SECTIONS 12800-12865 - California Statutes

INSURANCE CODE

SECTION 12800-12865

12800. The following definitions apply for purposes of this part:
(a) "Motor vehicle" means a self-propelled device operated solely
or primarily upon land and may include both self-propelled motor
homes or recreational vehicles, non-self-propelled camping and
recreational trailers, off-road vehicles, and trailers designed to
transport off-road vehicles. However, "motor vehicle" shall not
include a self-propelled vehicle, or a component part of such a
vehicle, that has any of the following characteristics:
(1) Has a gross vehicle weight rating of 30,000 pounds or more,
and is not a recreational vehicle as defined by Section 18010 of the
Health and Safety Code.
(2) Is designed to transport more than 15 passengers, including
the driver.
(3) Is used in the transportation of materials considered
hazardous pursuant to the Hazardous Materials Transportation Act (49
U.S.C. Sec. 5101 et seq.), as amended.
(b) "Watercraft" means a vessel, as defined in Section 21 of the
Harbors and Navigation Code, and may include any non-self-propelled
trailer used to transport such watercraft upon land.
(c) (1) "Vehicle service contract" means a contract or agreement
for a separately stated consideration and for a specific duration to
repair, replace, or maintain a motor vehicle or watercraft, or to
indemnify for the repair, replacement, or maintenance of a motor
vehicle or watercraft, necessitated by an operational or structural
failure due to a defect in materials or workmanship, or due to normal
wear and tear.
(2) A vehicle service contract may also provide for the incidental
payment of indemnity under limited circumstances only in the form of
the following additional benefits: coverage for towing, substitute
transportation, emergency road service, rental car reimbursement,
reimbursement of deductible amounts under a manufacturer's warranty,
and reimbursement for travel, lodging, or meals.
(3) "Vehicle service contract" also includes an agreement of a
term of at least one year, for separately stated consideration, that
promises routine maintenance.
(4) Notwithstanding Section 116, and paragraphs (1) and (2) of
this subdivision, a vehicle service contract also includes one or
more of the following:
(A) An agreement that promises the repair or replacement of a tire
or wheel necessitated by wear and tear, defect, or damage caused by
a road hazard. However, an agreement that promises the repair or
replacement of a tire necessitated by wear and tear, defect, or
damage caused by a road hazard, in which the obligor is the tire
manufacturer, is exempt from the requirements of this part. A
warranty provided by a tire or wheel distributor or retailer is
exempt from the requirements of this part as long as the warranty
covers only defects in the material or workmanship of the tire or
wheel.
(B) An agreement that promises the repair or replacement of glass
on a vehicle necessitated by wear and tear, defect, or damage caused
by a road hazard. However, a warranty provided by a vehicle glass or
glass sealant manufacturer is exempt from the requirements of this
part. A warranty provided by a vehicle glass distributor or retailer
is exempt from the requirements of this part as long as the warranty
covers only defects in the material or workmanship of the vehicle
glass.
(C) An agreement that promises the removal of a dent, ding, or
crease without affecting the existing paint finish using paintless
dent repair techniques, and which expressly excludes the replacement
of vehicle body panels, sanding, bonding, or painting.
(d) "Service contract administrator" or "administrator" means any
person, other than an obligor, who performs or arranges, directly or
indirectly, the collection, maintenance, or disbursement of moneys to
compensate any party for claims or repairs pursuant to a vehicle
service contract, and who also performs or arranges, directly or
indirectly, any of the following activities with respect to vehicle
service contracts in which a seller located within this state is the
obligor:
(1) Providing sellers with service contract forms.
(2) Participating in the adjustment of claims arising from service
contracts.
(e) "Purchaser" means any person who purchases a vehicle service
contract from a seller.
(f) "Seller" means either of the following:
(1) With respect to motor vehicles, a dealer or lessor-retailer
licensed in one of those capacities by the Department of Motor
Vehicles and who sells vehicle service contracts incidental to his or
her business of selling or leasing motor vehicles.
(2) With respect to watercraft, a person who sells vehicle service
contracts incidental to that person's business of selling or leasing
watercraft vehicles.
(g) "Obligor" means the entity legally obligated under the terms
of a service contract.

