Service contracts.

(1) Existing law, the Electronic and Appliance Repair Dealer Registration Law, makes it unlawful for any person to act as a service contract administrator or a service contract seller without first registering with the Bureau of Electronic and Appliance Repair, Home Furnishings, and Thermal Insulation. Existing law regulates service contracts, as defined, relating to maintenance or repair of, among other things, specified sets and appliances. A service contract may include provisions for incidental payment of indemnity, not exceeding the retail value of $250 per year. Existing law prohibits a service contract administrator, as defined, from being an obligor, as defined, on a service contract and existing law requires these service contract administrators to maintain a service contract reimbursement insurance policy, as defined. This bill would change the definition of service contract by expanding the items a contract may cover to include accessories of electronic sets or appliances and by excluding a contract to maintain structural wiring associated with communications services. The bill would delete the $250 per year limit on incidental payment of indemnity. The bill would also change the definition of service contract administrator to no longer exclude service contract sellers and insurers admitted to do business in the state and to no longer include an affiliate who performs or arranges specified activities. The bill would authorize a service contract administrator to be an obligor on a service contract where all service contracts under which the service contract administrator is obligated are insured under a service contract reimbursement insurance policy. Existing law defines a service contract seller as 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. This bill would specify that a service contract seller also means a 3rd party, including an obligor who is not the seller, manufacturer, or repairer of the product and does not include specified financial institutions or specified electrical device manufacturers or electrical contractors. The bill would require a 3rd-party obligor to obtain a service contract reimbursement insurance policy. The bill would specify that a service contract administrator or a 3rd-party seller acting as an obligor without a service contract reimbursement insurance policy shall be deemed to be unlawfully transacting the business of insurance and therefore subject to specified criminal and monetary penalty provisions. Because willfully transacting the business of insurance without a certificate of authority would constitute a crime, the bill would impose a state-mandated local program. Existing law prohibits a service contract seller from issuing a service contract without complying with specific requirements. This bill would instead prohibit a service contract seller from issuing a service contract unless the obligor under the contract has complied with specific requirements. Existing law makes these provisions relating to service contracts inoperative on January 1, 2013. This bill would extend the operation of these provisions to January 1, 2018. The bill would make other technical and clarifying changes. (2) Existing law prohibits a service contract covering any motor vehicle, home appliance, or home electronic product purchased for use in this state from being offered for sale or sold unless several elements exist, including that the contract is cancelable by the purchaser under certain conditions. Existing law provides for either a full or pro rata refund depending on the circumstances. This bill would enact new provisions applicable to pro rata refunds made in the case of canceled vehicle service contracts. (3) Existing law defines vehicle service contract for purposes of provisions relating to sellers of vehicles, and exempts a warranty provided by a vehicle glass manufacturer from the requirements governing a vehicle service contract. This bill would add a warranty provided by a glass sealant manufacturer to the exemption. (4) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason.