An Act To Increase Consumer Choice Regarding Service Contracts
Maine Legislature, Session 124, LD 1621
Committee: InsLirance and Financial Services
Sponsors: THIBODEAU, SHERMAN, BUTTERFIELD, CAREY, CURTIS, JOHNSON, SYKES, THOMAS, COURTNEY, JACKSON

Legislative Document 
No. 1621 
H.P.1149 
House of Representatives, Dec~mber 23,2009 
An Act To Increase Consumer Choice Regarding Service Contracts 
Approved for introduction by a majority ofthe Legislative Council pursuant to Joint Rule 
- 203. 
Received by the CI!=!rk of the House on December 21, 2009. Referred to the Committee on 
InsLirance and Financial Services pursuant to Joint Rule 308.2 and ordered printed pursuant to 
Joint Rule 401. 
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Presented by Representative THIBODEAU of Winterport. 
Cosponsored by Senator SHERMAN of Aroostook and 
I7/d~ /J7.1l!IlC~{ 
MILLICENT M. MacFARLAND 
Clerk 
Representatives: BUTTERFIELD of Bangor, CAREY of Lewiston, CURTIS of Madison, 
JOHNSON of Greenville, SYKES of Harrison, THOMAS of Ripley, Senators: COURTNEY 
of York, JACKSON of Aroostook. 
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Printed un recycled PiJPcr 
Be it enacted by the People ofthe State of Maine as follows: 
Sec. 1. 24-A MRSA c. 89 is enacted to read: 
CHAPTER 89 
SERVICE CONTRACTS 
§7001. Scope and purpose 
1. Purpose. The purpose of this chapter is to create a legal framework within which· 
service contracts may be sold in this State. 
2. General exemptions. The following are exempt from the provisions ofthis Title, 
including the other provisions of this chapter: 
A.. Warranties; 
B. Maintenance agreements; 
C. 
Warranties, service contn ;ts and maintenance agreements offered by public 
utilities on their transmission devices to the extent they are regulated by the Public 
Utilities Commis·sion; and 
D. Service contracts sold or offered for sale to persons other than consumers. 
3. Service contract provider exemptions. 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 are subject to the 
provisions of this chapter and exem·pt from all other provisions of this Title. 
. §7002. Definitions 
As used in this chapter, unless the context otherwise indicates, the following terms 
have the following meanings. 
1. Administrator. "Administrator" means the person who is responsible for the 
administration of a service contract or who is responsible for a filing required by this 
chapter. 
2. Consumer. "Consumer" means a natural person who buys other than for purposes 
of resale any tangible personal property that IS distributed in commerce and that is 
normally used for personal, family or household purposes and not for business or research 
purposes. 
. 
3. Maintenance agreement. "Maintenance agreement" means a contract of limited 
duration that provides for scheduled maintenance only. 
4. Nonoriginal manufacturer's P~lrts. "Nonoriginal manufacturer's parts" means 
replacemerit parts not made for or by the original manufacturer of the property, 
commonly referred to as "aftermarket parts." 
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5. Person. "Person" means an individual, partnership, corporation, incorporated or 
unincorporated association, joint stock company, reciprocal exchange, syndicate or any 
similar entity or combination of entities acting in concert. 
6. 
Premium. 
"Premium" means the consideration paid to an insurer for a 
reimbursement insurance policy. ' 
7. Provider. "Provider" means a person who is contractually obligated to a service 
contract holder under the terms of a service contract. 
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8. Provider fee. "Provider fee" means the consideration paid for a service contract. 
9. Reimbursement insurance policy. "Reimbursement insurance policy" means a 
policy of insurance that is issued tb a provider to reimburse the provider or to pay on 
behalf of the provider all covered contractual obligations incurred by the provider under 
the terms of the insured service contracts issued or sold by the provider. 
10. Service contract. "Service contract" means a contract or agreement provided. in 
exchange· for a separately stated consideration for a specific duration to perform the, 
repair, replacement or maintenance of property or provide indemnification for repair" 
,replacement or maintenance, for an operational or structural failure due to a defect in 
materials or workmanship or normal wear and tear, with or without additional provision 
for incidental payment or indemnity under limited circumstances, including, but not 
limited to, towing, rental and emergency road service. Service contracts may provide for 
the repair, replacement or maintenance of property for damage· resulting from power 
surges and accidental damage from handling. 
. 
11. 
Service contract holder or contract holder. 
"Service contract holder" or 
"contract holder" means a person who is·the purchaser or holder of a service ·contract. 
