S.C. Code Regs. 69-61 - Service Contracts

I. Purpose and Scope.

A. This regulation establishes rules and standards to regulate service contracts marketed in the state of South Carolina. This regulation does not apply to:

1. warranties;

2. maintenance agreements;

3. commercial transactions;

4. warranties, service contracts, or maintenance agreements offered by public utilities on their transmission devices to the extent they are regulated by the Public Service Commission or the Department of Health and Environmental Control;

5. service contracts sold or offered for sale to persons other than consumers;

B. Except for the registration requirements in Section 38-78-30(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.

C. Motor vehicle manufacturer's service contracts on the motor vehicle manufacturer's products shall comply with Sections 38-78-50(A) and (D), to (N), 38-78-60, and 38-78-100 of the South Carolina Code.

II. Definitions.

The terms defined in Section 38-78-20 of the South Carolina Code have those same meanings when used in this regulation.

III. Registration and Financial Security Requirements.

A. 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 non-refundable fee of two hundred dollars annually. Service contracts registration expires annually on September 30.

B. Each provider shall be responsible for insuring 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 of the South Carolina Code.

C. As an alternative to subsection "B" above, a provider may:

1. Maintain a funded reserve account for its obligations under its service contracts issued and outstanding in this State which is subject to examination and review by the director and must amount to at least forty percent of gross consideration received, less claims paid, on the sale of the service contract for all in-force contracts; and

2. 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:

a. a surety bond issued by an authorized surety;

b. securities of the type eligible for deposit by authorized insurers in this State;

c. cash (cashier check only); or

d. an irrevocable letter of credit issued by a qualified financial institution as defined by Section 38-9-220 of the South Carolina Code.

D. As an additional alternative to subsections "B" and "C" above, a provider may maintain, or its parent company maintain, a net worth or stockholder's equity of one hundred million dollars.

1. In electing this option, the provider must, 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. 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.

2. If the provider or its parent company does not file with the SEC, the provider must, upon request, provide the Director with 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.

IV. Reimbursement Insurance Policies.

A. Reimbursement insurance policies insuring service contracts issued, sold, or offered for sale in this State shall conspicuously state that the insurer that issued the policy shall either reimburse or pay on behalf of the provider any covered sums the provider is legally obligated to pay or, in the event of the provider's nonperformance, shall provide the service which the provider is legally obligated to perform according to the provider's contractual obligations under the service contracts issued or sold by the provider.

B. In the event a covered service is not provided by the service contract provider within sixty days of proof of loss by the service contract holder, the contract holder is entitled to apply directly to the reimbursement insurance company.

C. Service contracts insured under a reimbursement insurance policy pursuant to Section 38-78-30(D)(1) of the South Carolina Code shall contain a statement in substantially the following form: "Obligations of the provider under this service contract are insured under a service contract reimbursement insurance policy." The service contract shall also conspicuously state the name and address of the insurer.

D. Service contracts not insured under a reimbursement insurance policy pursuant to Section 38-78-30(D)(1) of the South Carolina Code shall contain a statement in substantially the following form: "Obligations of the provider under this service contract are backed by the full faith and credit of the provider." A claim against the provider shall also include a claim for return of the unearned provider fee. The service contract shall also conspicuously state the name and address of the provider.

E. Insurers issuing reimbursement insurance to providers are deemed to have received the premiums for such insurance upon the payment of provider fees by consumers for service contracts issued by such insured providers. Insurers which issued a reimbursement insurance policy may seek indemnification or subrogation against a provider if the issuer pays, or is obligated to pay, the service contract holder sums that the provider was obligated to pay pursuant to the provisions of the service contract or under a contractual agreement.

V. General Provider Operation Requirements.

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 and

2. provided a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase.

VI. Record Maintenance.

A. A provider shall maintain accurate accounts, books, and records concerning transactions regulated under this chapter which shall include:

1. copies of each type of service contract issued;

2. the name and address of each service contract holder to the extent that the name and address have been furnished by the service contract holder;

3. a list of the locations where service contracts are marketed, sold or offered for sale; and

4. recorded claims files which shall contain at least the dates and description of claims related to the service contracts.

B. Except as provided in of Section VI(C) of this regulation, the provider shall retain all records required to be maintained for at least one year after the specified period of coverage has expired. The records may be, but are not required to be, maintained on a computer disk or other record keeping technology. If records are maintained in other than hard copy, the records must be capable of duplication to legible hard copy at the request of the Director.

