ARC 4677C

ARC 4677C

INSURANCE DIVISION[191]

Adopted and Filed

Rule making related to residential and motor vehicle services contracts

The Insurance Division hereby amends Chapter 103, "Residential Service Contracts," and rescinds Chapter 104, "Motor Vehicle Service Contracts," Iowa Administrative Code.

Legal Authority for Rule Making

This rule making is adopted under the authority provided in Iowa Code sections 516E.7 and 523C.10 and 2019 Iowa Acts, Senate File 619, section 18.

State or Federal Law Implemented

This rule making implements, in whole or in part, Iowa Code chapters 516E and 523C and 2019 Iowa Acts, Senate File 619.

Purpose and Summary

These amendments augment 2019 Iowa Acts, Senate File 619, which, in part, updates provisions regarding the licensing of residential service companies and motor vehicle service companies that enter into residential service contracts and motor vehicle service contracts with consumers. This rule making is intended to provide guidance to residential service companies and motor vehicle service companies regarding how their current license or registration status will be administered by the Division now that the new law has become effective.

The new law took effect upon enactment, according to 2019 Iowa Acts, Senate File 619, section 19. The Governor signed the law, thereby making it effective, on May 16, 2019.

Public Comment and Changes to Rule Making

Notice of Intended Action for this rule making was published in the Iowa Administrative Bulletin on June 19, 2019, as ARC 4496C. This rule making was also Adopted and Filed Emergency and published in the Iowa Administrative Bulletin as ARC 4495C on the same date. A public hearing was held on July 16, 2019, at 2 p.m.in the Division's offices on the fourth floor of Two Ruan Center, 601 Locust Street, Des Moines, Iowa. No one attended the public hearing. One comment was received prior to the public hearing. The comment concerned renumbered subrule 103.2(1) regarding scope and whether the subrule, as drafted, would create a dual regulatory framework for companies selling from Iowa to residents in another state. After discussion with the commenter, the Division has revised rule 191—103.2(523C) to strike the subrule (existing 103.2(2) herein) and to update the catchwords of the rule, because Iowa Code section 523C.2 as amended adequately addresses scope.

Adoption of Rule Making

This rule making was adopted by Doug Ommen, Iowa Insurance Commissioner, on September 5, 2019.

Fiscal Impact

This rule making has no fiscal impact to the State of Iowa.

Jobs Impact

After analysis and review of this rule making, no impact on jobs has been found.

Waivers

These rules do not include a provision for the waiver of the rule because the Division's general waiver rules of 191—Chapter 4 apply.

Review by Administrative Rules Review Committee

The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rule making by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rule making at its regular monthly meeting or at a special meeting. The Committee's meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).

Effective Date

This rule making will become effective on October 30, 2019, at which time the Adopted and Filed Emergency rule making is hereby rescinded.

The following rule-making actions are adopted:

Item 1. Amend 191—Chapter 103, title, as follows:

RESIDENTIAL AND MOTOR VEHICLE SERVICE CONTRACTS

Item 2. Amend rule 191—103.1(523C) as follows:

191—103.1(523C) Purpose. The purpose of this chapter is to administer Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619, relating to residential service contracts as defined in Iowa Code section 523C.1(9) service contracts and service companies.

Item 3. Amend rule 191—103.2(523C) as follows:

191—103.2(523C) Applicability, scope, and definitions Definitions.

103.2(1) This chapter shall apply to any person who issues or offers to issue a residential service contract as defined in Iowa Code section 523C.1(9).

103.2(2) This chapter shall apply when an offer to sell a residential service contract is made or accepted in this state. An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to a person in this state.

103.2(3) The definitions in Iowa Code sections section 523C.1 and 523C.8A(3) as amended by 2019 Iowa Acts, Senate File 619, section 1, are incorporated by this reference. In addition, the following definitions shall apply to this chapter.

"Division" means the Iowa insurance division, supervised by the commissioner pursuant to Iowa Code section 505.8, in the division's performance of the duties of the commissioner under Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619.

"Division's Web site website" means the Web site website of the Iowa insurance division, www.iid.iowa.gov iid.iowa.gov.