12. Warranty. "Warranty" means a warranty made solely by the manufacturer, 
importer or seller of property or services without consideration that is not negotiated or 
separated from the sale of the product and is incidental to the sale' of the product and that 
guarantees indemnity for defective parts, mechanical or electrical breakdown, labor or 
other remedial measures, such as repair or replacement of the property or repetition of 
",services. 
§7003. Requirements for doing business 
1. Administrator. A provider may, but is not required to, appoint an administrator 
or other designee to be responsible for the administration of service contracts and 
compliance with this chapter. 
2. Service contract. A service ~ontract may not be issued, sold or offered for sale in 
this State unless the provider has: 
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A. Provided a receipt for, or other written evidence of, the purchase of the service 
,contract to the contract holder; and 
,B.· Provided a copy of the service contract to the service contract holder within a 
reasonable period of time from the date of purchase. 
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3. Registration .. A provider of service contracts sold in this State shall file a 
registration with the superintendent on a form prescribed by the superintendent. 
A 
provider shall pay to the superintendent a fee in the amount of $500 anilUally. 
4. 
Performance. 
In order to ensure the faithful performance of the provider's·. 
obligationsto its service contract holders, a providershall: 
A. 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 19;· 
B. Undertake to: 
(1) 
Maintain a funded reserve .account for its· obligations under its service 
contracts issued and outstanding in this State. The reserves may not be less than 
40% of the gross consideration received, less claims paid, on the sale of the 
service ·contract for all contracts in force. 
The reserve account is· subject to 
examination and review by the superintendent; and 
. (2) Place in trust with the superintendent a financial security deposit, having a 
value of not less than 5% 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: . 
Ca) A surety bond issued by an authorized surety; 
(b) Securities of the type eligible for deposit by authorized insurers in this 
State; 
(c) Cash; 
Cd) A letter of credit issued by a qualified financial institlltion; or 
Ce) 
Another form of. security prescribed by rules adopted by the 
superintendent; or 
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C. Undertake to: 
0) Maintain, or have its parent company maintain, a net worth or stockholders' 
equity of at least $100,000,000; and 
(2) Upon request, provide the superintendent with a copy of the provider's or its 
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 provider's or its parent company's audited financial 
statements that show a net worth of the provider or its parent. company of at least 
$100,000,000. 
If the parent company's Form 10-1(, Form 20-F or audited 
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 this State. 
5. Right to void. A service contract must require the provider to permit the service 
contract holder to return the service contract within 20 days of the date the service 
contract is mailed to the service contract holder or within 10 days of delivery if the 
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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 is void 
and the provider shall refund to the service contract holder, or credit the account of the 
service contract holder, the full purchase price of the service contract. The right to void 
the service contract provided in this subsection is not transferable and applies only to the 
original service contract purchaser and only if no claim has been made prior to its return 
to the provider. A 10% penalty per month must be added to a refund that is not paid or 
credited within 45 days after return of the service contract to the provider. 
6. Premium taxes. Provider fees collected on service contracts are not subject to 
premium taxes. Premiums for reimbursement insurance policies are subject to applicable 
taxes. 
7. Licensing exemptions. Except for the registration requirement in subsection 3, 
providers and related service contract sellers, administrators and other persons marketing, 
selling or offering for sale service contracts are exempt from any licensing requirements 
of this State. 
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§7004. Req'uired provisions; reimbursement insurance policy 
1. 
Statement of policy. 
A reimbursement insurance policy insuring service 
contracts issued, sold or offered for sale in this State must state that the insurer that issued 
the reimbursement insurance policy shall reimburse or pay on behalf of the provider any 
covered sums the provider is legally obligated to payor shall provide the service that the 
provider is legally obligated to perform according to the provider's contractual obligations 
under the insured service contracts issued or sold by the provider. 
2. 
Application to reimbursement insurance company. 
In the event covered 
service is not ·provided by the service contract's provider within 60 days of proof of loss 
by the service contract holder, the contract holder may apply directly to the 
reimbursement insurance company. 
§7005. Required disclosures; service contracts 
1. Disclosures. A service contract marketed, sold, offered· for sale, issued, made, 
proposed to be m·ade or administered in this State must be written, printed o·r typed in 
clear, understandable language that is easy to read and must disclose the requirements set 
fOlih in this section, as applicable. 
A. A service contract insured under a reimbursement insurance policy pursuant to 
section 7003, subsection 4, paragraph A must contain a statement in substanti~t1ly the 
following form: "Obligations of the provider under this service contract are insured 
under a service contract reimbursement insurance policy." The service contract must 
state the name and address of the insurer. 
