Senate Bill Report HB 1704 — Regulation of Service Contracts and Protection Product Guarantees

Summary

This Senate Bill Report on HB 1704, as of February 22, 2022, concerns the regulation of service contracts and protection product guarantees, with Representatives Kirby, Vick, Ryu and Dufault as sponsors. The Brief Summary says the bill allows service contract providers and protection product guarantee providers to use more than one reimbursement insurance policy to cover their obligations and liabilities. The report says it passed the House on 2/14/22, 97-0. In the Staff Summary of Public Testimony, Mel Sorensen and Lance Lozano of the Service Contract Industry Council testify in support, and Jon Noski and Michael Walker of the Office of the Insurance Commissioner testify against, saying default reimbursement policies erode consumer protections.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Issuer: Congressional materials
Document type: Report
Date: 2022-02-24
Case: 2022 02 24 A29905 D244641 Bill Report 1704 Sbr Bfst Ta 22

Cite this document

“Senate Bill Report HB 1704 — Regulation of Service Contracts and Protection Product Guarantees.” Original at app.leg.wa.gov, dated 2022-02-24. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2022-02-24-2022-02-24-a29905-d244641-bill-report-1704-sbr-bfst-ta-22/, SHA-256 be3c1e1955600d1ea124cea06f6912597d3df32cc4c95b84cf530e3bd5302a88.

Full text

SENATE BILL REPORT
HB 1704

As of February 22, 2022

Title: An act relating to the regulation of service contracts and protection product guarantees.

Brief Description: Regulating service contracts and protection product guarantees.

Sponsors: Representatives Kirby, Vick, Ryu and Dufault.

Brief History: Passed House: 2/14/22, 97-0.
Committee Activity: Business, Financial Services & Trade: 2/22/22.

Brief Summary of Bill
• Allows service contract providers and protection product guarantee
providers to use more than one reimbursement insurance policy to cover
their obligations and liabilities.

SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE

Staff: Kellee Gunn (786-7429)

Background: Providing Proof of Financial Responsibility for Service Contracts and
Protection Product Guarantees on Consumer Goods and Motor Vehicles. Service
Contracts. Service contracts are agreements entered into to either provide, or compensate
for, a certain repair, replacement, or maintenance of property when there is an issue due to a
defect in materials, workmanship, or normal wear and tear.

To show financial responsibility to the state, service contract providers may choose one of
the following options to ensure obligations and liabilities are paid:
• insure contracts with a reimbursement insurance policy or through a risk retention
group;
• maintain a reserve account along with a security deposit, held by the Office of the
Insurance Commissioner (OIC); or

This analysis was prepared by non-partisan legislative staff for the use of legislative
members in their deliberations. This analysis is not part of the legislation nor does it
constitute a statement of legislative intent.

Senate Bill Report -1- HB 1704
• maintain or have a parent company with a maintained net worth of $100 million.

Protection Product Guarantees. Protection product guarantees are written agreements to
repair or replace a product upon failure of the product to perform under the terms of the
guarantee. Protection product guarantee providers must insure contracts with a
reimbursement insurance policy or through a risk retention group to show financial
responsibility, in addition to other financial requirements.

Both service contracts and protection product guarantees are regulated by OIC.

Reimbursement Insurance Policies for Service Contract and Protection Product Guarantee
Providers. Reimbursement insurance policies that insure service contracts and protection
product guarantees must reimburse or pay on behalf of the provider all sums the provider is
legally obligated to pay. Reimbursement policies must fully insure, rather than partially
insure, the obligations of the service contract provider or protection product providers.
These insurance policies may also be called commercial liability insurance products, or
CLIPs.

Summary of Bill: Service contract providers and protection product guarantee providers
may use more than one reimbursement insurance policy to cover their obligations and
liabilities.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony: PRO: It is important to note that these providers
must show financial responsibility, which would not be changed with this bill. This bill
would allow for insurance products to provide coverage in case of default of the provider, as
well as first dollar reimbursement. This combines well within the regulatory environment.
The Service Contract Industry Council has played a significant role in this. First dollar and
default CLIPs will allow for service contracts to cover their obligations without having to
dig into their operating revenue. By providing market flexibility to demonstrate financial
responsibility in less costly ways, it will reduce consumer costs. The bill would also bring
Washington into closer alignment with other states’ provisions regarding CLIP’s.

CON: It is OIC's mission to protect consumers. The bill changes a law that the AGO
requested in 1999. This bill does not define terms and processes. And section 3(1) is
written so ambiguously that it is difficult to know if it is just meant to include both first
dollar and default insurance. Allowing for default reimbursement policies erodes consumer

Senate Bill Report -2- HB 1704
protections established with first dollar policies, that require timely claims processing. And
this will allow multiple parties to insure these service contracts. Adding additional parties
to an already difficult process will only operate to cause complications and delays.

Persons Testifying: PRO: Mel Sorensen, Service Contract Industry Council; Lance
Lozano, Service Contract Industry Council.

CON: Jon Noski, Office of the Insurance Commissioner; Michael Walker, Office of the
Insurance Commissioner.

Persons Signed In To Testify But Not Testifying: No one.

Senate Bill Report -3- HB 1704

File and source

File: 2022-02-24_a29905_d244641_bill-report-1704-sbr-bfst-ta-22.pdf
Size: 9,052 bytes
SHA-256: be3c1e1955600d1ea124cea06f6912597d3df32cc4c95b84cf530e3bd5302a88
Our copy: 2022-02-24_a29905_d244641_bill-report-1704-sbr-bfst-ta-22.pdf
Original: app.leg.wa.gov