HB1460 98TH GENERAL ASSEMBLY

LRB098 07451 RPM 37519 b

98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
HB1460

Introduced , by Rep. Greg Harris

SYNOPSIS AS INTRODUCED:

New Act
215 ILCS 5/2.5

Creates the Motor Vehicle Ancillary Products Act. Provides that each ancillary product provider intending to issue or sell ancillary product contracts in the State shall file a registration with the Director of Insurance and designate a person in the State for service of process. Provides that each ancillary product provider shall pay to the Director a fee upon initial registration and every year thereafter. Provides that other than the ancillary product provider registration requirements in the provision requiring ancillary product provider registration, ancillary product providers and related ancillary product contract sellers, administrators, and other persons marketing, selling, offering to sell, or issuing ancillary product contracts are exempt from any licensing requirements of the State to conduct ancillary product contract business. Sets forth provisions concerning ancillary product provider financial requirements; ancillary product contract receipt requirements; disclosures; ancillary protection product warranties; reimbursement insurance policies; ancillary product contract exemption from insurance laws; prohibited acts; record keeping; cancellation of reimbursement insurance policies; obligations of reimbursement insurance policy insurers; enforcement provisions; premium taxes; applicability; and severability. Amends the Illinois Insurance Code to provide that the Code shall not be construed to apply to ancillary product contracts under the Motor Vehicle Ancillary Products Act. Effective January 1, 2014.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning insurance.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Motor Vehicle Ancillary Products Act.

Section 5. Scope and purpose.

(a) The purpose of this Act is to create a legal framework within which motor vehicle ancillary product contracts, as defined in this Act, are regulated and may be sold in this State. This Act declares that ancillary product contracts are not insurance and not otherwise subject to the Illinois Insurance Code. This Act adds significant consumer protections and eliminates unnecessary administration.

(b) The following are exempt from this Act:

(1) warranties, indemnity agreements, and guarantees that are not provided incidental to the purchase of an ancillary protection product;

(2) maintenance agreements;

(3) service contracts as defined in Section 5 of the Service Contract Act;

(4) automobile clubs; and

(5) GAP waiver agreements.

Section 10. Definitions. In this Act:

"Administrator" means the person who is responsible for the administration of the ancillary product contracts.

"Ancillary product contract" means an ancillary service contract or ancillary protection product warranty or both.

"Ancillary product holder" means, collectively, both contract holders and warranty holders.

"Ancillary product provider" means, collectively, both providers and warrantors.

"Ancillary protection product" means a protective chemical, substance, device, system, or service that (i) is installed on or applied to a motor vehicle, (ii) is designed to prevent loss or damage to a motor vehicle from a specific cause, and (iii) includes an ancillary protection product warranty. For purposes of this Section, "ancillary protection product" includes, but is not limited to, protective chemicals, 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. "Ancillary protection product" does not include fuel additives, oil additives, or other chemical products applied to the engine, transmission, or fuel system of a motor vehicle.

"Ancillary protection product warranty" means a written agreement by a warrantor that provides if the ancillary protection product fails to prevent loss or damage to a motor vehicle from a specific cause, that the warrantor will pay to or on behalf of the warranty holder specified incidental costs as a result of the failure of the ancillary protection product to perform pursuant to the terms of the ancillary protection product warranty.

"Ancillary service contract" means an agreement that is effective for a specified duration and paid for by means other than the purchase of a motor vehicle to perform any one or more of the following services:

(1) the repair or replacement of tires or wheels or both on a motor vehicle damaged as a result of coming into contact with road hazards;

(2) the removal of dents, dings, or creases on a motor vehicle that can be repaired using the process of paintless dent removal without affecting the existing paint finish and without replacing vehicle body panels, sanding, bonding, or painting;

(3) the repair of chips or cracks in or the replacement of motor vehicle windshields as a result of damage caused by road hazards;

(4) the replacement of a motor vehicle key or key-fob in the event that the key or key-fob becomes inoperable or is lost or stolen; or

(5) other services that may be approved by the Director.

