Section 149N: Service contracts; duties of provider
Section 149N. (a) A provider may appoint an administrator or other designee to be responsible for the administration of service contracts executed under sections 149M to 149V, inclusive.
(b) Service contracts shall not be issued, sold or offered for sale unless the provider has provided: (1) a receipt for, or other written evidence of, the purchase of the service contract to the contract holder; and (2) a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase.
(c) A provider of service contracts shall file a registration with the commissioner which shall include, without limitation, the provider's name, address, phone and contact person and a designated person in the commonwealth for service of process. Each provider shall pay to the commissioner a fee of $600 upon initial registration and upon renewal which shall occur every 3 years thereafter.
(d) In order to assure the faithful performance of a provider's obligations to its contract holders, each provider shall:
(1) insure all service contracts under a reimbursement insurance policy issued by an insurer that is authorized, registered or otherwise permitted to transact insurance in the commonwealth or a surplus lines insurer authorized to do business in the commonwealth; provided, that the reimbursement insurance policy shall be obtained from an insurer that: (i) at the time the policy is filed with the commissioner, and continuously thereafter, maintains surplus as to contract holders and paid-in capital of at least $15,000,000 and annually files copies of the insurer's financial statements, its NAIC annual statement and an actuarial certification if required and filed in the insurer's state of domicile; or (ii) at the time the policy is filed with the commissioner, and continuously thereafter, maintains surplus as to policyholders and paid-in capital of less than $15,000,000 but at least $10,000,000, demonstrates to the satisfaction of the commissioner that the insurer maintains a ratio of net written premiums, wherever written, to surplus as to contract holders and paid-in capital of not greater than 3 to 1, and annually files copies of the insurer's financial statements, its NAIC annual statement and an actuarial certification if required and filed in the insurer's state of domicile;
(2)(i) maintain a funded reserve account for its obligations under its contracts issued and outstanding in the commonwealth; provided that the reserve account shall not be less than 40 per cent of gross consideration received, less claims paid, on the sale of the service contract for all in-force service contracts and shall be subject to examination and review by the commissioner; and (ii) place in trust with the commissioner a financial security deposit, having a value of not less than 5 per cent 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 $25,000, consisting of 1 of the following: a surety bond issued by an authorized surety, securities of the type eligible for deposit by authorized insurers in the commonwealth, cash, a letter of credit issued by a qualified financial institution or another form of security authorized by the commissioner; or
(3)(i) maintain, or together with its parent company maintain, a net worth or stockholders' equity of $25,000,000; and (ii) upon request, provide the commissioner 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 United States Securities and Exchange Commission within the last calendar year, or if the company does not file with the United States Securities and Exchange Commission, a copy of the company's financial statements showing a net worth of the provider or its parent company of at least $25,000,000. If the provider's parent company's Form 10?K, Form 20?F or 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 the commonwealth.
(e) Except for the requirements specified in subsections (c) and (d), no additional registration submissions or financial security requirements shall be required by the commissioner for service contract providers.
(f) Service contracts shall require the provider to permit the service contract holder to return the service contract within 20 days of the date the service contract was mailed to the service contract holder or within 10 days of delivery of the service contract to the service contract holder 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 shall be void and the provider shall refund to the service contract holder, or credit the account of the service contract holder or other payer of record, if different, the full purchase price of the service contract. The right to void the service contract provided in this subsection shall not be transferable and shall apply only to the original service contract purchaser if no claim has been made prior to its return to the provider. A 10 per cent penalty per month shall be added to a refund that is not paid or credited within 45 days after return of the service contract to the provider.
(g) Provider fees collected on service contracts shall not be subject to premium taxes; provided, however, that premiums for reimbursement insurance policies shall be subject to premium taxes and all other applicable taxes.
(h) Except for the registration requirements in subsection (c), providers and related service contracts sellers, administrators and other persons marketing, selling or offering to sell service contracts shall not be required to hold any other form of license granted by the commonwealth.
(i) Chapter 176D shall apply to all providers and related service contract sellers, administrators and other persons marketing, selling or offering to sell service contracts; provided however, a service contract shall not be considered to be insurance for any purpose under the laws of the commonwealth and the marketing, sale, offering for sale, issuance, making, proposing to make and administration of service contracts by providers and related service contract sellers, administrators and other persons shall be exempt from all other provisions of chapter 175, including any non-consumer commercial service contract.
(j) Service contracts may provide for the service, repair, replacement or maintenance of tangible personal property for damage resulting from power surges and accidental damage from handling and may provide for leak or repair coverage to roofing systems on residential dwellings.