12805. (a) Notwithstanding Sections 103 and 116, the following
types of agreements shall not constitute insurance:
(1) A vehicle service contract that does each of the following:
(A) Names as the obligor a motor vehicle manufacturer or
distributor licensed in that capacity by the Department of Motor
Vehicles, or a watercraft manufacturer.
(B) Covers only motor vehicles or watercraft manufactured,
distributed, or sold by that obligor.
(2) A vehicle service contract in which the obligor is a seller,
provided that the obligor complies with all provisions of this part
except Section 12815.
(3) A vehicle service contract sold by a seller in which the
obligor is a party other than the seller, provided that the obligor
complies with all provisions of this part.
(4) An agreement in which the obligor is a motor vehicle or
watercraft part manufacturer, distributor, or retailer, that covers
no more than the following items:
(A) The repair or replacement of a part manufactured, distributed,
or retailed by that obligor.
(B) Consequential and incidental damage resulting from the failure
of that part.
(5) An agreement in which the obligor is a repair facility, that
is entered into pursuant and subsequent to repair work previously
performed by that repair facility, and that is limited in scope to
the following:
(A) The repair or replacement of the part that was previously
repaired.
(B) Consequential and incidental damage resulting from the failure
of that part.
(6) An agreement promising only routine maintenance that does not
constitute a vehicle service contract.
(b) The types of agreements described in paragraphs (4), (5), and
(6) of subdivision (a) are exempt from all provisions of this part.
(c) Vehicle service contracts described in paragraph (1) of
subdivision (a) are exempt from the provisions of Sections 12815,
12830, 12835, and 12845.

12810. (a) No person, other than a seller, shall sell or offer for
sale a vehicle service contract to a purchaser.
(b) No obligor shall use a seller as a fronting company and no
seller shall act as a fronting company. For purposes of this section,
a "fronting company" is a seller that authorizes a third-party
obligor to use its name or business to evade or circumvent the
provisions of subdivision (a).

12815. (a) An obligor who is not a seller shall possess a vehicle
service contract provider license. A vehicle service contract
provider license shall be applied for and maintained, and its holder
shall be subject to disciplinary action, as if it were a fire and
casualty broker-agent license, with the following exceptions:
(1) An applicant for a vehicle service contract provider license
is exempt from having to satisfy prelicensing and continuing
education requirements, and from having to pass a qualifying exam.
(2) The fee to obtain or renew a vehicle service contract provider
license shall be the same as that to obtain or renew a certificate
of authority to operate a motor club.
(b) A service contract administrator shall be licensed as a fire
and casualty broker-agent.

12820. (a) Prior to offering a vehicle service contract form to a
purchaser or providing a vehicle service contract form to a seller,
an obligor shall file with the commissioner a specimen of that
vehicle service contract form.
(b) A vehicle service contract form may include any or all of the
benefits described in subdivision (c) of Section 12800 and shall
comply with all of the following requirements:
(1) (A) If an obligor has complied with Section 12830, the vehicle
service contract shall include a disclosure in substantially the
following form: "Performance to you under this contract is guaranteed
by a California approved insurance company. You may file a claim
with this insurance company if any promise made in the contract has
been denied or has not been honored within 60 days after your
request. The name and address of the insurance company is: (insert
name and address). If you are not satisfied with the insurance
company's response, you may contact the California Department of
Insurance at 1-800-927-4357."
(B) If an obligor has complied with Section 12836, the vehicle
service contract shall include a disclosure in substantially the
following form: "If any promise made in the contract has been denied
or has not been honored within 60 days after your request, you may
contact the California Department of Insurance at 1-800-927-4357."
(2) All vehicle service contract language that excludes coverage,
or imposes duties upon the purchaser, shall be conspicuously printed
in boldface type no smaller than the surrounding type.
(3) The vehicle service contract shall do each of the following:
(A) State the obligor's full corporate name or a fictitious name
approved by the commissioner, the obligor's mailing address, the
obligor's telephone number, and the obligor's vehicle service
contract provider license number.
(B) State the name of the purchaser and the name of the seller.
(C) Conspicuously state the vehicle service contract's purchase
price.
(D) Comply with Sections 1794.4 and 1794.41 of the Civil Code.
(E) Name the administrator, if any, and provide the administrator'
s license number.
(4) If the vehicle service contract excludes coverage for
preexisting conditions, the contract must disclose this exclusion in
12-point type.
(c) The following benefits constitute insurance, whether offered
as part of a vehicle service contract or in a separate agreement:
(1) Indemnification for a loss caused by misplacement, theft,
collision, fire, or other peril typically covered in the
comprehensive coverage section of an automobile insurance policy, a
homeowner's policy, or a marine or inland marine policy.
(2) Locksmith services, unless offered as part of an emergency
road service benefit.

