§ 38-78-30 — Appointment of administrator; requirements for sale of contracts; registration and fees; financial security requirements; right to return contract; cancellation.

(A) A provider may, but is not required to, appoint an administrator or other designee to be responsible for any or all of the administration of service contracts and compliance with this chapter. (B) A service contract must not be issued, sold, or offered for sale in this State unless the provider or its designee has: (1) provided a receipt for, or other written evidence of, the purchase of the service contract to the contract holder; (2) provided a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase; and (3) complied with this chapter. (C) Each provider of service contracts sold in this State shall file a registration with the director on a form prescribed by the director. Each provider shall pay to the department a fee of two hundred dollars annually. (D) In order to assure the faithful performance of a provider's obligations to its contract holders each provider shall be responsible for complying with the requirements of item (1), (2), or (3): (1) insure all service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance business in this State or issued pursuant to Section 38-45-110; or (2)(a) maintain a funded reserve account for its obligations under its service contracts issued and outstanding in this State. The reserves may not be less than forty percent of gross consideration received, less claims paid, on the sale of the service contract for all in-force contracts. The reserve account is subject to examination and review by the director; and (b) place in trust with the director a financial security deposit having a value of not less than five percent of the gross consideration received, less claims paid, on the sale of the service contract for all service contracts issued and in force, but not less than twenty-five thousand dollars, consisting of one of the following: (i) a surety bond issued by an authorized surety; (ii) securities of the type eligible for deposit by authorized insurers in this State; (iii) cash; (iv) a letter of credit issued by a qualified financial institution; or (v) another form of security prescribed by regulations promulgated by the director; or (3)(a) maintain, or its parent company maintain, a net worth or stockholder's equity of one hundred million dollars; and (b) upon request, provide the director with a copy of the provider's, or the provider's parent company's, most recent Form 10-K or Form 20-F filed with the Securities and Exchange Commission (SEC) within the last calendar year, or if the provider or the provider's parent company does not file with the SEC, a copy of the provider's or the provider's parent company's audited financial statements which show a net worth of the provider or its parent company of at least one hundred million dollars. If the provider's parent company's Form 10-K, Form 20-F, or audited financial statements are filed to meet the provider's financial stability requirement, then the parent company shall agree to guarantee the obligations of the provider relating to service contracts sold by the provider in this State. (E) Except for the requirements specified in subsection (D), no other financial security requirements shall be required by the director for service contract providers. Service contract providers that establish their financial security to pay claims by insuring their obligations under a reimbursement insurance policy as provided in subsection (D)(1) are not required to file financial statements in connection with an application for registration or the renewal of a registration. (F) Service contracts shall require the provider to permit the service contract holder to return the service contract within twenty days of the date the service contract was mailed to the service contract holder or within ten days of delivery if the service contract is delivered to the service contract holder at the time of sale or within a longer time period permitted under the service contract. Upon return of the service contract to the provider within the applicable time period, if no claim has been made under the service contract prior to its return to the provider, the service contract is void and the provider shall refund to the service contract holder, or credit the account of the service contract holder, with the full purchase price of the service contract. The right to void the service contract provided in this subsection is not transferable and shall apply only to the original service contract purchaser and only if no claim has been made prior to its return to the provider. A ten percent penalty per month shall be added to a refund that is not paid or credited within forty-five days after return of the service contract to the provider. (G) If the provider cancels the service contract, the provider shall mail a written notice to the contract holder at the last known address of the service contract holder contained in the records of the provider at least fifteen days prior to cancellation by the provider. Prior notice is not required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation by the service contract holder to the provider, or a substantial breach of duties by the service contract holder relating to the covered product or its use. The notice shall state the effective date of the cancellation and the reason for the cancellation. (H) Provider fees collected on service contract are not subject to premium taxes. (I) Except for the registration requirements in subsection (C), providers and related service contract sellers, administrators, and other persons marketing, selling, or offering to sell service contracts are exempt from state licensing requirements. (J) The marketing, sale, offering for sale, issuance, making, proposing to make, and administration of service contracts by providers and related service contract sellers, administrators, and other persons shall be exempt from all other provisions of Title 38.

Legislative History

HISTORY: 2000 Act No. 330, SECTION 2; 2020 Act No. 115 (H.4244), SECTION 2, eff May 3, 2020. Effect of Amendment 2020 Act No. 115, SECTION 2, in (E), added the second sentence, excluding a service contract provider that insures their obligations under a reimbursement insurance policy from the financial statement requirement for registration.