HCS HB 221 -- SERVICE CONTRACTS

SPONSOR:  Yates

COMMITTEE ACTION:  Voted "do pass" by the Committee on Insurance
Policy by a vote of 8 to 1.

This substitute changes the laws regarding service contracts.

MOTOR VEHICLE SERVICE CONTRACTS

The substitute:

(1)  Defines "fronting company" as a dealer that authorizes a
third-party administrator or provider to use its name or business
to evade or circumvent a sale, an offer for sale, or a
solicitation of a sale of a service contract to a consumer;

(2)  Allows only motor vehicle dealers and manufacturers, boat
dealers, federally insured depository institutions, and licensed
lenders to market or sell motor vehicle extended service
contracts;

(3)  Prohibits a dealer from acting as a fronting company; and

(4)  Creates penalties for violation of these provisions.

PRODUCT SERVICE CONTRACTS

The substitute:

(1)  Prohibits any person from issuing or selling a product
service contract without registering and paying a fee with the
Director of the Department of Insurance, Financial Institutions,
and Professional Registration;

(2)  Requires providers of service contracts to maintain at least
one of the following:

(a)  A funded reserve account of at least 40% of gross
consideration received less claims paid;

(b)  A financial security deposit with the department director of
at least 5% of the gross consideration received less claims paid;

(c)  A net worth of $100 million; or

(d)  A reimbursement insurance policy covering 100% of the
service contract obligations;

(3)  Prohibits provider fees collected from being subject to
premium taxes and exempts the person selling the contract from
other state licensing laws if all requirements are met;

(4)  Requires providers of service contracts to furnish a written
statement to the consumer specifying their obligations and
conveying terms and restrictions.  Misleading advertising is
prohibited;

(5)  Requires providers of service contracts to maintain accurate
records of every transaction for a period of at least three years
after the specified period of coverage has expired.  Records must
be made available to the department upon request;

(6)  Prohibits insurers who issue reimbursement insurance
policies from terminating a policy without notifying the
director.  Insurers have the right to seek indemnification
against a provider if the insurer pays amounts under the service
contract that the provider was obligated to pay; and

(7)  Creates penalties for violation of the provisions of the
substitute.

The substitute becomes effective January 1, 2008.

FISCAL NOTE:  No impact on General Revenue Fund in FY 2008, FY
2009, and FY 2010.  Estimated Effect on Other State Funds of an
income of $3,083 in FY 2008, a cost of $20,020 in FY 2009, and a
cost of $21,288 in FY 2010.

PROPONENTS:  Supporters say that the bill provides regulatory
frame work for service contracts.  Forty-four states have already
adopted similar legislation.  The bill will help ensure that
consumers are dealing with legitimate companies.

Testifying for the bill were Representative Yates; Assurant;
Missouri Automobile Dealers Association; and Missouri Insurance
Coalition.

OPPONENTS:  Those who oppose the bill say that it deviates from
the model language, and the bill needs to be exactly like the
model.  A provision is needed to prohibit companies from offering
free service contracts because it isn't in the best interest of
the consumer.

Testifying against the bill were Service Contract Industry
Council; and Asurion.

Missouri House of Representatives
94th General Assembly, 1st Regular Session
Last Updated July 25, 2007 at 11:18 am