TDI Commissioner’s Bulletin No. B-0047-99 – SB 1775 Service Contracts

TO: All Property and Casualty Insurers and Eligible Surplus Lines Insurers

RE: Senate Bill 1775 – Relating to the regulation of certain providers of service contracts (Adds Article 9034, Chapter 20, Title 132. Revised Statutes)

Senate Bill 1775, “Service Contract Regulatory Act” (Act), enacted by the 76th Texas Legislature, establishes regulation of service contracts by the Texas Department of Licensing and Regulation (TDLR). The Act requires providers of service contracts, as defined therein, to register with the TDLR. To ensure faithful performance of its obligations under the service contract, providers are required to comply with one of three options to establish financial security. One option is to insure the provider’s service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in Texas or under a surplus lines insurance policy issued by an insurer eligible to place coverage in Texas as regulated under Article 1.14-2, Insurance Code.

Reimbursement insurance policies issued pursuant to this legislation must state that:

(1) the insurer that issued the reimbursement insurance policy shall reimburse or pay on behalf of the provider any covered amounts the provider is legally obligated to pay or shall provide the service that the provider is legally obligated to perform according to the provider’s contractual obligations under the insured service contract issued or sold by the provider; and

(2) if the covered service is not provided to a service contract holder within 60 days of proof of loss, payment shall be made directly from the reimbursement insurer to the service contract holder or the reimbursement insurer shall provide the required service.

Insurers may not cancel a reimbursement policy until the insurer delivers to the provider a written notice of cancellation pursuant to Articles 21.49-2A, Insurance Code. Cancellation of a reimbursement insurance policy does not reduce the insurer’s responsibility for service contracts issued by the provider and insured under the policy before the date of the cancellation.

While eligible surplus lines insurers are not required to file policy forms with the Texas Department of Insurance (TDI) for approval, they must comply with the requirements set forth in the Act and outlined in this bulletin for reimbursement policies covering service contracts entered into on or after January 1, 2000. All other insurers planning to write reimbursement insurance policies to cover service contracts entered into on or after January 1, 2000 must file their policy forms, rules and rates with TDI or amend existing filings to comply with these requirements. Programs accepted on an individual risk submission basis do not comply with this Act and must be filed with TDI as a new filing. Reimbursement policies and endorsements are subject to prior approval and the rates and rules for these forms are file and use. All filings must be submitted in accordance with the filing requirements contained in “Property and Casualty Filings Made Easy,” accessible on our website.

This notice provides a summary description of the insurance requirements of Senate Bill 1775 and is not intended to provide a detailed presentation of the law.