This is a tooltip for the edit command button
Alan J Schmitz, Esq.
(720) 200-4242


Over the past decade numerous jurisdictions have adopted new or updated service contract legislation to supplement state oversight of a growing area of commerce. Service contracts are available for purchase by consumers for home appliances, automobiles (including recreational vehicles and other motor vehicles), and for new and used homes (both structural and including for home heating and cooling systems). The regulation and oversight of service contracts on a state by state basis is by no means uniform and it is incumbent on regulatory counsel to review each state's regulatory scheme when representing service contract providers and administrators. The purpose of this article is to provide regulatory counsel with a starting place to identify each state's relevant service contract authority, if any.

Generally service contract legislation can be divided into three major categories of regulatory oversight: (i) complete service contract oversight based on the NAIC's model service contract legislation; (ii) partial service contract oversight; and (iii) no applicable legislation or an indication from state regulators or legislators that service contracts do not constitute insurance and are unregulated or regulated in a very limited manner. In addition to the three general categories of legislation, often one finds differences in the manner of regulation depending upon whether the service contract is related to a motor vehicle (e.g. manufacturer's exemptions from the application of service contract legislation), an appliance (e.g California's "Bureau of Electronics and Appliance Repair, Home Furnishings and Thermal Insulation"), or a residential service contract.

Category One

The NAIC's model "Service Contracts Act" was adopted in 1995. The salient features of legislation based upon the NAIC model are as follows: 

  • A stated purpose that the legislation is adopted to create a legal framework within which service contracts are defined and sold within the particular jurisdiction. The framework provides that service contracts are not deemed to be insurance and not otherwise subject to the state's insurance laws;
  • Exemptions are created for warranties (made by manufacturers without separate consideration that are not negotiated or separated from the sale of the product) and maintenance agreements (provides for scheduled maintenance only), including those service contracts offered by public utilities, service contracts offered by motor vehicle manufacturers, service contracts sold to persons other than consumers, and service contracts for a purchase price not meeting a defined floor amount (e.g. $100);
  • Defines a service contract as an agreement for: (i) a separately stated consideration; (ii) for a specific duration or term; (iii) to provide service, repair or replacement of property (or indemnification for the costs thereof); (iv) for the operational or structural failure of any motor vehicle, residential or other property; and (v) due to a defect in materials, workmanship, or normal wear & tear;
  • Establishes a process wherein a service contract seller and/or a service contract administrator must demonstrate financial responsibility such that: 

o All service contracts sold are backed by a "reimbursement insurance policy" issued by an insurer licensed, registered (in the case of a risk retention group), or otherwise authorized (authorized non-admitted surplus lines insurer) to do business in the state1; or

o All service contracts are backed by a funded reserve account based upon a percentage of the gross consideration received for the service contract coupled with a financial security deposit consisting of a surety bond, securities deposited with the designated regulator, cash, letter of credit, or another form of acceptable security; or

o The service contract seller maintains together with its parent company a net stockholders' equity in excess of a defined amount (e.g. $100,000,000) demonstrated by submission of a Form 10-K filed with the Securities and Exchange Commission; 

  • Service contract sellers and/or administrators must register with the insurance commissioner (or other designated regulator) using such forms as are provided;
  • Various required consumer protection provisions that may include: 

o A cut-through clause in the reimbursement policy allowing the consumer to seek payment or indemnification of costs associated with a service contract directly from the reimbursement policy insurer in the event the service contract seller does not reimburse or pay on behalf of the consumer any amount such service contract seller is legally obligated to pay;

o Requirements that service contracts contain clear, understandable and easy to read language;

o A disclosure that the obligations of the service contract seller are insured by a reimbursement insurance policy (if that option to demonstrate financial responsibility is used) and identifying the name and address of the reimbursement policy insurer;

o Various additional consumer protections related to cancellation or surrender of the service contract for full refunds and associated timelines;

o Whether a deductible applies, notice requirements and timelines, clear delineation of exclusions or restrictions, the use of non-original manufacturer's parts for motor vehicles, and other various consumer protections2; and 

  • Record keeping requirements requiring service contract sellers and administrators to maintain copies of each service contract sold, contact information of purchasers, and written claims files for a designated period of time (usually consistent with market conduct record retention requirements in the state). 