C. A provider discontinuing business in this State shall maintain its records until it furnishes the director satisfactory proof that it has discharged all obligations to contract holders in this State.

D. Upon request of the Director, the provider shall make available all accounts, books and records concerning service contracts sold by the provider which are necessary to enable the director to reasonably determine compliance or noncompliance with the law.

VII. Required Disclosures.

A. Service contracts marketed, issued, sold, offered for sale, 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 requirements in this section as applicable.

B. Service contracts shall identify any administrator, if different from the providers, the provider obligated to perform the service under the contract, the service contract seller, and the service contract holder to the extent that the name of the service contract holder has been furnished by the service contract holder. The identities of such parties are not required to be preprinted on the service contract and may be added to the service contract at the time of sale.

C. Service contracts shall conspicuously state the total purchase price and the terms under which the service contract is sold. The purchase price is not required to be preprinted on the service contract and may be negotiated at the time of sale with the service contract holder.

VIII. Voiding of Contracts.

A. 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 is not transferable and shall apply only to the original service contract purchaser. 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.

B. 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.

C. An insurer that issued a reimbursement insurance policy may not terminate the policy until a notice of termination in accordance with Chapter 75, Title 38, of the South Carolina Code has been mailed or delivered to the Director. The termination of a reimbursement insurance policy does not reduce the issuer's responsibility for service contracts issued by providers before the date of the termination.

IX. Limitation on Provider Name.

No provider licensed after October 1, 2000, may use in its name the words "insurance," "casualty," "guaranty," "surety," "mutual," or any other words descriptive of the insurance, casualty, guaranty, or surety business or a name deceptively similar to the name or description of any insurance or surety corporation or any other provider. A previously licensed provider that uses the prohibited language in its name shall conspicuously include in its service contracts a statement in substantially the following form: "This agreement is not an insurance contract".

X. Prohibited Acts.

A. A provider or its representative in its service contracts or literature may not 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, in connection with the sale, offer to sell, or advertisement of a service contract.

B. A person such as a bank, savings and loan association, lending institution, manufacturer, or seller of any product shall not require the purchase of a service contract as a condition of a loan or a condition for the sale of any property.

XI. Enforcement.

A. The Director may examine at any time each provider, administrator, insurer, or other person as to compliance with the requirements of Chapter 78, Article 38 of the South Carolina Code and the quality of services offered. The organization being examined under this Section shall pay the charges incurred in the examination, including the expenses of the Director and the expenses and compensation of his examiners and assistants.

B. The Director may take action, which is necessary or appropriate to enforce the provisions of this chapter and the Director's regulations and orders and to protect service contract holders in this State.

1. If a service contract provider violates a provision of this chapter, the Director may:

a. order the service contract provider to cease and desist from committing the violation;

b. issue an order prohibiting a service contract provider from selling or offering for sale service contracts;

c. issue an order imposing a civil penalty; or

d. any combination of these.

2. 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 of the date the Director's order is effective. Pending the hearing and the decision by the Director, the director shall suspend the effective date of the order. At the hearing, the burden is on the Director to show why the order issued pursuant to this section is justified. If the Director upholds the issuance of the order, the person may file an appeal with the Administrative Law Judge Division.

C. The Director may bring an action under the Administrative Law Judge Division or in circuit court for an injunction or other appropriate relief to enjoin threatened or existing violations of this regulation or of the Director's orders. An action filed under this section may also seek restitution on behalf of persons aggrieved by a violation of this regulation or orders of the Director.

D. A person in violation of this regulation or an order of the Director may be assessed a civil penalty not to exceed one thousand dollars per violation and no more than ten thousand dollars in the aggregate for all violations of a similar nature; provided, however, that if a person is found by a court of competent jurisdiction to have been in willful violation of this chapter or an order or regulation of the director, then such person is subject to a penalty of one thousand dollars per violation with no aggregate limit.

E. For purposes of this section, violations of a similar nature, which are considered technical and unintentional by the Department of Insurance lacking the requisite willful intent, are subject to the ten thousand dollar aggregate penalty limit and are defined as a violation which consists of the same or similar course of conduct, action, or practice, irrespective of the number of times the act, conduct, or practice which is determined to be a violation of this chapter occurred.

Notes

S.C. Code Regs. 69-61

Added by Register Volume 25, Issue 6, eff June 22, 2001.