New York State
SERVICE CONTRACTS NOW REGULATED BY THE INSURANCE DEPT; PROVIDERS MUST DEMONSTRATE FINANCIAL RESPONSIBILITY
New York, January 15, 1998
Superintendent of Insurance Neil D. Levin announced that effective today any company offering service and repair contracts in New York State must register with the Insurance Department as well as establish financial responsibility in the event they fail to fulfill their obligations under the contracts.
These new rules apply to all retailers, manufacturers, and others that sell service contracts for a separate or additional financial consideration. The law, contained in Chapter 614 of the Laws of 1997 and implemented by Department Regulation 155, gives consumers new protections when buying these products from registered service contract providers.
Service contracts are agreements for a separate or additional fee that provides to owners of property the benefit of repair, replacement, or maintenance of property for a specified period due to a defect in materials or workmanship or wear and tear. Examples of kinds of property for which service contracts are often written include: heating or air conditioning systems, motor vehicles, washing machines, and VCRs.
Manufacturers who provide warranties on their products for no additional fee are not required to register as service contract providers.
Among its provisions, Regulation 155 requires service contracts to contain language set forth in a conspicuous manner concerning the right to terminate the contract and any need for prior approval of repair work. The law and Regulation also establish a minimum required level of financial responsibility for service contract providers in the event they fail to fulfill their obligations under the contract.
One method of demonstrating financial responsibility is for the service contract provider to purchase service contract reimbursement insurance from a licensed property/casualty insurance company. This is a new kind of insurance and Chapter 614 and Regulation 155 contain the minimum provisions and requirements concerning the sale of this product, the benefit of which runs directly to the consumer holding the service contract.
Financial responsibility can also be demonstrated by establishing and maintaining a funded reserve account and by placing in trust a financial security deposit with the Superintendent. The third method is by demonstration of $100,000,000 in net worth. In the second and third cases, the service contract provider must also file annual audited financial statements with the Superintendent.
Applications to register as a service contract provider can be obtained from the Departments Licensing Bureau at 518-474-6630.