions of this article that are necessary to implement them. These regulations must include disclosures for the benefit of the warranty holder, recordkeeping, and procedures for public complaints. These regulations also shall include the conditions under which surplus lines insurers may be rejected for the purpose of underwriting vehicle protection product warranty agreements.
Section 38-78-620. This article applies to all vehicle protection products sold or offered for sale on or after the effective date of this article. The failure of a person to comply with this article before its effective date is not admissible in a court proceeding, administrative proceeding, arbitration, or alternative dispute resolution proceeding and must not be used to prove that the action of a person or the affected vehicle protection product was unlawful or improper. The adoption of this article does not imply that a vehicle protection product warranty was insurance before the effective date of this article. This section does not preclude the department from taking administrative disciplinary action against a person who has engaged in the unauthorized transaction of insurance business."
SECTION 2. If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.
SECTION 3. This act takes effect six months after approval by the Governor.
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