SECTIONS 9855-9855.9 - California Statutes

BUSINESS AND PROFESSIONS CODE

SECTION 9855-9855.9

9855. The definitions used in this section shall govern the
construction and terms as used in this chapter:
(a) "Service contract" means a contract in writing to perform,
over a fixed period of time or for a specified duration, services
relating to the maintenance, replacement, or repair of an electronic
set or appliance, as defined by this chapter, and their accessories
or of furniture, jewelry, lawn and garden equipment, power tools,
fitness equipment, telephone equipment, small kitchen appliances and
tools, or home health care products, and may include provisions for
incidental payment of indemnity under limited circumstances,
including, but not limited to, power surges, food spoilage, or
accidental damage from handling. "Service contract" does not include
a contract in writing to maintain structural wiring associated with
the delivery of cable, telephone, or other broadband communications
services.
(b) "Service contract administrator" or "administrator" means a
person who performs or arranges the collection, maintenance, or
disbursement of moneys to compensate any party for claims or repairs
pursuant to a service contract, and who also performs or arranges any
of the following activities on behalf of service contract sellers:
(1) Providing service contract sellers with service contract
forms.
(2) Participating in the adjustment of claims arising from service
contracts.
(3) Arranging on behalf of service contract sellers the insurance
required by Section 9855.2.
A service contract administrator shall not be an obligor on a
service contract unless all service contracts under which the service
contract administrator is obligated to perform are insured under a
service contract reimbursement insurance policy.
(c) (1) "Service contract seller" or "seller" means a person who
sells or offers to sell a service contract to a service
contractholder, including a person who is the obligor under a service
contract sold by the seller, manufacturer, or repairer of the
product covered by the service contract.
(2) "Service contract seller" or "seller" also means a third
party, including an obligor, who is not the seller, manufacturer, or
repairer of the product. However, a third party shall not be an
obligor on a service contract unless the obligor obtains a service
contract reimbursement insurance policy for all service contracts
under which the third party is obligated under the terms of a service
contract.
(3) "Service contract seller" or "seller" shall not include the
following:
(A) A bank or bank holding company, or the subsidiary or affiliate
of either, or a financial institution, licensed under state or
federal law, selling or offering to sell a service contract unless
that entity is financially and legally obligated under the terms of a
service contract.
(B) An electrical device manufacturer or electrical contractor who
constructs, installs, or services electrical devices, which include
any unit of an electrical system intended to carry electrical energy
as part of a building's electrical system, including raceways,
conductors, invertors, conduit, wires, switches, or other similar
devices.
(d) "Service contractholder" means a person who purchases or
receives a service contract from a service contract seller.
(e) "Service contractor" means a service contract administrator or
a service contract seller.
(f) "Service contract reimbursement insurance policy" means a
policy of insurance issued by an insurer admitted to do business in
this state providing coverage for all obligations and liabilities
incurred by a service contract seller under the terms of the service
contracts sold in this state by the service contract seller to a
service contractholder. The service contract reimbursement insurance
policy shall either cover all service contracts sold or specifically
cover those contracts sold to residents of the State of California.
(g) "Obligor" is the entity financially and legally obligated
under the terms of a service contract.
(h) The terms "consumer goods," "manufacturer," "retail seller,"
"retailer," and "sale" shall have the same meanings ascribed to them
in Section 1791 of the Civil Code.

9855.05. On and after January 1, 2000, for the purposes of this
chapter, "service contract" also includes a service contract as
described in subdivision (e) of Section 12741 of the Insurance Code.

9855.1. (a) It shall be unlawful for any person to act as a service
contractor in this state unless that person first registers with the
bureau in accordance with the provisions of this chapter and
maintains a valid registration.
(b) Except as expressly provided in this chapter, service
contractors registered in accordance with the provisions of this
chapter shall be exempt from all provisions of the Insurance Code.

9855.15. A service contract administrator who is an obligor on a
service contract and is registered as a service contract
administrator may perform all the functions permitted by a seller and
shall not be required to register separately as a seller.