12825. (a) In addition to any other right of rescission an obligor
or purchaser may have, an obligor may include a provision in a
service contract that reserves to the obligor the right to cancel the
service contract within 60 days under the following conditions:
(1) Notice of cancellation is mailed to the purchaser postmarked
before the 61st day after the date the contract was sold by the
seller.
(2) The obligor provides the purchaser with a refund equal to the
full purchase price stated on the contract within 30 days from the
date of cancellation. However, if the obligor has paid a claim, or
has advised the purchaser in writing that it will pay a claim, it may
provide a pro rata refund, less the amount of any claims paid prior
to cancellation.
(3) The service contract ceases to be valid no less than five days
after the postmark date of the notice.
(4) The notice states the specific grounds for the cancellation.
(b) An obligor may at any time cancel a service contract for
nonpayment by the purchaser, conditioned upon each of the following:
(1) Notice of cancellation is mailed to the purchaser.
(2) If any refund is owed pursuant to Section 1794.41 of the Civil
Code, the refund is paid within 30 days of the date of cancellation.
(3) The service contract ceases to be valid no less than five days
after the postmark date of the notice.
(4) The notice states the specific grounds for the cancellation.
(c) An obligor may at any time cancel a service contract for
material misrepresentation or fraud by the purchaser, conditioned
upon each of the following:
(1) Notice of cancellation is mailed to the purchaser
(2) A pro rata refund of the purchase price stated on the contract
is paid within 30 days of the date of cancellation.
(3) The notice states the specific nature of the
misrepresentation.
(d) An obligor who cancels a contract is liable for any claim
reported to a person designated in the contract for the reporting of
claims if the claim is reported prior to the effective date of
cancellation and is covered by the contract. For the purpose of this
subdivision, a purchaser is deemed to have reported a claim if he or
she has completed the first step required under the contract for
reporting a claim.
(e) An obligor canceling a contract pursuant to subdivision (b),
(c), or (d) who pays a claim, or has advised the purchaser in writing
that he or she will pay a claim, may provide a prorata rather than
full refund, less the amount of any claims paid prior to
cancellation.

12830. (a) Prior to incurring an obligation under a vehicle service
contract, an obligor shall file with the commissioner, to the
attention of the legal division, and receive the commissioner's
approval to use, a copy of an insurance policy covering 100 percent
of the obligor's vehicle service contract obligations. The policy
must be issued by an insurer admitted in this state and authorized by
the commissioner to issue that insurance in this state. The policy
may also be issued by a risk retention group, as that term is defined
in 15 U.S.C. Sec. 3901(a)(4), as long as that risk retention group
is in full compliance with the federal Liability Risk Retention Act
of 1986 (15 U.S.C. Sec. 3901 and following), is in good standing in
its domiciliary jurisdiction, and has registered with the
commissioner pursuant to Chapter 1.5 (commencing with Section 125) of
Part 1 of Division 1. The insurance required by this subdivision
shall be subject to the following:
(1) The insurer or risk retention group shall, at the time the
policy is filed with the commissioner, and continuously thereafter,
be rated "B++" or better by A. M. Best Company, Inc., maintain
surplus as to policyholders and paid-in capital of at least fifteen
million dollars ($15,000,000), and annually file audited financial
statements with the commissioner.
(2) The commissioner may authorize an insurer or risk retention
group that has surplus as to policyholders and paid-in capital of
less than fifteen million dollars ($15,000,000) but at least equal to
ten million dollars ($10,000,000) to issue the insurance required by
this paragraph if the insurer or risk retention group demonstrates
to the satisfaction of the commissioner that the company maintains a
ratio of direct written premiums, wherever written, to surplus as to
policyholders and paid-in capital of not more than 3 to 1.
(3) An obligor required to maintain insurance pursuant to this
paragraph who is an affiliate of a distributor of new motor vehicles
licensed as such in any state prior to January 1, 2003, and
continuously thereafter, is exempt from the requirement that its
insurer or risk retention group satisfy the rating, surplus, and
paid-in capital requirements of paragraph (1). This exemption shall
apply only if the distributor sold or distributed at least 25,000 new
motor vehicles to licensed dealers in the preceding five years. For
the purpose of this paragraph, "affiliate" has the meaning set forth
in subdivision (a) of Section 1215.
(b) An insurance policy filed with the commissioner pursuant to
subdivision (a) shall state the name of the obligor. The policy shall
provide that all purchasers of vehicle service contracts shall be
entitled to satisfaction by the insurer of any and all obligations
arising under vehicle service contracts of the named obligor, upon
the existence of all of the following conditions and no others:
(1) The service contract obligor refuses or fails to satisfy an
obligation arising under the vehicle service contract within 60 days
of the date the purchaser submits proof of loss to the obligor.
(2) The purchaser provides written notice to the insurer that the
obligor has failed to comply with an obligation under the vehicle
service contract.
(3) The purchaser possesses a vehicle service contract sold after
the inception and prior to any cancellation of the insurance policy
required by subdivision (a), and the vehicle service contract recites
the name of the obligor that is insured by the policy as the obligor
of the service contract.
(c) An insurer's liability under a policy filed pursuant to
subdivision (a) shall not be negated by any failure of the seller, an
administrator, the obligor, or agents of any of these persons, to
report the issuance of a vehicle service contract or to remit moneys
to another person pursuant to a contractual agreement. The policy
must state that the insurer is deemed to have received the premium
for the policy upon payment by the purchaser for a vehicle service
contract insured by that policy.
(d) An obligor may have on file with the commissioner only one
active policy from one insurer at any time.
(e) No policy cancellation by an insurer shall be valid unless a
notice of the intent to cancel the policy was filed with the
commissioner 30 days prior to the effective date of the cancellation,
or 10 days prior in the event that the cancellation is due to fraud,
material misrepresentation, or defalcation by the obligor or its
administrator, if any.