States that have adopted a comprehensive version of the NAIC model act for service contracts in at least one area (motor vehicle, residential or appliance service contracts) are as follows. In addition to the legislative authority listed, many states have promulgated administrative rules and regulations to supplement the legislation.

Alabama: 8-32-1 et seq.; Arizona: 20-1095 et seq.; Arkansas: 4-114-101 et seq. and 4-90-501 et seq.; California: 9855 et seq. (appliances), 12800 et seq. (motor vehicle), 12740 et seq. (residential); Hawaii: 481X-1 et seq; Idaho: 41-114A and 49-2801 et seq. (motor vehicle);3 Illinois: 215 ILCS 152/1 et seq.; Iowa: 523C.1 et seq. (residential), 516E.1 et seq. (motor vehicle); Louisiana: 22:1806.1 et seq. (residential), 22:361 et seq. (motor vehicle);4 Maine: 24-A/7101 et seq.; Maryland: 14-401 et seq.; Minnesota: 59B.01 et seq.; Mississippi: 83-65-101 et seq. (motor vehicle), 74-24-91 (all others);5 Missouri: 385.200 et seq. (motor vehicle), 385.300 et seq. (all others); Nebraska: 44-3520 et seq. (motor vehicle), 44-102.01 (all others);6 Nevada: 690C.010 et seq.; New Hampshire: 415-C:1 et seq.; New Mexico: 59A-58-1 et seq.; New York: Regulation No. 155 concerning service contracts; North Carolina: 66-370 et seq. (motor vehicle & appliances);7 Oklahoma: 36/6601 et seq. ("service warranty associations" for motor vehicle service contracts), 36/6750 et seq. (residential); Oregon: 646A.150 et seq.; South Carolina: 38-78-10 et seq.; Texas: 1303.001 et seq.; Utah: 31A-6a-101 et seq.; Vermont: 8/4247 et seq.; Washington: 48.110.010 et seq.; Wyoming: 26-49-101 et seq.

Category Two

The following states have adopted a more limited scheme of regulating service contracts by simply excluding service contracts from falling under their respective insurance codes, but not otherwise setting out the full panoply of registration and the financial responsibility requirements contained in the statutory provisions of the NAIC model states.

Alaska: 21.03.021 (excludes appliance and residential services contracts for the insurance code),  45.25.620 (motor vehicle); Colorado: 10-3-902 (residential), 42-11-101 et seq. (motor vehicle); Connecticut: 42-260 (appliance & motor vehicle); 38a-320 (residential);8Georgia: 33-7-6;9 Kansas: 40-201a (service contracts exempted from regulation as insurance); Kentucky: 304.5-070;10 Massachusetts: 175/149F et seq. (home warranty company licensure), 174B/9 (regulates auto clubs); Montana: 30-14-1301 et seq.;11 North Dakota: 9-01-21 (service contracts on property generally), 26.1-40- 18 (motor vehicle);12Ohio: 3905.422 and 3905.423 (residential);13 Virginia: 59.1-435 et seq.; West Virginia: 33-4-2; Wisconsin: 15.01 (residential), 616.71 et seq. (motor clubs) 

Category Three

The remaining jurisdictions provide limited guidance on the regulation of service contracts. Absent any specific authority, it would appear that the state insurance code would apply by default - especially the provisions concerning what constitutes a contract of insurance or conducting the business of insurance in the jurisdiction.

