AB 571

This bill imposes requirements on service contracts that are enforced by the

Office of the Commissioner of Insurance (OCI). As discussed below, the bill defines

the service contracts that are subject to the bill, creates exemptions from the bill's

requirements, imposes requirements on providers of service contracts that are not

exempt from the bill, and imposes other requirements.

Service contracts.

The bill defines "service contract" as a contract or

agreement for a separately stated consideration to perform, or provide

indemnification for, the repair, replacement, or maintenance of property for the

operational or structural failure of property that is due to a defect in materials or

workmanship, accidental damage from handling, or normal wear and tear. The

definition includes contracts or agreements with or without additional provisions for

incidental payment of indemnity under limited circumstances, including towing,

rental, and emergency road service and road hazard protection.

The bill specifies that a contract or agreement for the following is a service

contract: 1) repair, replacement, maintenance, or indemnification for damage

resulting from a power surge or interruption; 2) repair, replacement, or

indemnification for the operational or structural failure of motor vehicle parts or

systems that is brought about by the failure of an additive product to perform as

represented; 3) repair or replacement of motor vehicle tires or wheels that are

damaged by road hazards; and 4) removal of motor vehicle dents, dings, or creases

that can be repaired by specified processes. In addition, the bill specifies that a

contract or agreement for repairing motor vehicle windshield chips or cracks is a

service contract, but a contract or agreement for replacing an entire windshield is not

a service contract. Also, the bill specifies that a contract or agreement for repairing

damage to the interior components of a motor vehicle caused by wear and tear is a

service contract, but a contract or agreement for replacing any part or component of

a motor vehicle's interior is not a service contract.

Exemptions.

The bill exempts certain service contracts from the bill's

requirements. A service contract is exempt if any of the following are satisfied: 1)

the service contract is sold or offered for sale to a person who is not a consumer; 2)

the service contract is for an inside wire protection plan associated with the offering

of telecommunications, video, cable programming, or Internet access service; or 3)

the service contract is offered by a public utility on its devices for transmitting service

to customers. However, the third exemption applies only to the extent that the

service contract is regulated by the Public Service Commission.

The bill also exempts maintenance agreements and certain warranties from the

bill's requirements. The bill defines "maintenance agreement" as a contract for a

specified duration that provides for scheduled maintenance without including repair