An ancillary service contract may not include coverage for the repair of damage to the interior surfaces of a vehicle or for repair of damage to the exterior paint or finish of a vehicle; however, such coverage may be offered in connection with the sale of an ancillary protection product.

"Contract holder" means the person who purchases an ancillary service contract, any authorized transferee or assignee of the purchaser, or any other person legally assuming the purchaser's rights under the ancillary service contract.

"Director" means the Director of Insurance.

"Incidental costs" means expenses specified in an ancillary protection product warranty that are incurred by the warranty holder due to the failure of an ancillary protection product to perform as provided in the contract. Incidental costs may include, without limitation, insurance policy deductibles, rental vehicle charges, the difference between the actual value of the stolen vehicle at the time of theft and the cost of a replacement vehicle, sales taxes, registration fees, transaction fees, and mechanical inspection fees. Incidental costs may be reimbursed in either a fixed amount specified in the ancillary protection product warranty or by use of a formula itemizing specific incidental costs incurred by the warranty holder.

"Motor vehicle" means self-propelled or towed vehicles designed for personal or commercial use, including, but not limited to, automobiles, trucks, motorcycles, recreational vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal watercraft, and motorcycle, boat, camper, and personal watercraft trailers.

"Person" means an individual, company, association, organization, partnership, business trust, corporation, or any other form of legal entity.

"Provider" means a person who is contractually obligated to a contract holder under the terms of an ancillary service contract.

"Reimbursement insurance policy" means a policy of insurance issued to an ancillary product provider to either provide reimbursement to the ancillary product provider under the terms of the designated ancillary product contracts issued or sold by the provider or, in the event of the provider's non-performance, to pay on behalf of the provider all covered contractual obligations incurred by the provider under the terms of the insured ancillary product contracts.

"Road hazard" means a hazard that is encountered while driving a motor vehicle and that may include, but not be limited to, potholes, rocks, wood debris, metal parts, glass, plastic, curbs, or composite scraps.

"Warranty holder" means the person who purchases an ancillary protection product, any authorized transferee or assignee of the purchaser, or any other person legally assuming the purchaser's rights under the ancillary product contract.

"Warrantor" means a person who is contractually obligated to the warranty holder under the terms of the ancillary protection product warranty.

Section 15. Ancillary product provider registration required.

(a) Each ancillary product provider intending to issue or sell ancillary product contracts in this State shall file a registration with the Director consisting of their name, full corporate address, telephone number, and contact person and designate a person in this State for service of process. Each ancillary product provider shall pay to the Director a fee in the amount of $200 upon initial registration and every year thereafter. The registration need only be updated by written notification to the Director if material changes occur in the registration on file.

(b) An ancillary product provider may, but is not required to, appoint an administrator or other designee to be responsible for any or all of the administration of its ancillary product contracts and compliance with this Act.

(c) Other than the ancillary product provider registration requirements in this Section, ancillary product providers and related ancillary product contract sellers, administrators, and other persons marketing, selling, offering to sell, or issuing ancillary product contracts are exempt from any licensing requirements of this State in order to conduct ancillary product contract business.

Section 20. Ancillary product provider financial requirements.

(a) In order to ensure the faithful performance of an ancillary product provider's obligations to its ancillary product holders, each ancillary product provider shall insure all ancillary product contracts under a reimbursement insurance policy issued by an insurer licensed, registered, or otherwise authorized to do business in this State, and the insurer shall either:

(1) at the time the policy is filed with the Director, and continuously thereafter, (A) maintain surplus as to policyholders and paid-in capital of at least $15,000,000 and (B) annually file copies of the insurer's financial statements, its NAIC Annual Statement, and the actuarial certification required by and filed in the insurer's state of domicile; or

(2) at the time the policy is filed with the Director, and continuously thereafter, (A) maintain surplus as to policyholders and paid-in capital of less than $15,000,000 but at least equal to $10,000,000, (B) demonstrate to the satisfaction of the Director that the company maintains a ratio of net written premiums, where ever written, to surplus as to policyholders and paid-in capital of not greater than 3 to one, and (C) annually file copies of the insurer's audited financial statements, its NAIC Annual Statement, and the actuarial certification required by and filed in the insurer's state of domicile.

