South Carolina General Assembly
116th Session, 2005-2006

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S. 1172

STATUS INFORMATION

General Bill
Sponsors: Senators Land, Martin, Alexander, Matthews, O'Dell, Fair and Setzler
Document Path: l:\council\bills\swb\6733cm06.doc

Introduced in the Senate on February 22, 2006
Currently residing in the Senate Committee on Banking and Insurance

Summary: Vehicle Protection Product Act

HISTORY OF LEGISLATIVE ACTIONS

     Date      Body   Action Description with journal page number
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   2/22/2006  Senate  Introduced and read first time SJ-16
   2/22/2006  Senate  Referred to Committee on Banking and Insurance SJ-16

View the latest legislative information at the LPITS web site

VERSIONS OF THIS BILL

2/22/2006

(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

A BILL

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 12, CHAPTER 77 TO TITLE 38 SO AS TO ENACT THE VEHICLE PROTECTION PRODUCT ACT.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    Chapter 77, Title 38 of the 1976 Code is amended by adding:

"Article 12

Vehicle Protection Product Act

Section 38-77-1210.    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, pedal and ignition locks, fuel and ignition kill switches, 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' means a person who is contractually 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; and

(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.

Section 38-77-1220.    (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 and are not subject to any other provision of this title.

(C)    Service contract providers who do not sell vehicle protection products are not subject to the requirements of Chapter 78, Title 38.

(D)    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 38-77-1230.    (A)    A person may not operate as a warrantor or represent to the public that the person is a warrantor unless the person is registered with the department on a form prescribed by the director.

(B)    Warrantor registration records must be filed annually and must be updated within thirty days of a change. The registration records shall contain the following information:

(1)    the warrantor's name, any 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 any 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 subsection (E);

(6)    a copy of each warranty the warrantor proposes to use in this State; and

(7)    a statement indicating under which provision of Section 38-77-1240 the warrantor qualifies to do business in this State as a warrantor.

(C)    The director may charge each registrant a reasonable fee to offset the cost of processing the registration and maintaining the records in an amount not to exceed two hundred fifty dollars annually. The information contained in subsections (B)(1) and (B)(2) of this section must be made available to the public.

(D)    If a registrant fails to register by the renewal deadline, the director shall give a written notice of the failure and the registrant will have thirty days to complete the renewal of his registration before he is suspended from being registered in this State.

(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 38-77-1240.    (A)    A vehicle protection product must not be sold, or offered for sale in this State unless the warrantor meets one of the conditions in this section in order to ensure adequate performance under the warranty. No other financial security requirements or financial standards for warrantors are required.

(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 will 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 38-77-1250.

(C)    The vehicle protection product warrantor, or its parent company shall maintain a net worth or stockholders' equity of $50,000,000.00.

(D)    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 $50,000,000.00. If the warrantor's parent company's Form 10-K, Form 20-F, or audited financial statements are filed to meet the warrantors 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. 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.

Section 38-77-1250.    (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 shall state that the issuer of the policy will reimburse or pay on behalf of the vehicle protection product warrantor all covered sums which the warrantor is legally obligated to pay or will 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 shall state that in the event 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 shall 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 have the following provisions regarding cancellation of the policy:

(1)    the issuer of a reimbursement insurance policy shall not cancel the policy until a notice of cancellation in writing has been mailed or delivered to the director and each insured warrantor;

(2)    the cancellation of a reimbursement insurance policy shall not reduce the issuer's responsibility for vehicle protection products sold prior to the date of cancellation; and

(3)    in the event an insurer cancels a policy that a warrantor has filed with the director, the warrantor shall do either of the following:

(a)    file a copy of a new policy with the director, before the termination of the prior policy, providing no lapse in coverage following the termination of the prior policy; or

(b)    discontinue acting as a warrantor as of the termination date of the policy until a new policy becomes effective and is accepted by the director.

Section 38-77-1260.    (A)    A vehicle protection product warranty must be written in clear, understandable language and must be printed or typed in easy-to-read type, size, and style, 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 38-77-1240(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 38-77-1240(C);

(2)    states that in the event a warranty holder must make 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 any claim or meet any 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 38-77-1240(B);

(3)    states the name and address of the issuer of the warranty reimbursement insurance policy. This information need not 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 38-77-1240(B) above;

(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 any 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 38-77-1270.    (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.

(B)    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 shall state the effective date of the cancellation and the reason for the cancellation.

Section 38-77-1280.    (A)    Unless licensed as an insurance company, a vehicle protection product warrantor shall 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 work in the warrantor's name.

(B)    A vehicle protection product seller or warrantor must not require as a condition of sale or financing that a retail purchaser of a motor vehicle purchase a vehicle protection product that is not installed on the motor vehicle at the time of sale.

Section 38-77-1290.    (A)    All vehicle protection product warrantors must keep accurate accounts, books, and records concerning transactions regulated under this chapter.

(B)    A vehicle protection product warrantor's accounts, books, and records shall 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 all 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 all accounts, books, and records concerning transactions regulated under this act available to the director for examination.

Section 38-77-1300.    (A)    The director may conduct examinations of warrantors, administrators, or other persons to enforce the provision of this chapter and protect warranty holders in this State. Upon request of the director, a warrantor shall make available to the director all 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 chapter.

(B)    The director may take action that is necessary or appropriate to enforce the provisions of this chapter 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 chapter and that the director reasonably believes threatens to render the warrantor insolvent or cause irreparable loss or injury to the property or business of any 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 that warrantor from selling or offering for sale vehicle protection products in violation of this article;

(3)    an order imposing a civil penalty on that warrantor; or

(4)    any combination of the foregoing orders, as applicable.

(C)    Before the effective date of an order issued pursuant to this section, the director must provide written notice of the order to the warrantor and the opportunity for a hearing to be held within ten 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 before the director. The hearing request must be filed with the director within twenty days after the date the director's order is effective, and the director must hold the hearing within fifteen days after receipt of the hearing request.

(E)    At the hearing, the burden is on the director to show why the order issued pursuant to this section is justified.

(F)    The director may bring an action in any court of competent jurisdiction for an injunction or other appropriate relief to enjoin threatened or existing violations of this chapter 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 chapter or orders or rules of the director.

(G)    A person who is found to have violated this article or orders or rules 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 five hundred dollars per violation and not more than ten 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 act occurred.

Section 38-77-1310.    The director may adopt administrative rules and promulgate regulations consistent with the provision of this article that are necessary to implement them. The rules and regulations shall include disclosures for the benefit of the warranty holder, recordkeeping, and procedures for public complaints. The rules and 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 38-77-1320.    This article applies to all vehicle protection products sold or offered for sale on or after the effective date of this chapter. The failure of a person to comply with this chapter 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. The penalty provisions of this article do not apply to a violation of this article relating to or in connection with the sale or failure to disclose in a retail installment contract or lease, or contract or agreement that provides for payments under a vehicle protection product warranty as long as the sale of the product, contract, or agreement was otherwise disclosed to the purchaser in writing at the time of the purchase or lease. In the event of a violation for which the penalty provisions of this article do not apply, the court shall award actual damages and costs, including reasonable attorney's fees. Nothing in this section must be construed to require the application of the penalty provisions where this section is not applicable."

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 upon approval by the Governor.

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