B. A service contract not issued under a reimbursement insurance policy pursuant to 
section 7003, subsection 4, paragraph A must contain a statement in substantially the 
following form: "Obligations of the provider under this service contract are backed 
by the full faith and credit of the provider." 
C. A service contract must state the name and address of the provider and must 
identify any administrator other than the provider, the service contract seller and the 
service contract holder to the extent that the name of the service contract holder has 
been furnished by the service contract holder. The identities of such parties are n01 
required to be preprinted on the service contract and may be added to the service 
contract at the time of sale. 
D. A service contract must state the purchase price of the service contract and the 
terms under which the service contract is sold. The purchase price is not required to 
be preprinted on the service contract and may be negotiated .at the time of sale with 
the service contract holder. 
E. 
A service contract must state the existence of any deductible amount, if 
applicable .. 
F. A service contract must specify the merchandise and services to be provided and 
any limitations, exceptions or e} :.Iusions. 
G. A service contract covering LLutoinobiles must state whether the use of nonoriginal 
manufacturer's parts is allowed. 
H. A service contract must state any restrictions governing the transferability of the 
service contract, if applicable. 
I. 
A service contract must state the terms, restrictions and con'ditions governing 
cancellation of the service contract prior to the termination or expiration date of the 
service contract by either the provider or the service contract holder. The provider of 
the service contract shall mail a written notice to the service contract holder at the last 
known address of the service contract holder contained in the records of the provider 
at least 5 days prior to cancellation by the provider. Prior notice is not required if the 
reason 
for 
cancellation 
is 
nonpayment of the 
provider fee, 
a 
material 
misrepresentation by the service contract holder to the provider or a substantial 
breach of contractual duties by the service contract holder relating to the covered 
product or its use. The notice must state the effective date of the cancellation and the 
reason for the cancellation. 
J. A service contract must set forth the obligations and duties of the service contract 
holder, such as the duty to protect against any further damage and any requirement to 
follow instructions in an owner's manual. 
K. A service contract must state whether or not the service contract provides for or 
excludes consequential damages or preexisting conditions, if applicable. 
§7006 .. Prohibited acts 
1. Prohibited names. A provider may not use in its name the words "insurance," 
"casualty," "surety," "mutual" or any other words descriptive of the insurance, casualty or 
surety business and may not use a name deceptively similar to the name or description of 
any insurance or surety corporation or to the name of any other provider. The word 
"guaranty." or similar word may be used by a provider. This section does not apply to a 
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company that was lising aliy of the prohibited language in its name prior to the effective 
date. of this chapter; however, a company using the prohibited language in its name shall 
include in its service contracts a statement in substantially the following form: 
"This 
agreenient is not an insurance contract." 
2. Misleading statements. A provider or. its representative may not in its service 
contracts or literature make, permit or cause to be made any false .or misleading statement 
or deliberately omit any material statement the omission of which would be considered 
l11islea~ing. 
3. Prohibited conditions of sale. A person, including but not limited to a bank, 
savings and loan association, lending institution, manufacturer or seller of any product, 
may not require the purchase of a service contract as a condition of a loan or a condition 
for the sale of any property. 
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§7007. Record-I{eeping requirements 
1. Books and records. A provider shall keep books and records in accordance with 
this section. 
A. 
The provider shall keep. accurate accounts, books and records concerning 
transactions regulated under this chapter. 
B. The provider's accounts, books and records must include: 
(1) Copies of each type of service contract sold; 
(2) The name and address of each service contract holder, to the extent that the 
name and address have been furnished by the service contract holder; 
(3) A list of the locations where 'service contracts are marketed, sold or offered 
for sale; and 
(4) Written claims files, which must contain at least the dates and descriptions of 
claims related to the service contracts .. 
C. Except as provided in subsection 2, the provider shall retain all records required to 
be maintained by this subsection for at least one year after the specified period of 
coverage has expired. 
D. 
The records required under this chapter may be, but are not required to be, 
maintained in an electronic format or other record-keeping medium. If the records 
are maintained in other than hard copy, the records must be capable of being 
transferred to legible hard copy at the request of the superintendent. 
2. Discontinuance of business. A provider discontinuing business in this State shall 
maintain its records until it furnishes the superintendent satisfactory proof that it has 
discharged all obligations to service contract holders in this State. 
§7008. Cancellation of reimbursement insurance policy 
An insurer that issues a reimbursement insurance policy may not terminate the policy 
until a notice of cancellation has been mailed or delivered to the superintendent. . This 
notice of cancellation must be mailed or delivered to the superintendent at least 5 days 
prior to cancellation. The cancellation of a reimbursement insurance policy does not 
reduce the insurer's responsibility for service contracts issued by providers prior to the 
date of the cancellation. 
