Public Act 90-0711 of the 90th General Assembly
Public Act 90-0711
HB3464 Enrolled LRB9009408JSmb
AN ACT concerning service contracts.
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
Service Contract Act.
Section 5. Definitions.
"Department" means the Department of Insurance.
"Director" means the Director of Insurance.
"Service Contract" means a contract or agreement whereby
a service contract provider undertakes for a specified period
of time, for separate and identifiable consideration, to
perform the repair, replacement, or maintenance, or
indemnification for such services, of any automobile, system,
or consumer product in connection with the operational or
structural failure due to a defect in materials or
workmanship, or normal wear and tear, with or without
additional provision for incidental payment or indemnity
under limited circumstances, for related expenses, including,
but not limited to, towing, rental, and emergency road
service. Service contracts may provide for the repair,
replacement, or maintenance of such property for damage
resulting from power surges and accidental damage from
handling. Service contracts shall not include contracts of
limited duration that provide for scheduled maintenance only.
"Service contract holder" means the person who purchases
a service contract or a permitted transferee.
"Service contract provider" means a person who is
contractually obligated to the service contract holder under
the terms of the service contract. A service contract
provider does not include an insurer.
"Service contract reimbursement insurance policy" means a
policy of insurance that is issued to the service contract
provider to provide reimbursement to the service contract
provider or to pay on behalf of the service contract provider
all covered contractual obligations incurred by the service
contract provider under the terms and conditions of the
insured service contracts issued or sold by the service
contract provider.
"System" means the heating, cooling, plumbing,
electrical, ventilation, or any other similar system of a
home.
Section 10. Exemptions. Service contract providers and
related service contract sellers and administrators complying
with this Act are not required to comply with and are not
subject to any provision of the Illinois Insurance Code. A
service contract provider who is the manufacturer or a
wholly-owned subsidiary of the manufacturer of the product or
the builder, seller, or lessor of the product that is the
subject of the service contract is required to comply only
with Sections 30, 35, 45, and 50 of this Act; except that, a
service contract provider who sells a motor vehicle or who
leases, but is not the manufacturer of, the motor vehicle
that is the subject of the service contract must comply with
this Act in its entirety.
Section 15. Financial requirements. No service contract
shall be issued, sold, or offered for sale in this State
unless one of the following conditions are satisfied:
(1) (A) The service contract provider is insured under a
service contract reimbursement insurance policy issued by
an insurer authorized to do business in this State and
providing that the insurer will pay to, or on behalf of,
the service contract provider all sums that the service
contract provider is legally obligated to pay according
to the service contract provider's contractual
obligations under the service contracts issued or sold by
the service contract provider;
(B) a true and correct copy of the service contract
reimbursement insurance policy has been filed with the
Director by the service contract provider;
(C) the service contract states that the
obligations of the service contract provider to the
service contract holder are covered under a service
contract reimbursement insurance policy; and
(D) the service contract states the name and
address of the issuer of the service contract
reimbursement insurance policy and states that in the
event covered service is not provided by the service
contract provider within 60 days of proof of loss by the
service contract holder, the service contract holder may
file directly with the service contract reimbursement
insurance company.
(2) (A) The service contract provider maintains a funded
reserve account for its obligations under its service
contracts issued and outstanding in this State. The
reserves shall not be less than 40% of the gross
consideration received, less claims paid, for all service
contracts sold and then in force;
(B) the service contract provider places in trust
with the Director a financial security deposit, having a
value of not less than 5% of the gross consideration
received, less claims paid, for all service contracts
sold and then in force, but not less than $25,000,
consisting of securities of the type eligible for deposit
by authorized insurers in this State and;
(C) the service contract provider provides the
Director with an audited financial statement annually of
the service contract revenues and claims.
(3) (A) The service contract provider, or its parent
company in accordance with subdivision (3)(B), maintains
a net worth or stockholders' equity of $100,000,000; and
(B) the service contract provider provides the
Director with a copy of the service contract provider's
or the service contract provider's parent company's most
recent Form 10-K or Form 20-F filed with the Securities
and Exchange Commission within the last calendar year or,
if the service contract provider does not file with the
Securities and Exchange Commission, a copy of the service
contract provider's or the service contract provider's
parent company's audited financial statements that shows
a net worth of the service contract provider or its
parent company of at least $100,000,000. If the service
contract provider's parent company's Form 10-K, Form
20-F, or audited financial statements are filed to meet
the service provider's financial stability requirement,
then the parent company shall agree to guarantee the
obligations of the provider relating to service contracts
issued by the service contract provider in this State.
Section 20. Reimbursement policy; required provisions.
(a) No service contract reimbursement insurance policy
shall be issued, sold, or offered for sale in this State
unless the policy states that the issuer of the policy will
reimburse or pay on behalf of the service contract provider
all covered sums which the service contract provider is
legally obligated to pay or will provide the service that the
service contract provider is legally obligated to perform
according to the service contract provider's contractual
obligations under the provisions of the insured service
contracts issued or sold by the service contract provider.
(b) If covered service is not provided by the service
contract provider within 60 days of proof of loss by the
service contract holder, the service contract holder may
file directly with the insurance company writing the service
contract reimbursement insurance policy.
(c) A service contract reimbursement insurance company
that insures a service contract shall be deemed to have
received payment of the premium if the service contract
holder paid for the service contract coverage.
(d) If a service contract is canceled by a service
contract holder, the service contract reimbursement insurance
company shall be required to return the unearned service
contract reimbursement insurance premium for that contract to
the insured service contract provider. If the service
contract provider fails to refund the amounts required under
Section 35 of this Act, the service contract reimbursement
insurance company shall be responsible for the refund to the
service contract holder.