12835. (a) In the event an insurer cancels a policy that it has
filed with the commissioner pursuant to Section 12830, the obligor
named on the policy shall do either of the following:
(1) File a copy of a new policy with the commissioner, before the
termination of the prior policy, providing no lapse in coverage
following the termination of the prior policy.
(2) Discontinue acting as an obligor as of the termination date of
the policy until a new policy becomes effective and has been
accepted and acknowledged by the commissioner.
(b) This section shall not relieve an obligor from any obligation
incurred under service contracts issued with its name as obligor
prior to the date the policy was terminated.

12836. In lieu of complying with Section 12830, an obligor or its
parent company may establish to the commissioner's satisfaction that
it possesses a net worth of one hundred million dollars
($100,000,000). The obligor shall, upon request, provide the
commissioner with all documents and affidavits necessary to establish
the net worth, including, but not limited to, a copy of the obligor'
s financial statements or the obligor's parent company's financial
statements, and affidavits by the president and chief financial
officer attesting to the net worth of the obligor or the obligor's
parent company. If the obligor elects to meet the net worth
requirement through the parent company, the parent company shall
agree in writing to guarantee the obligations of the obligor relating
to contracts of the obligor issued in this state.

12840. (a) Every obligor or its administrator shall maintain at its
principal office complete and accurate accounts, books, and records
of all transactions among the obligor, its administrator, if any,
sellers, insurers, and purchasers. Records maintained pursuant to
this section shall be made available to the commissioner upon
reasonable request. Any computerized recordkeeping system must be
capable of producing a legible hard copy of all required records.
Accounts, books, and records shall include:
(1) A complete set of accounting records, including, but not
limited to, a general ledger, cash receipts and disbursements
journals, accounts receivable registers, and accounts payable
registers.
(2) Copies of each type of service contract sold.
(3) The name and address of each service contract purchaser to the
extent that the name and address have been furnished by the service
contract purchaser.
(4) A list of the locations where service contracts are marketed,
sold, or offered for sale.
(5) Written claims files which shall contain at least the dates
and descriptions of claims related to the service contracts.
(b) All required records pertaining to a service contract shall be
maintained by the obligor, its administrator, or the insurer
underwriting the contract, for at least three years after the
expiration of the contract.
(c) Every insurer that has issued a policy to an obligor shall
have an ongoing right to access that obligor's books and records in
order to permit the insurer to fulfill all obligations to purchasers.
(d) The commissioner may examine and investigate the affairs of
every obligor and any administrator of an obligor. Any examination or
investigation shall be at the expense of the obligor or the
administrator, in the discretion of the commissioner. Any information
contained in the books and records, including, but not limited to,
the identity and addresses of sellers and purchasers of service
contracts, shall be confidential, except that the commissioner may
use the information in any proceeding or investigation instituted
against an obligor or an administrator.
(e) An obligor's failure to keep or maintain the required
accounts, books, or records, or to provide the commissioner with full
and immediate access to those records, shall be grounds for the
immediate suspension or revocation of the obligor's vehicle service
contract provider's license, and also shall be grounds for the
commissioner to issue a cease and desist order pursuant to Section
1065.2.