9855.2. (a) A service contract seller shall not issue, sell, or
offer for sale a service contract unless the obligor under the
service contract has complied with one of the following requirements:
(1) Files with the director one of the following:
(A) The most recent annual report on Form 10-K required by the
Securities and Exchange Commission, reflecting a net worth greater
than the sum of the deferred revenues from service contracts in
force. If the service contractor is a foreign corporation that files
a comparable audited financial statement with its home government or
with the United States government, the director may deem that
statement an acceptable substitute for Form 10-K.
(B) The most recent audited financial statement reflecting a net
worth of not less than one hundred million dollars ($100,000,000).
The financial statement shall be certified by a certified public
accountant who is licensed in the state where the service contract
seller maintains its principal place of business or the seller's
state of domestic incorporation.
(2) Obtains a service contract reimbursement insurance policy.
(3) Sells service contracts that are administered by a service
contract administrator who has obtained a service contract
reimbursement insurance policy covering the seller's service
contracts.
(4) Maintains and annually verifies to the director a funded
account held in escrow equal to a minimum of 25 percent of the
deferred revenues from the service contracts in force.
(b) A service contract administrator shall not administer service
contracts sold in this state unless a service contract reimbursement
insurance policy covering these service contracts has been obtained.

9855.3. (a) The service contract form to be issued by the service
contractor shall be filed with the director by the service contractor
prior to its use.
(b) Every service contract administrator shall file with its
application for registration, and thereafter, with its application
for registration renewal, a service contract reimbursement insurance
policy.
(c) Every service contract seller shall file with his or her
application for registration, and thereafter with his or her
application for registration renewal, one of the following:
(1) The most recent annual report on Form 10-K required by the
Securities and Exchange Commission, reflecting a net worth greater
than the sum of the deferred revenues from service contracts in
force. If the service contractor is a foreign corporation that files
a comparable audited financial statement with its home government or
with the United States government, the director may deem that
statement an acceptable substitute for Form 10-K.
(2) A service contract reimbursement insurance policy.
(3) Evidence that his or her service contracts are administered by
a service contract administrator who has obtained a service contract
reimbursement insurance policy covering the seller's service
contracts.
(4) Evidence of a funded account held in escrow equal to a minimum
of 25 percent of the deferred revenues from the service contracts in
force.

9855.4. (a) The service contract reimbursement insurance policy
shall cover the obligations of the service contract seller under the
service contracts sold during the period of time that the service
contract reimbursement insurance policy was in force. The service
contract reimbursement insurance policy shall either cover all
service contracts sold or specifically cover those contracts sold to
residents of the State of California.
(b) A service contract reimbursement insurance policy shall
contain a provision under which the insurer shall notify the bureau
in writing of the termination or nonrenewal of the service contract
reimbursement insurance policy.
(c) Upon the effective date of the termination or cancellation of
a service contractor's service contract reimbursement insurance
policy, the registration of the service contractors whose service
contracts are covered thereby shall be automatically suspended,
unless the affected service contractors have filed with the director,
prior to the date of the termination or cancellation of the service
contract reimbursement insurance policy, a new service contract
reimbursement insurance policy or otherwise meet one of the
requirements of Section 9855.2. Upon receipt of a written request
from the service contractor, the director may delay the suspension of
a service contractor's registration for no more than 60 days.
Following the automatic suspension, an administrative hearing shall
be provided upon written request to the director in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code.

9855.5. A service contractor shall comply with the provisions of
Sections 1794.4 and 1794.41 of the Civil Code.

9855.6. Where a service contractholder cancels a service contract
in accordance with Section 1794.41 of the Civil Code and the refund
due is not paid to the service contractholder or credited to his or
her account within 30 days after the service contractor receives
written notice of cancellation, the amount of the required refund or
credit shall bear interest, payable to the service contractholder, at
the rate of 10 percent per annum for each additional 30 days or
fraction thereof.

