The Office of General Counsel issued the following opinion on March 9, 2005, representing the position of the New York State Insurance Department.
Re: Proposed transfer of warranty agreements to registered service contract provider
Question Presented
May a registered service contract provider assume the obligations under a manufacturers warranty?
Conclusion
A registered service contract provider may assume the obligations under a manufacturers warranty so long as the assumed contracts would constitute New York service contracts and the provider otherwise complies with all applicable laws and regulations.
Facts
"The manufacturer" wishes to enter into an agreement with "A Company", a registered service contract provider in New York. Under the agreement, "A Company" would assume all obligations under extended warranties sold by the manufacturer. Upon expiration of the current term of the agreement, "A Company" would not be obligated to offer a renewal or new agreement to the contract holder but "A Company" could offer to issue a new service contract. The inquirer has asked the Department to also look at the draft notification that would be provided to the warranty holders.
Analysis
New Yorks service contract law does not specifically address the issue of whether a service contract provider may assume the obligations under a warranty of a manufacturer or other warrantor or, for that matter, under service contracts issued by another service contract provider. However, the Department finds nothing in New York's service contract law or regulations that prohibit such transactions, subject to several provisos.
First, the assuming service contract provider may not assume any risk of loss other than as described in the definition of a service contract contained in N.Y. Ins. Law § 7902(k) (McKinney 2000). Second, the assuming provider must comply with all applicable requirements of New York service contract law contained in Article 79 of the Insurance Law and N. Y. Comp. Codes R. & Regs., tit. 11, § 390.0 et seq. (2001) (Regulation No. 155), as well as any other laws and regulations that may apply. To the extent necessary, the provider would have to amend the assumed agreement to comply with the service contract law, which it may do by a separate notification to the contract holder. Third, unless the warranty or service contract being assumed provides otherwise, any notification to the consumer must provide the consumer with the right to reject the proposed assumption. Finally, the Department expects the provider to advise the Department of any proposed assumption prior to implementation so that the Department may have sufficient time to review the assumption to determine if it is in compliance with the law.
The Department has reviewed the proposed transaction, including the assumption agreement, the manufacturer's warranty (entitled "service plan agreement") and the proposed notification letter. In assuming the obligations under the warranties, "A Company" will be providing only coverage authorized under Article 79. To the extent that certain provisions of the service contract law regarding providing conspicuous notice of approval of claims, or cancellation rights, the proposed transfer notification provides that "[t]he terms and conditions of your Service Plan Agreement will not change, except as otherwise provided for in this Notice,"and the notice contains provisions to conform the agreement to the service contract law. While the warranty did not contain certain provisions required by the service contract law with respect to terminating the agreement within the first 20 days, those provisions are moot here since all of the warranties have been in effect for more than 20 days. Hence, it would make little sense to include such notice in the notification to the contract holders. The notice also contains the notification that the obligations under the service contracts will be insured by a service contract reimbursement insurer, thus complying with the financial responsibility requirements of Article 79.
Accordingly, the Department has no objection to the proposed transfer.
For further information one may contact Principal Attorney Paul A. Zuckerman at the New York City Office.