"Guarantee or warranty" means:

1.Any written affirmation or written promise made by a manufacturer or seller in connection with the sale of structural components or any tangible personal property which relates to the nature of the material or workmanship and affirms or promises that the material or workmanship is free of defects or will meet a specified level of performance over a specified period of time; or

2.Any written affirmation, promise or undertaking by a manufacturer or seller in connection with the sale of structural components or any tangible personal property to refund, repair, replace or take other remedial action with respect to a product if the product fails to meet the specifications set forth in the undertaking, which written affirmation, promise or undertaking becomes part of the basis of the bargain for purposes other than resale.

"Residential customer," as used in the definition of "residential service contract" in Iowa Code section 523C.1 as amended by 2019 Iowa Acts, Senate File 619, section 1, means any person (whether or not the person is the owner of the residential property) who purchases a residential service contract relating to a residential property.

"Residential property" means any single- or multiple-unit structure, including a house, townhouse, condominium, mobile home, or other habitable structure, which is used primarily for residential purposes.

"Service contract holder" means the original purchaser of a service contract or the successor in interest or transferee entitled to services under the contract.

"Structural components," as used in the definition of "residential service contract" in Iowa Code section 523C.1 as amended by 2019 Iowa Acts, Senate File 619, section 1, means the roof, foundation, basement, walls, ceiling or floors of a residential property.

Item 4. Rescind rule 191—103.3(523C) and adopt the following new rule in lieu thereof:

191—103.3(523C) Filings of forms, contracts and other items. If Iowa Code chapter 523C as amended by 2019 Iowa Acts, Senate File 619, or this chapter requires an item to be filed with the division, the applicable item shall be filed with the division's securities and regulated industries bureau, regardless of whether the applicable item has already been filed elsewhere within the division.

Item 5. Amend rule 191—103.4(523C) as follows:

191—103.4(523C) Forms and instructions. Instructions for license applications, fees, forms and other filings, and copies of all required forms are available on the division's Web site website.

Item 6. Rescind rule 191—103.5(523C) and adopt the following new rule in lieu thereof:

191—103.5(523C) Financial security deposits.

103.5(1) For purposes of Iowa Code section 523C.5(2)"b" as enacted by 2019 Iowa Acts, Senate File 619, section 5, "placing in trust with the commissioner" means filing a surety bond with the commissioner or creating a financial or custodial account in a manner acceptable to the commissioner.

103.5(2) Requirements for surety bonds.

a. A surety bond filed with the commissioner as a financial security deposit pursuant to Iowa Code section 523C.5(2)"b" as enacted by 2019 Iowa Acts, Senate File 619, section 5, shall be in the form directed by the division and as available on the division's website.

b. A surety bond filed with the commissioner as a financial security deposit pursuant to Iowa Code section 523C.5(2)"b" as enacted by 2019 Iowa Acts, Senate File 619, section 5, shall cover service contracts still outstanding that predate the effective date of the surety bond and any service contracts executed during the surety bond's period of coverage except service contracts that have been rescinded or fulfilled or that are secured by another bond.

c. No suit or action shall be commenced by a surety bond claimant later than one year after the expiration date of the surety bond.

d. The surety bond shall, in the event of the service company's failure to perform under the service contract or otherwise, either reimburse or pay on behalf of the service company any covered amounts that the service company is legally obligated to pay under the service contract.

e. The surety bond is for the benefit of and subject to recovery by any Iowa service contract holder sustaining actionable injury due to the failure of the service company to perform its obligations under a service contract. A holder of a service contract issued in this state may, in the event of nonperformance of the contract by the service company, maintain an action and file a claim against the surety bond filed. The surety's liability shall extend to all service contracts issued by the service company and outstanding in this state, provided, however, that the surety's aggregate liability shall not exceed the penal sum of the bond.

f. The surety bond cannot be canceled by the surety except upon written notice of cancellation by the surety to the commissioner by certified mail, and not prior to the expiration of 60 days after receipt of the notice by the commissioner.

g. A service company shall maintain an adequate surety bond and shall continuously monitor the surety amount to assure its adequacy.

Item 7. Amend rule 191—103.6(523C) as follows:

191—103.6(523C) Prohibited acts or practices.

103.6(1) No change.

103.6(2) Boycott, coercion, and intimidation. A service company is prohibited from entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the residential service contract industry.

103.6(3) and 103.6(4) No change.

103.6(5) Misrepresentation, false advertising, and unfair practices.

a. A service company shall not:

(1)Use in its name, contracts, or literature, any of the words "insurance," "casualty," "surety," "mutual," or any other words descriptive of the insurance, casualty or surety business or deceptively similar to the name or description of any insurance or surety corporation, or any other service company. This subparagraph does not apply to a residential service company also licensed as an insurance company.