(b) Except for the requirements specified in this Section, no other financial security requirements shall be required by the Director for ancillary product providers.

Section 25. Ancillary product contract receipt required.

(a) Ancillary product contracts shall not be issued, sold, or offered for sale in this State unless the provider provides a copy of the ancillary product contract to the contract holder within a reasonable period of time from the date of purchase. A provider may comply with this subsection (a) by providing the consumer with a physical copy of the complete terms and conditions of the contract, by directing the consumer to an Internet website containing a copy of the complete terms and conditions of the contract, or by delivering a copy of the complete terms and conditions of the contract via electronic mail.

(b) An ancillary product provider shall provide a consumer with a complete sample copy of the contract terms and conditions prior to the time of sale upon a request for the same by the consumer. A provider may comply with this subsection (b) by providing the consumer with a complete sample copy of the terms and conditions or by directing the consumer to an Internet website containing a complete sample of the terms and conditions of the contract.

Section 30. Required disclosures.

(a) Ancillary service contracts marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this State shall be written, printed, or typed in clear, understandable language that is easy to read and shall disclose the following requirements, as applicable:

(1) the name and address of the provider, and shall identify any administrator if different from the provider, the ancillary service contract seller, and the contract holder to the extent that the name of the contract holder has been furnished by the contract holder; the identities of the parties are not required to be preprinted on the ancillary service contract and may be added to the contract at the time of sale;

(2) the total purchase price and the terms under which the contract is sold; the purchase price is not required to be pre-printed on the ancillary service contract and may be negotiated at the time of sale with the contract holder;

(3) the existence of any deductible amount, if applicable;

(4) the merchandise and services to be provided and any limitations, exceptions, or exclusions;

(5) whether the use of non-original manufacturers' parts is allowed;

(6) any restrictions governing the transferability of the contract, if applicable;

(7) the terms, restrictions, or conditions governing cancellation of the contract prior to the termination or expiration date of the ancillary service contract by either the provider or the contract holder;

(8) all of the obligations and duties of the contract holder, such as the duty to protect against any further damage and any service requirements to follow as provided in the owner's manual, supplement, or guide; and

(9) whether or not the contract provides for or excludes consequential damages or preexisting conditions, if applicable.

(b) An ancillary service contract that is insured by a reimbursement insurance policy under Section 20 of this Act shall conspicuously state all of the following:

(1) "This contract is not insurance and is not subject to the insurance laws of this State.";

(2) that the obligations of the provider are insured under a reimbursement insurance policy;

(3) that if a provider fails to perform or make payment due under the terms of the contract within 60 days after the contract holder requests performance or payment pursuant to the terms of the contract, the contract holder may request performance or payment directly from the provider's reimbursement insurance policy insurer, including any obligation in the contract by which the provider must refund the contract holder upon cancellation of a contract; and

(4) the name, address, and telephone number of the provider's reimbursement insurance policy insurer.

(c) Ancillary service contracts shall require the provider to permit the contract holder to return the contract within 30 days after the date the contract was mailed to the holder or within 30 days after delivery if the contract is delivered to the contract holder at the time of sale or within a longer time period permitted under the contract. Upon return of the ancillary service contract to the provider within the applicable time period, if no claim has been made under the contract prior to its return to the provider, the contract is void and the provider shall refund to the contract holder, or credit the account of the contract holder, with the full purchase price of the ancillary service contract. The right to void the ancillary product service provided in this subsection (c) is not transferable and shall apply only to the original contract purchaser, and only if no claim has been made prior to its return to the provider. A 10% penalty per month shall be added to a refund that is not paid or credited within 45 days after the return of the ancillary service contract to the provider.

(d) Subsequent to the time period specified in subsection (c) or if a claim has been made under the contract within that time period, an ancillary service contract holder may cancel the contract and the provider shall refund to the contract holder 100% of the unearned pro rata provider fee, less any claims paid. A reasonable administrative fee may be charged by the provider not to exceed 10% of the purchase price paid by the contract holder.

(e) The provider shall mail a written notice to the contract holder at the last known address of the contract holder contained in the records of the provider at least 5 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 contract holder to the provider, a substantial breach of duties by the contract holder relating to the covered product or its use, or a request to cancel by the contract holder. The notice shall state the effective date of the cancellation and the reason for the cancellation. If an ancillary service contract is cancelled by the provider for a reason other than nonpayment of the provider fee, the provider shall refund to the contract holder 100% of the unearned pro rata provider fee, less any claims paid. A reasonable administrative fee may be charged by the provider not to exceed 10% of the price paid by the contract holder.

Section 35. Ancillary protection product warranty.

(a) Ancillary protection product warranties offered, issued, made, proposed to be made, or administered in this State shall be written, printed, or typed in clear, understandable language that is easy to read, and shall disclose the following requirements, as applicable:

(1) the name and address of the warrantor, the seller of the ancillary protection product, and the warranty holder;

(2) the total purchase price of the ancillary protection product and the terms under which it is to be paid; however, the purchase price is not required to be preprinted on the ancillary protection product warranty and may be negotiated with the consumer at the time of sale;

(3) the procedure for making a claim, including a telephone number for the warrantor or administrator responsible for processing the claim;

(4) 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; 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;

(5) the obligations and duties of the warranty holder, such as 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;

(6) any terms, restrictions, or conditions governing transferability and cancellation of the warranty, if any; and

(7) a disclosure that reads substantially as follows: "This agreement is a product warranty and is not insurance.".

(b) An ancillary protection product warranty that is insured by a reimbursement insurance policy under Section 20 of this Act shall conspicuously state all of the following:

(1) "This contract is not insurance and is not subject to the insurance laws of this State.";

(2) that the obligations of the warrantor are insured under a reimbursement insurance policy;

(3) that if a warrantor fails to perform or make payment due under the terms of the warranty within 60 days after the warranty holder requests performance or payment pursuant to the terms of the warranty, the warranty holder may request performance or payment directly from the warrantor's reimbursement insurance policy insurer; and

(4) the name, address, and telephone number of the warrantor's reimbursement insurance policy insurer.

(c) A warrantor may only cancel an ancillary protection product warranty if the warranty holder does any of the following:

(1) Fails to pay for the ancillary protection product.

(2) Makes a material misrepresentation to the seller of the ancillary protection product or to the warrantor.

(3) Commits fraud related to the purchase of the ancillary protection product, registration of the ancillary protection product warranty, or a claim made under the ancillary protection product warranty.

(4) Substantially breaches the warranty holder's duties under the warranty.

(5) Fails to make required payments on the vehicle such that the vehicle is repossessed.

(6) Damages the vehicle such that the vehicle is deemed a total loss.

(d) A warrantor canceling an ancillary protection product 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 30 days prior to the effective date of the cancellation. The notice shall state the effective date of the cancellation and the reason for cancellation.

Section 40. Required disclosures; reimbursement insurance policy. A reimbursement insurance policy that is required to be issued under this Act shall contain:

(1) a statement that if an ancillary product provider fails to perform or make payment due under the terms of the ancillary product contract within 60 days after the ancillary product holder requests performance or payment pursuant to the terms of the ancillary product contract, the ancillary product holder may request performance or payment directly from the ancillary product provider's reimbursement insurance policy insurer, including any obligation in the ancillary product contract by which the ancillary product provider must refund the contract holder upon cancellation of an ancillary product contract; and

(2) a statement that in the event of cancellation of the ancillary product provider's reimbursement insurance policy, insurance coverage shall continue for all ancillary product holders whose ancillary product contracts were issued by the ancillary product provider and reported to the insurer for coverage during the term of the reimbursement insurance policy.