Section 25. Registration requirements for service
contract providers.
(a) No service contract shall be issued or sold in this
State until the following information has been submitted to
the Department:
(1) the name of the service contract provider;
(2) a list identifying the service contract
provider's executive officer or officers directly
responsible for the service contract provider's service
contract business;
(3) the name and address of the service contract
provider's agent for service of process in this State, if
other than the service contract provider;
(4) a true and accurate copy of all service
contracts to be sold in this State; and
(5) a statement indicating under which provision of
Section 15 the service contract provider qualifies to do
business in this State as a service contract provider.
(b) The service contract provider shall pay an initial
registration fee of $500 and a renewal fee of $75 each year
thereafter. All fees and penalties collected under this Act
shall be paid to the Director and deposited in the Insurance
Financial Regulation Fund.
Section 30. Required service contract disclosures. All
service contracts issued or sold in this State shall contain
the following disclosures written in clear and understandable
language.
(1) the name and address of the service contract
provider;
(2) the total consideration for the service contract
paid by the service contract holder;
(3) the conditions and procedures for obtaining service
under the service contract, including the name, address, and
local or toll-free telephone number of any person from whom
approval is required before covered repairs may be commenced;
(4) the existence and amount of a deductible, if any;
(5) merchandise and services to be provided and any
limitations, exceptions, or exclusions;
(6) the terms, conditions, and restrictions governing
transferability of the service contract, if any;
(7) the provisions governing cancellation and refunds in
accordance with Section 35 of this Act; and
(8) whether or not the service contract covers failure
resulting from normal wear and tear.
Section 35. Cancellation and refunds. No service
contract may be issued, sold, or offered for sale in this
State unless the service contract clearly states that the
service contract holder is allowed to cancel the service
contract. If the service contract holder elects
cancellation, the service contract provider may retain a
cancellation fee not to exceed the lesser of 10% of the
service contract price or $50. The service contract
cancellation provision must provide that the service contract
may be cancelled:
(1) within 30 days after its purchase if no service has
been provided and that a full refund of the service contract
consideration, less any cancellation fee stated in the
service contract will be paid to the service contract holder;
or
(2) at any other time and a pro rata refund of the
service contract consideration for the unexpired term of the
service contract, based on the number of elapsed months,
miles, hours, or such other reasonably applicable measure
which is clearly disclosed in the service contract, less the
value of any service received, and any cancellation fee
stated in the service contract will be paid to the service
contract holder.
Section 40. Incidental benefits. A service contract may
provide full or partial reimbursement for other expenses
incurred by the service contract holder as a direct and
proximate result of an operational or structural failure if
covered by the service contract. A reimbursement for these
expenses shall not exceed the purchase price of the property
serviced per incident.
Section 45. Record keeping requirements.
(a) The service contract provider shall keep accurate
accounts, books, and records concerning transactions
regulated under this Act.
(b) The service contract provider's accounts, books, and
records shall include the following:
(1) copies of each type of service contract sold;
(2) the name and address of each service contract
holder, to the extend that the name and address has 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) written claims files which shall contain at
least the date and description of claims related to the
service contracts.
(c) Except as provided in subsection (e) of this
Section, the service contract provider shall retain all
records required to be maintained by Section 45 for at least
3 years after the specified period of coverage has expired.
(d) The records required under this Act 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.
(e) A service contract provider discontinuing business
in this State shall maintain its records until it furnishes
the Director satisfactory proof that it has discharged all
obligations to service contract holders in this State.
Section 50. Examinations and enforcement provisions.
(a) The Director may conduct examinations of service
contract providers, administrators, or other persons to
enforce this Act and protect service contract holders in this
State. Upon request of the Director, a service contract
provider shall make available to the Director all accounts,
books, and records concerning service contracts sold by the
service contract 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 service contract
holders in this State. If a service contract provider engages
in a pattern or practice of conduct that violates this Act
and that the Director reasonably believes threatens to render
the service contract provider insolvent or cause irreparable
loss or injury to the property or business of any person or
company located in this State, the Director may (i) issue an
order directed to that service contract provider to cease and
desist from engaging in further acts, practices, or
transactions that are causing the conduct; (ii) issue an
order prohibiting that service contract provider from selling
or offering for sale service contracts in violation of this
Act; (iii) issue an order imposing a civil penalty on that
service contract provider; or (iv) issue any combination of
the foregoing, as applicable. Prior to the effective date of
any order issued pursuant to this subsection, the Director
must provide written notice of the order to the service
contract provider and the opportunity for a hearing to be
held within 10 business days after receipt of the notice,
except prior notice and hearing shall not be required if the
Director reasonably believes that the service contract
provider has become, or is about to become, insolvent.
A person aggrieved by an order issued under this Section
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, and the Director
must hold such a hearing within 15 days after receipt of the
hearing request.
(c) At the hearing, the burden shall be on the Director
to show why the order issued pursuant to this Section is
justified. The provisions of Section 10-25 of the Illinois
Administrative Procedure Act shall apply to a hearing request
under this Section.
(d) 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 orders or rules. An action filed
under this Section also may seek restitution on behalf of
persons aggrieved by a violation of this Act or orders or
rules of the Director.
(e) A person who is found to have violated this Act or
orders or rules of the Director may be ordered to pay to the
Director a civil penalty in an amount, determined by the
Director, of not more than $500 per violation and not 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 conduct, action, or practice that
is determined to be a violation of this Act occurred.
Section 55. Rulemaking power. The Director may adopt
such administrative rules as are necessary to implement the
provisions of this Act.
Section 60. Applicability. This Act applies to all
service contracts sold or offered for sale 90 or more days
after the effective date of this Act.
Section 99. Effective date. This Act takes effect upon
becoming law.