§7009. O_bligations of reimbursement insurance policy insurers 
1. 
Agency. 
A provider is considered the agent of the insurer that· issued the 
reimbursement insurance policy for purposes of obligating the insurer to service contract 
holders in accordance with the service contract and this chapter. When a provider is 
acting as an administrator and enlists other providers, the provider acting as the 
administrator shall notify the insurer of the existence and identities of the other providers. 
2. Other rights. This chapter does not negate or limit the right of an insurer that 
issued a reimbursement insurance pol icy to seek indemnification or subrogation against a 
provider if the insurer pays or is obligated to pay the service contract holder sums that the 
provider was obligated to pay pursuant to the provisions of the service contract. 
"§7010. Enforcement provisions 
1. 
Examinations. 
The superintendent may conduct examinations of providers, 
administrators, insurers or other persons. to -enforce this chapter and protect service 
contract holders in this State. Upon request of the superintendent, a provider shall make 
available to the superintendent all accounts~ books and records concerning service 
contracts sold by the provider· that are necessary to enable the superintendellt to 
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reasonably determine compliance or noncompliance with this chapter. 
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2. Enforcement. The superintendent may take action as necessary or appropriate to 
enforce the provisions of this chapter and the superintendent's rules and orders adopted 
pursuant to this chapter and to protect service contract holders in this State. 
A. If a provider has violated this chapter or the superintendent's rules or orders, the 
superintendent may: 
(1) Issue an order directed to that provider to cease and desist from committing 
. violations of this chapter or the superintendent's rules or orders; . 
(2) 
Issue an order prohibiting that provider from selling or offering for sale 
service contracts in violation of this chapter; 
(3) Issue an order imposing a civil penalty on that provider; or 
(4) Issue any combination of orders, as applicable. 
B. A person aggrieved by an order issued under this section may request a hearing 
before the superintendent. The hearing request must be filed with the superintendent 
within 20 days of the date the superintendent's order is effective. 
C. 
If a hearing is requested pursuailt to paragraph S, an order issued by the 
superintendent under this section must be suspended from the original effective date 
of the order until completion of the hearing and final decision of the superintendent. 
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D. At a hearing held pursuant to this subsection, the burden is on the superintendent 
to show why the order issued pursuant to this section is iustified. The provisions of 
the Maine Administrative Procedure Act apply to a hearing under this section. 
3. Civil action. The superintendent may bring an action in any court of competent 
jurisdiction for an injunction or other appropriate relief to enjoin threatened or existing 
violations, of this chapter or of the superintendent's rules. An action filed under this 
section alsu may seek restitution on behalf of persons aggrieved by a violation of this 
chapter or rules of the superintendent. 
4. Penalties. A' person who is found to have violated this chapter or rules of the 
superintendent commits a civil violation and may be ordered in an adjudicatory· 
proceeding to pay to the superintendent a fine iJl, an amount determined by the 
superintend~nt of not more than $500 per violation and not more than $10,000 in the 
aggregate for all violations of a similar nature. For purposes of this subsection, violations 
are of a similar nature if the violations consist of the same or a similar course of conduct, , 
'action or practice, irrespective of the number of times the act, conduct or practice that is 
determined to be a violation of this chapter occurred. 
§7011. Authority to adopt rules, 
The superintendent may adopt rules necessary to implement this chapter. 
Rules 
adopted pursuant to this section are routine technical rules as defined in Title 5, chapter 
375, subchapter 2-A. 
§7012. Application 
Service contracts entered into prior to January 1, 2011 and renewals of those 
contracts may, but are not required to, comply with this chapter. Providers and other 
persons are not required to comply with this chapter until January 1, 2011. A provider or 
other person may, but is not required to, implement the requirements ofthis chapter prior 
to January 1, 2011. The failure of a provider or other person to comply with this chapter 
or otherwise to administer a service contract in the manner required by this chapter prior 
to January 1, 2011 is not admissible in any court, arbitration or alternative dispute 
resolution proceedings and that failure may not be otherwise used to prove that the action 
of any person or the service contract was unlawful or otherwise improper. 
SUMMARY 
This bill establishes standards for providers of service contracts and exempts these 
contracts from all other provisions of the Maine Insurance Code. 
It also exempts from 
the Maine Insurance Code: 
1. Warranties; 
2. Maintenance agreements; 
3. 
Warranties, service contracts and maintenance "agreements offered by public 
utilities on their transmission devices to the extent they are reguiated by the Public 
Utilities Commission; and 
4. Servic~ contracts sold or offered for sale to persons other than consumers. 
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