Section 45. Ancillary product contract; not insurance. The marketing, sale, offering for sale, issuance, making, proposing to make, and administration of ancillary product contracts by ancillary product providers and related ancillary product contract sellers, administrators, and other persons shall be exempt from all provisions of this State's insurance laws other than this Act.

Section 50. Prohibited acts.

(a) An ancillary product provider shall not use in its name the words "insurance", "casualty", "surety", "mutual", or any other words descriptive of the insurance, casualty, or surety business or a name deceptively similar to the name or description of any insurance or surety corporation or to the name of any other ancillary product provider. The word "guaranty" or a similar word may be used by an ancillary product provider. This Section shall not apply to a company that was using any of the prohibited language in its name prior to the effective date of this Act.

(b) An ancillary product provider or its representative shall not, in its contracts, warranties, or literature, make, permit, or cause to be made any false or misleading statement or deliberately omit any material statement that would be considered misleading if omitted.

(c) A person, such as a bank, savings and loan association, lending institution, manufacturer, or seller of any product, shall not require the purchase of an ancillary product contract as a condition of a loan or a condition for the sale of any motor vehicle or other property.

(d) An ancillary product provider or its representative shall not, directly or indirectly, represent in any manner, whether by written solicitation or telemarketing, a false, deceptive, or misleading statement with respect to:

(1) the ancillary product provider's affiliation with a motor vehicle manufacturer;

(2) the ancillary product provider's possession of information regarding a motor vehicle owner's current motor vehicle manufacturer's original equipment warranty;

(3) the expiration of a motor vehicle owner's current motor vehicle manufacturer's original equipment warranty; or

(4) a requirement that a motor vehicle owner register for a new ancillary product contract with an ancillary product provider in order to maintain coverage under the motor vehicle owner's current ancillary product contract or manufacturer's original equipment warranty.

Section 55. Record-keeping requirements.

(a) The following provisions shall apply concerning books and records:

(1) An ancillary product provider shall keep accurate accounts, books, and records concerning transactions regulated under this Act.

(2) The ancillary product provider's accounts, books, and records shall include the following:

(A) copies of each type of ancillary product contract sold or issued;

(B) the name and address of each ancillary product holder to the extent that the name and address have been furnished by the ancillary product holder;

(C) a list of the locations where ancillary product contracts are issued, marketed, sold, or offered for sale; and

(D) written claims files, which shall contain at least the dates and description of claims related to the ancillary product contracts.

(3) Except as provided in subsection (b) of this Section, the ancillary product provider shall retain all records required to be maintained by this Section for at least one year after the specified period of coverage has expired.

(4) The records required under this Section may be, but are not required to be, maintained on a computer disk or other record keeping technology. If the records are maintained in other than hard copy, the records shall be capable of duplication to legible hard copy at the request of the Director.

(b) An ancillary product provider discontinuing business in this State shall maintain its records until it furnishes the Director satisfactory proof that it has discharged all obligations to ancillary product holders in this State.

Section 60. Cancellation of reimbursement insurance policy. As applicable, an insurer that issued a reimbursement insurance policy required under this Act shall not terminate the policy until a notice of termination in accordance with Section 143.16 of the Illinois Insurance Code has been mailed or delivered to the Director. The termination of a reimbursement insurance policy shall not reduce the issuer's responsibility for ancillary product contracts issued by insured ancillary product providers prior to the date of the termination.

Section 65. Obligation of reimbursement insurance policy insurers.

(a) Insurers issuing reimbursement insurance to ancillary product providers are deemed to have received the premiums for such insurance upon the payment of ancillary product provider fees by consumers for ancillary product contracts issued by the insured ancillary product providers.

(b) This Act shall not prevent or limit the right of an insurer that issued a reimbursement insurance policy to seek indemnification or subrogation against an ancillary product provider if the insurer pays or is obligated to pay the ancillary product holder sums that the ancillary product provider was obligated to pay pursuant to the provisions of the ancillary product contract.

Section 70. Enforcement provisions.

(a) The Director may conduct examinations of ancillary product providers, administrators, insurers, or other persons to enforce the provisions of this Act and protect ancillary product holders in this State. Upon request of the Director, the ancillary product provider shall make available to the Director all accounts, books, and records concerning ancillary product contracts sold or issued by the ancillary product provider that are necessary to enable the Director to reasonably determine compliance or noncompliance with this Act.

(b) The Director may take action that is necessary or appropriate to enforce the provisions of this Act and the Director's rules and orders, and to protect ancillary product holders in this State. The following provisions shall apply:

(1) If an ancillary product provider has violated this Act or the Director's rules or orders, then the Director may issue an order directed to that ancillary product provider to cease and desist from committing violations of this Act or the Director's rules or orders; may issue an order prohibiting an ancillary product provider from issuing, selling, or offering for sale ancillary product contracts in violation of this Act; or may issue an order imposing a civil penalty on that ancillary product provider, or any combination of the foregoing, as applicable. The following provisions shall apply concerning hearings:

(A) a person aggrieved by an order issued under this paragraph (1) may request a hearing before the Director; the hearing request shall be filed with the Director within 20 days after the date the Director's order is effective;

(B) if a hearing is requested, an order issued by the Director under this Section shall be suspended from the original effective date of the order until completion of the hearing and final decision of the Director; and

(C) at the hearing, the burden shall be on the Director to show why the order issued pursuant to this paragraph (1) is justified; the provisions of Article XXIV of the Illinois Insurance Code shall apply to a hearing requested under this Section.

(2) 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 Act or of the Director's rules or orders. An action filed under this paragraph (2) may also seek restitution on behalf of persons aggrieved by a violation of this Act or rules or orders of the Director.

(3) A person who is found to have violated this Act or rules or orders of the Director may be assessed a civil penalty in an amount determined by the Director of not more than $500 per violation and no more than $10,000 in the aggregate for all violations of a similar nature. For purposes of this Section, violations shall be 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 act, conduct, or practice that is determined to be a violation of this Act occurred.

(c) This Act does not create a separate civil cause of action.

Section 75. Premium taxes.

(a) Ancillary product provider fees collected on ancillary product contracts shall not be subject to premium taxes.

(b) Premiums for reimbursement insurance policies shall be subject to applicable premium taxes.

Section 80. Applicability. This Act applies to all ancillary product contracts issued, sold, or offered for sale on or after January 1, 2014. The failure of any person to comply with this Act prior to January 1, 2014, shall not be admissible in any court proceeding, administrative proceeding, arbitration, or alternative dispute resolution proceeding and may not otherwise be used to prove that the action of any person or the affected ancillary product contract was unlawful or otherwise improper. The adoption of this Act does not imply that an ancillary product contract was insurance prior to January 1, 2014. The penalty provisions of this chapter do not apply to any violation of this Act 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 an ancillary product contract as long as the sale of such 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 Act do not apply, the court shall award actual damages and costs, including reasonable attorney's fees. Nothing in this Section shall be construed to require the application of the penalty provisions where this Section is not applicable.

A person engaged in the ancillary product contract business, as an ancillary product provider or otherwise, in this State on or before the effective date of this Act, who registers as an ancillary product provider pursuant to this Act within 30 days after the Director makes the registration form available, may continue to engage in business as an ancillary product provider in this State until final agency action is taken by the Director regarding the registration and all rights to administrative judicial review have been exhausted or expired.

Section 90. The Illinois Insurance Code is amended by changing Section 2.5 as follows:

(215 ILCS 5/2.5)

Sec. 2.5. Exemption. This Code shall not be construed to apply to the administration of the Drycleaner Environmental Response Trust Fund under the Drycleaner Environmental Response Trust Fund Act or ancillary product contracts under the Motor Vehicle Ancillary Products Act.

(Source: P.A. 90-502, eff. 8-19-97.)

Section 97. Severability. The provisions of this Act are severable under Section 1.31 of the Statute on Statutes.

Section 99. Effective date. This Act takes effect January 1, 2014.