12845. Any vehicle service contract obligor or administrator that
provides vehicle service contract forms to sellers or purchasers,
directly or indirectly, and fails to comply with Sections 12815,
12830 and 12835, is guilty of a public offense punishable by
imprisonment in the state prison, or by a fine not exceeding five
hundred thousand dollars ($500,000), or both, and shall be enjoined
from further violations by a court of competent jurisdiction on
petition of the commissioner. This section shall not apply to a
seller who is an obligor under vehicle service contracts it sells.
The commissioner may issue a cease and desist order pursuant to
Section 1065.2 to an obligor or administrator who violates Section
12830 or 12835. The commissioner may issue a cease and desist order
pursuant to Section 12921.8 to an obligor or administrator in
violation of Section 12815.

12850. (a) An obligor has the burden of proving that a claim is not
covered by a service contract. An obligor has the burden of proving
that a claim settlement amount is proper under the terms of the
contract.
(b) No seller of a service contract who participates in or
influences, directly or indirectly, the processing, administration,
or adjustment of claims, shall enter into any agreement or
understanding the effect of which is to make the amount of the seller'
s commission or compensation contingent upon savings effected in the
adjustment, settlement, or payment of losses covered by the contract.

12855. The commissioner may adopt regulations necessary or
desirable to implement this chapter.

12860. The provisions of this part are severable. If any provision
of this part or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.

12865. A promise to refund some or all of the purchase price of a
service contract if the purchaser does not file any claims, files a
limited number of claims, or files claims the dollar amount of which
does not exceed a set amount or percentage, shall constitute
insurance, unless subdivisions (a) and (b) are satisfied. If
conditions (a) and (b) are satisfied, the promise shall constitute a
refund agreement.
(a) The promise is offered without separate consideration, and the
promisor complies with subdivisions (a)(1), (a)(2) or (a)(3).
(1) The promisor is a service contract obligor, the promise is
contained within a service contract, and the obligor has complied
with all provisions of this part.
(2) The promisor is a seller, the refund agreement provides no
benefits other than the refund of some or all of the purchase price,
and the promisor utilizes a refund agreement administrator.
(3) The promisor is neither a seller nor a service contract
obligor. Such a person shall be deemed a refund agreement obligor,
and shall comply with subdivisions (c)(1), (c)(2) and (c)(3).
(b) A person other than the seller who performs or arranges,
directly or indirectly, the collection, maintenance, or disbursement
of moneys to compensate any party under a refund agreement, and who
also provides sellers with refund agreement forms and participates in
the adjustment of refund agreement claims, shall be deemed a refund
agreement administrator, and shall comply with subdivision (b)(2).
(1) The sections enumerated in subdivision (b)(2) shall apply to
refund agreements and refund agreement administrators. In applying
those sections, the terms vehicle service contract administrator,
administrator and obligor shall instead mean refund agreement
administrator, the word sold shall instead mean provided and the
terms vehicle service contract and service contract shall instead
mean refund agreement. The sections enumerated in subdivision (b)(2)
shall be construed in accordance with the nature of refund agreement
forms, refund agreement administrators, and the refund agreement
business.
(2) The following sections shall apply and be interpreted pursuant
to subdivision (b)(1): 12815(b); 12820(a), (b)(1), (b)(2), (b)(3)
(A), (b)(3)(B), 12830(a), (a)(1), (a)(2), (b), (c), (d), (e); 12835;
12840; 12845; 12850; 12855.
(c) (1) The sections enumerated in subdivision (c)(2) shall apply
to refund agreements and refund agreement obligors. In applying those
sections, the terms vehicle service contract obligor and obligor
shall instead mean refund agreement obligor, the word sold shall
instead mean provided and the terms vehicle service contract and
service contract shall instead mean refund agreement. The sections
enumerated in subdivision (c)(2) shall be construed in accordance
with the nature of refund agreement forms, refund agreement obligors,
and the refund agreement business.
(2) The following sections shall apply and be interpreted pursuant
to subdivision (c)(1): 12810(b); 12815(a); 12820(a), (b)(1), (b)(2),
(3)(A), (3)(B); 12830(a), (a)(1), (a)(2), (b), (c), (d), (e); 12835;
12840; 12845; 12850; 12855.
(3) A refund agreement obligor may not promise any benefit other
than a refund of some or all of the purchase price of a service
contract if the purchaser does not file any claims, files a limited
number of claims, or files claims the dollar amount of which does not
exceed a set amount or percentage.
(4) No person other than a seller shall provide or offer to
provide a refund agreement to a purchaser.