§8-32-3. Requirements for selling or offering to sell service contracts.

(a) Either the provider or its designee shall:

(1) Provide a receipt for, or other written evidence of, the purchase of the service contract to the contract holder.

(2) Provide a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase.

(b) A provider may, but is not required to, appoint an administrator or other designee to be responsible for any or all of the administration of service contracts and compliance with this chapter.

(c) Each provider of service contracts sold in this state shall file a registration with the commissioner on a form prescribed by the commissioner. Each provider shall pay to the commissioner a fee in the amount of two hundred dollars ($200) annually. All fees collected shall be paid into a special revolving fund to be set up by the State Treasurer referred to as the "Service Contract Revolving Fund." The Service Contract Revolving Fund shall be used in the supervision and examination of providers and otherwise in the administration of this chapter; provided however, that nothing in this section shall be construed to mean that all of the expenses of supervision and examination of providers and in the administration of this chapter incurred by the State Insurance Department shall come from the Service Contract Revolving Fund.

(d) All funds now or hereafter deposited in the State Treasury to the credit of the Service Contract Revolving Fund shall not be expended for any purpose whatsoever unless the same shall have been allotted and budgeted in accordance with the provisions of Sections 41-4-80 to 41-4-96, inclusive, and 41-19-1 to 41-19-12, inclusive, and only in the amounts and for the purposes provided by the Legislature in the general appropriation bill, other appropriations bills or this chapter.

(e) There is hereby appropriated for the fiscal year ending September 30, 1998, from the Service Contract Revolving Fund to the State Department of Insurance those amounts as deemed necessary to carry out the provisions of this chapter as determined by the Commissioner of Insurance.

(f) In order to assure the faithful performance of a provider's obligations to its service contract holders, each provider shall be responsible for complying with the requirements of one of the following subdivisions:

(1) Insure all service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in this state or issued pursuant to Chapter 10, Title 27.

(2) Do both of the following:

a. Maintain a funded reserve account for its obligations under its service contracts sold and outstanding in this state. The reserves shall be based on the loss experience of the provider as certified by an actuary or, at the election of the provider, the reserves shall be 30 percent of the aggregate provider fees for all service contracts sold and then in force. The reserve account shall be subject to examination and review by the commissioner.

b. Place in trust with the commissioner a financial security deposit, having a value of not less than five percent of the aggregate provider fees, less claims paid, for all service contracts sold and then in force, but not less than twenty-five thousand dollars ($25,000) consisting of one of the following:

(i) A surety bond issued by an authorized surety.

(ii) Securities of the type eligible for deposit by authorized insurers in this state.

(iii) Cash.

(iv) A letter of credit issued by a qualified financial institution.

(v) Another form of security prescribed by regulations issued by the commissioner.

(3) Do both of the following:

a. Maintain a net worth or stockholders' equity of one hundred million dollars ($100,000,000).

b. Upon request, provide the commissioner with a copy of the financial statement of the provider included in its most recent annual report on Form 10-K or Form 20-F filed with the Securities and Exchange Commission (SEC) within the last calendar year, or if the provider does not file with the SEC, a copy of the audited financial statements of the provider, which shows a net worth of the provider of at least one hundred million dollars ($100,000,000). A consolidated Form 10-K, Form 20-F or audited financial statements shall meet the requirements of this chapter for the provider if it shows a net worth or stockholders' equity of the provider of at least one hundred million dollars ($100,000,000) and there shall be no requirement of a parent company guarantee, reimbursement insurance, or other form of financial stability requirement. However, if the Form 10-K, Form 20-F or audited financial statements of the parent company of the provider are filed to meet the provider's financial stability requirement because the provider's net worth or stockholders' equity of the provider is not at least one hundred million dollars ($100,000,000), or because the net worth or stockholders' equity is not determinable from the consolidated Form 10-K, Form 20-F or audited financial statements of the parent company, then the parent company shall agree to guarantee the obligations of the provider relating to service contracts sold by the provider in this state.

(g) Service contracts shall require the provider to permit the service contract holder to return the service contract within no less than 20 days of the date the service contract was mailed to the service contract holder or within no less than 10 days of delivery if the service contract is delivered to the service contract holder at the time of sale. 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 is void and the provider shall refund to the service contract holder the full purchase price of the service contract including any premium paid for any applicable reimbursement insurance policy. Any refund due a service contract holder may be credited to any outstanding balance of the account of the service contract holder, and the excess, if any, shall be refunded to the service contract holder. The right to void the service contract provided in this subsection (g) is not transferable and shall apply only to the original service contract purchaser, and only if no claim has been made prior to its return to the provider. A 10 percent 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.

(h) In the event the original service contract holder makes a written demand for cancellation of a service contract pursuant to the terms of the service contract, the provider shall refund to the service contract holder the unearned portion of the full purchase price of the service contract including the unearned portion of any premium paid for any applicable reimbursement insurance policy. Any refund due a service contract holder may be credited to any outstanding balance of the account of the service contract holder, and the excess, if any, shall be refunded to the service contract holder. If the original contract purchaser or a contract holder elects cancellation, the provider may retain an administrative fee of up to twenty-five dollars ($25) for issuance of the service contract if such fee is provided for in the service contract; however, this amount may not be deducted in the event the service contract is terminated pursuant to the provisions of subsection (g).

(i)(1) Provider fees are not subject to premium taxes.

(2) Premiums for reimbursement insurance policies are subject to applicable taxes.

(j) Except for the registration requirement in subsection (c), providers, administrators, and other persons marketing, selling, or offering to sell service contracts for providers are exempt from any licensing requirements of this state.

(k) Providers are not required to comply with any provision of Title 27.

(Acts 1997, No. 97-445, p. 753, §3.)