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Session Law

2006

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Chapter 438 AN ACT REGULATING VEHICLE PROTECTION PRODUCT WARRANTIES.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same as follows:

SECTION 1. The General Laws are hereby amended by inserting after chapter 174B the following chapter:-

Chapter 174C
Vehicle Protection Product Warranties Act.

Section 1. As used in this chapter, the following words shall, unless the context otherwise requires, have the following meanings:-

“Administrator”, a third party other than the warrantor who is designated by the warrantor to be responsible for the administration of its vehicle protection product warranties.

“Incidental costs”, expenses specified in the vehicle protection product warranty and incurred by the warranty holder that relate to the failure of the vehicle protection product to perform as provided in the warranty. Incidental costs may include insurance policy deductibles, rental vehicle charges, the difference between the actual value of the stolen vehicle at the time of theft and the cost of a replacement vehicle, sales taxes, registration fees, transaction fees and mechanical inspection fees.

“Vehicle protection product”, a vehicle protection device, system or service installed on or applied to a vehicle that is designed to prevent loss or damage to a vehicle from a specific cause, and sold with a vehicle protection product warranty. Such products include, but are not limited to, alarm systems, body part marking products, steering locks, window etch products, pedal and ignition locks, fuel and ignition kill switches and electronic, radio and satellite tracking devices.

“Vehicle protection product warranty”, a written warranty by a warrantor that provides for the payment of incidental costs or the provision of services by the warrantor to or for the benefit of the warranty holder if the vehicle protection product fails to prevent loss or damage to a vehicle from a specific cause.

“Warrantor”, a person who is contractually obligated to the warranty holder under the terms of the vehicle protection product warranty. Warrantor does not include an authorized insurer.

“Warranty holder”, a person who purchases a vehicle protection product warranty or to whom it is transferred under the terms of the warranty.

“Warranty reimbursement insurance policy”, a policy of insurance issued to a warrantor to provide reimbursement to the warrantor consistent with the terms of its vehicle protection product warranties and provide direct payment of incidental costs or provision of services to the warranty holder on behalf of the warrantor if the warrantor fails to perform as obligated under the terms of the vehicle protection product warranty within 60 days of a request for payment or services.

Section 2. (a) A vehicle protection product warranty is required for all vehicle protection products sold or offered for sale in the commonwealth and shall:

(1) identify the warrantor, the seller of the vehicle protection product, the warranty holder and the terms of the sale and the warranty;
(2) conspicuously state that the obligations of the warrantor to the warranty holder are guaranteed under a warranty reimbursement insurance policy if the warrantor elects to use a warranty reimbursement insurance policy to demonstrate financial responsibility under section 4;
(3) conspicuously state that if the warrantor fails to perform under the terms of the warranty within 60 days of a request for payment or services, the warranty holder may seek payment or services directly from the insurer through the warrantor’s warranty reimbursement insurance policy and the insurer shall make payment or provide services directly to the warranty holder on behalf of the warrantor if the warrantor elects to use a warranty reimbursement insurance policy to demonstrate financial responsibility under section 4;
(4) conspicuously state the name and address of the insurer issuing the warranty reimbursement insurance policy if the warrantor elects to use a warranty reimbursement insurance policy to demonstrate financial responsibility under section 4; and
(5) disclose how the incidental costs are to be calculated for reimbursement, which may be, without limitation, a fixed amount specified in the warranty or sales agreement, or by the use of a formula itemizing specific incidental costs incurred by the warranty holder.
(6) not require as a condition of financing that a retail purchaser of a motor vehicle purchase a vehicle protection product.
(7) contain the following disclosure in bold type of a minimum font size of 10 points:

“THIS AGREEMENT IS A PRODUCT WARRANTY AND IS NOT INSURANCE.”

Section 3. (a) A vehicle protection product sold or offered for sale in the commonwealth shall have its warranty liability backed by a warranty reimbursement insurance policy issued by an insurer authorized to do business in the commonwealth who has filed its policy form with the division of insurance, or the warrantor shall demonstrate proof of financial responsibility through meeting a minimum net worth requirement as required in section 4.

(b) The warrantor shall perform as obligated under the warranty within 60 days of a warranty holder’s request for payment or services under the terms of the warranty. If the warrantor fails to perform under the terms of the warranty within 60 days of the request and if the warrantor has elected to demonstrate its financial responsibility through maintaining a warranty reimbursement insurance policy under section 4, the warranty holder may seek payment or services directly from the insurer through the warrantor’s warranty reimbursement insurance policy and the insurer shall make payment or provide services directly to or for the benefit of the warranty holder on behalf of the warrantor.

(c) Vehicle protection product warranties that meet the requirements of this chapter shall not be subject to chapter 140D, 174, 175, or 176. Vehicle protection product warranties are express warranties and not insurance.

Section 4. (a) A vehicle protection product shall not be sold, or offered for sale in the commonwealth unless the warrantor either covers the warrantor’s warranty liability with a warranty reimbursement insurance policy or maintains a minimum net worth in order to ensure adequate performance under the warranty under the conditions set forth in this section. No other financial security requirements or financial standards for warrantors shall be required.