(2)No change.

(3)Without the written consent of the residential customer, knowingly charge for duplication of coverage or duties required by state or federal law, or duplication of a warranty expressly issued by a manufacturer or seller of a product or any implied warranty enforceable against the lessor, seller or manufacturer of a product.

(4) to (7) No change.

(8)Cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing any assertion, representation, or statement with respect to the residential service contract industry or with respect to any service company which is untrue, deceptive or misleading.

(9)Require the use of used parts in the repair of a motor vehicle covered by a motor vehicle service contract unless the service company has obtained prior written authorization by the vehicle owner or unless all of the following are true regarding any rebuilt parts:

1.The parts have been dismantled and reconstructed as necessary.

2.All of the internal and external parts have been cleaned and made free from rust and corrosion.

3.All impaired, defective, or substantially worn parts have been restored to a sound condition or replaced with new, rebuilt, or unimpaired used parts.

4.All rewinding or machining or other necessary operations have been performed.

5.The rebuilt parts have been put in working condition, using, as minimum standards, the manufacturer's performance specifications in existence when the parts were originally manufactured if those specifications are publicly available.

b. A bank, savings and loan association, insurance company or other lending institution shall not require the purchase of a residential service contract as a condition of a loan and shall not sell a residential service contract to a borrower unless the borrower signs an affidavit acknowledging that the purchase is not required.

Item 8. Amend rule 191—103.7(523C) as follows:

191—103.7(523C) Service company licenses.

103.7(1) A person shall not issue a residential service contract or undertake or arrange to perform services pursuant to a residential service contract unless the person is a corporation, limited liability company, partnership or limited liability partnership and has procured a service company license from the division.

103.7(2) 103.7(1) Service company licenses shall not be transferable. A service company which sells its business shall cancel its service company license, and the purchaser of the business shall apply for a new service license under the purchaser's name.

103.7(2) A service company licensed or registered with the division on April 1, 2019, in accordance with Iowa Code chapter 516E or 523C shall be deemed licensed with the insurance division under Iowa Code chapter 523C as amended by 2019 Iowa Acts, Senate File 619, until August 31, 2019, without any additional application or filing.

Item 9. Rescind and reserve rule 191—103.8(523C).

Item 10. Amend rule 191—103.9(523C) as follows:

191—103.9(523C) Financial statements and calculation of net worth.

103.9(1) All financial statements, including balance statements, filed pursuant to or prepared for purposes of Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619, or this chapter shall be prepared in accordance with generally accepted accounting principles and certified by an independent certified public accountant.

103.9(2) For purposes of Iowa Code section 523C.6 523C.5 as enacted by 2019 Iowa Acts, Senate File 619, section 5, "net worth" means the excess of all assets over liabilities, and any required reserves shall be treated as a liability rather than as an asset.

Item 11. Amend rule 191—103.10(523C) as follows:

191—103.10(523C) Records.

103.10(1) All licensed service companies and independent depositories shall keep accurate accounts, books, and records concerning transactions regulated under Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619.

103.10(2) A licensed service company's accounts, books, and records shall include:

a. Copies of all service contracts;

b. The name and address of each residential customer service contract holder; and

c. The name and address of each independent depository; and

d. c.The dates and amounts of all receipts and expenditures related to all service contracts.

103.10(3) A licensed service company shall retain all required accounts, books, and records pertaining to each residential service contract for at least two years after the expiration of the specified period of time.

103.10(4) All licensed service companies and independent depositories shall make all accounts, books, and records concerning transactions regulated under Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619, available to the division for the purpose of examination.

103.10(5) A licensed service company discontinuing business in this state shall maintain its records until it furnishes the division satisfactory proof that it has discharged all obligations to service contract holders in this state.

Item 12. Amend rule 191—103.15(523C) as follows:

191—103.15(523C) Violations. Failure to comply with this chapter or with Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619, shall be deemed a violation which shall subject a person or entity to the procedures and penalties set forth in Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619.

Item 13. Amend 191—Chapter 103, implementation sentence, as follows:

These rules are intended to implement Iowa Code chapter 523Cas amended by 2019 Iowa Acts, Senate File 619.

Item 14. Rescind and reserve 191—Chapter 104.

[Filed 9/5/19, effective 10/30/19]

[Published 9/25/19]

Editor's Note: For replacement pages for IAC, see IAC Supplement 9/25/19.