9855.7. The director may deny, or may suspend, revoke, or place on
probation the registration of a service contractor for any act,
omission, or crime that is committed by the service contractor or any
employee, partner, officer, or agent of the service contractor for
any of the following reasons:
(a) Any conduct that constitutes fraud or dishonest dealing.
(b) Conviction of a crime that has a substantial relationship to
the qualifications, functions and duties of a registrant under this
chapter, in which event the record of conviction shall be conclusive
evidence thereof.
(c) Assisting in or abetting the violation of, or conspiring to
violate, any provision of this article, or of regulations adopted
under this article.

9855.8. (a) The director may issue a citation to the service
contractor for any of the following reasons:
(1) Violation of subdivision (a) of Section 9855.3 or Section
9855.5, or any regulation adopted thereunder.
(2) Upon a determination by the director that the service
contractor has committed a violation by (A) making or authorizing
statements or advertisements which are untrue or misleading; or (B)
making false promises of a character likely to influence, persuade,
or induce a customer to purchase a service contract as provided by
this chapter.
(3) For purposes of this section, a violation consists of a single
publication or single course of conduct that is determined by the
director to be untrue or misleading.
(b) The citation may contain an order of abatement and an order to
pay an administrative fine assessed by the director.
(1) Each citation shall be in writing and shall describe with
particularity the nature of the violation, including a specific
reference to the provision of law determined to have been violated.
(2) Where appropriate, the citation shall contain an order of
abatement fixing a reasonable time for abatement of the violation.
(3) A citation or fine assessment issued pursuant to a citation
shall inform the service contractor that if he or she desires a
hearing to contest the finding of a violation, that hearing shall be
requested by written notice to the bureau within 30 days of the date
of issuance of the citation or assessment. If a hearing is not
requested pursuant to this section, payment of any fine shall not
constitute an admission of the violation charged. Hearings shall be
held pursuant to Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code.
(4) (A) In addition to requesting a hearing as provided for
herein, the service contractor may request a citation review
conference with the director or his or her designee regarding the
acts charged in the citation. A citation review conference shall be
requested by written notice to the bureau within 20 days of the date
of the issuance of the citation or assessment.
(B) The director or his or her designee shall hold a citation
review conference within 60 days from the receipt of the request. At
the conclusion of the citation review conference, the director or his
or her designee shall state, in writing, the reasons for his or her
action and transmit a copy of his or her findings and decision to the
service contractor.
(5) The failure of a service contractor to pay a fine within 30
days of the date of assessment, unless the citation is being
appealed, may result in disciplinary action being taken by the
director. Where a citation is not contested and a fine is not paid,
the full amount of the assessed fine shall be added to the fee for
renewal of the registration. A registration shall not be renewed
without payment of the renewal fee and fine.
(c) Where a citation includes an administrative fine, it shall be
issued in accordance with the following procedures:
(1) For the first citation, the director may assess an
administrative fine of not less than one hundred dollars ($100) but
not more than five hundred dollars ($500).
(2) For the second citation issued during any one-year period, the
director may assess an administrative fine of not less than five
hundred dollars ($500) but not more than one thousand dollars
($1,000).
(3) For the third citation issued during any two-year period, the
director may assess an administrative fine of not less than one
thousand dollars ($1,000) but not more than two thousand dollars
($2,000).
(4) For the fourth violation of subdivision (a) of Section 9855.3
or of Section 9855.5, or any regulation adopted thereunder, during
any two-year period, the director may either assess an administrative
fine of not less than one thousand dollars ($1,000) but not more
than two thousand dollars ($2,000) or suspend, revoke, or place on
probation a registration of the service contractor.

9855.85. Unless otherwise lawfully transacting the business of
insurance pursuant to a certificate of authority issued pursuant to
Section 700 of the Insurance Code for the appropriate class, a
service contract administrator or third-party seller acting as an
obligor on a service contract without having a service contract
reimbursement insurance policy covering all service contracts under
which the service contract administrator or third-party seller is
obligated shall be deemed to be unlawfully transacting the business
of insurance and shall be subject to subdivision (b) of Section 700
and Section 12921.8 of the Insurance Code.

9855.9. This article shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.