(b) A warranty reimbursement insurance policy shall state that:-

(1) the insurer issuing the warranty reimbursement insurance policy shall, in the event of warrantor’s failure to do so, reimburse or pay on behalf of the warrantor all incidental costs that the warrantor is legally obligated to pay or shall provide the service that the warrantor is legally obligated to perform under the vehicle protection product warranty; and
(2) if the warrantor fails to perform under the terms of the warranty within 60 days of a request for payment or services, the warranty holder may seek payment or services directly from the insurer through the warrantor’s warranty reimbursement insurance policy and the insurer shall make payment or provide services directly to the warranty holder on behalf of the warrantor.

(c) If the vehicle protection product warrantor elects to demonstrate financial responsibility by maintaining a minimum net worth, the warrantor, or its parent company shall maintain a net worth or stockholders’ equity of not less than $30,000,000.

Section 5. (a) A warrantor shall register with the state secretary on a form prescribed by the secretary.

(b) Warrantor registration records shall be filed annually and shall be updated within 30 days of any change. The registration records shall contain the following information:

(1) the warrantor’s name, including a fictitious or assumed name under which the warrantor does business in the commonwealth, principal office address, and telephone number;
(2) the name, address, and telephone number of administrators designated by the warrantor to be responsible for the administration of vehicle protection product warranties in the commonwealth;
(3) the name, address, and telephone number of the insurer issuing the warranty reimbursement insurance policy if the warrantor is meeting the financial responsibility requirements of section 4 by using a warranty reimbursement insurance policy;
(4) a copy of the warranty reimbursement insurance policy or policies or other financial information required by sections 4 or 5;
(5) a statement indicating whether the warrantor elects to maintain a minimum net worth or a warranty liability reimbursement insurance policy as required under section 4;
(6) if the warrantor elects to meet the financial responsibility requirements of section 4 through the minimum net worth requirement, the warrantor shall file a sworn statement of a duly authorized officer of the company or its independent auditor that the company meets the minimum net worth requirement of section 4 along with the financial records specified in this subsection. In place of filing financial records, the warrantor may provide a record reference for locating the records at the Securities and Exchange Commission; the records the warrantor shall provide to the state secretary are a copy of the warrantor’s or the warrantor’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 warrantor does not file with the Securities and Exchange Commission, a copy of the warrantor or the warrantor’s parent company’s audited financial statements that shows a net worth of the warrantor or its parent company of at least $30,000,000. If the warrantor’s parent company’s form 10-K, form 20-F, or audited financial statements are filed to meet the warrantor’s financial stability requirement, then the parent company shall agree to guarantee the obligations of the warrantor relating to warranties issued by the warrantor in the commonwealth; the private financial information filed under this subsection which is not otherwise a public record shall be confidential as a trade secret of the entity filing the information and not subject to public disclosure.

(c) The state secretary may charge each registrant a reasonable fee to offset the cost of processing the registration and maintaining the records in an amount not to exceed $250 annually.

Section 6. (a) The state secretary, in his discretion, may make public or private investigation within or outside of the commonwealth as he considers necessary to determine whether a person has violated or is about to violate this chapter. For purposes of an investigation or proceeding, the secretary or an officer designated by him may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of books, papers, correspondence, memoranda, agreements or other documents or records which the secretary considers relevant or material to the inquiry. In the case of contumacy by or refusal to obey a subpoena issued to a person, the superior court for the county in which the person is found or is an inhabitant or transacts business, upon application by the secretary, may issue to the person an order requiring him to appear before the secretary, or the officer designated by him, there to produce documentary evidence if so ordered or to give evidence concerning the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt of court.

(b) If the state secretary determines, after notice and opportunity for hearing, that a person has engaged in or is about to engage in an act or practice constituting a violation of this chapter, he may order that person to cease and desist from the unlawful act or practice and may take affirmative action, including the imposition of an administrative fine, the issuance of an order for accounting, disgorgement or recession or other relief as in his judgment may be necessary to carry out this chapter. An administrative fine imposed pursuant to this chapter shall not exceed $5,000 for each violation.

(c) In addition, a person whom the state secretary has investigated who has been found to have violated this chapter shall pay for all costs incurred in the conduct of the investigation. The costs shall include, but not be limited to, the salaries and other compensation paid to clerical, administrative, investigative and legal personnel of the secretary in the conduct of the investigation.

SECTION 2. (a) This act shall apply only to a vehicle protection product warranty purchased on or after its effective date. The failure of a person to comply with this act before its effective date shall not be admissible in a court proceeding, administrative proceeding, arbitration, or alternative dispute resolution proceeding and may not otherwise be used to prove that the action of a person or the affected vehicle protection product was unlawful or otherwise improper; but this shall not imply that a vehicle protection product warranty was insurance before the effective date of this act.

SECTION 3. This act shall take effect on June 1, 2007.

Approved January 3, 2007.


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