Delaware: See, Insurance Bulletin No. 5 (Domestic/Foreign Insurers); DC: No provisions; Indiana: See, Insurance Bulletin No. 78; Michigan: No provisions;14 New Jersey: 17:18-19 (regulation of vehicle protection product warranties); Pennsylvania: 40/477f; South Dakota: 58-1-3; Tennessee: Attorney General Opinion No. 85-038;

Finally, Florida merits a category of its own with its comprehensive licensure process of service agreement companies under section 634.15 Specific provisions apply to appliance service agreements, motor vehicle service agreements, and to residential (home warranty) service agreements. Florida's approach is by far the most comprehensive regulatory approach in the country.



1. State legislation may vary as to the type of insurer or the circumstances under which an insurer may issue a service contract reimbursement insurance policy. Not all states make clear whether an authorized non-admitted insurer is acceptable using the undefined phrase "authorized insurer" in the state legislation. In fact, informal contact with state regulators may yield varying interpretations of whether the term "authorized insurer" means "admitted insurer" or includes authorized non-admitted surplus lines carriers. Further, restrictions may exist for risk retention groups such that an RRG must maintain a minimum surplus to issue a reimbursement insurance policy or that an RRG may not act as the reimbursement insurance policy issuer for an "affiliated entity." Finally, restrictions on an admitted insurer issuing the reimbursement policy may exist with regard to surplus minimums and/or a limited premium to surplus ratio.

2. As more and more states adopt or amend service contract legislation the area with the most lack of uniformity are the various required consumer protection provisions. Service contact sellers often use a "state amendments" section at the end of their printed service contract forms to list the various state exceptions associated with required consumer protections.

3. Idaho's comprehensive provisions apply only to motor vehicle service contracts. 

4. Louisiana's legislative scheme applies service contract type legislation for residential service contracts. In the context of motor vehicles, Louisiana licenses "vehicle mechanical breakdown insurers"creating a differing approach between the two areas. There is no legislation concerning appliance service contracts. 

5. Mississippi regulates vehicle service contracts. Other service contracts are exempt from regulation as insurance except for the purpose of applying Mississippi's Consumer Protection Act. 

6. Nebraska regulates vehicle service contracts. Other service contracts are exempt from regulation as insurance. 

7. North Carolina defines any "warranty" relating to fixtures to real property as a contract of insurance, except a warranty made by a builder and except a warranty providing for the repair or replacement of the items covered by the warranty for defective parts and mechanical failure or resulting from ordinary wear and tear. It is unlawful for any person to issue a warranty unless that person has posted a surety bond. 

8. Connecticut defines "home warranty contract" or "home warranty service agreement" as constituting a contract of insurance.

9. Georgia defines service contracts wherein the risk of and expense of any portion of a failure or breakdown as property insurance. The insurance code is deemed not apply in the case of a residential service contract if certain financial responsibility measures are provided by the obligor and various consumer protection provisions are demonstrated in the residential service contract. 

10. Kentucky's statutory provisions provide that a service contract to repair, replace, or maintain consumer products shall not be insurance, if the maker of the service contract registers with the insurance commissioner and provides: (i) evidence of a sufficient net worth, as determined by the commissioner, to assure the performance of the duties of the maker created by all of the contracts made by the maker; or (ii) evidence of an insurance policy or performance bond with an authorized insurer to assure the performance of the duties of the maker created by all of the service contracts made by the maker. 

11. See also, 61-12-301 et seq. concerning service contracts offered by motor clubs. Section 33-1-102(10) generally excludes service contracts from the insurance code. 

12. See also, North Dakota Insurance Bulletin 2009-1.

13. Motor vehicle service contracts are not regulated as insurance pursuant to Griffin Systems, Inc. v. Ohio Department of Insurance, 575 N.E.2d 803 (1991). 

14. If a residential service contract's term is interrupted by a strike or work stoppage, then the duration of the service contract term is extended by the period of strike or work stoppage. See, 445.903a. 

15. See, 634.401 et seq. (appliances); 634.011 et seq. (motor vehicles); 634.301 et seq. (residential).