Current through August 26, 2024
(1) PURPOSE. This section interprets ss.
600.01(1) (b) 5, 601.04(2), (3) and (4) and 600.03(25)
(a), Stats., by substituting requirements more specifically appropriate to the
characteristics of the business of the issuance of warranties in lieu of the
full application of chs. 600 to 646, Stats. The commissioner finds that the
making of a contract relating to repair, replacement or restoration to a
prescribed condition of any good, product or object is the transaction of
insurance, subject to full application of chs. 600 to 646, Stats., unless the
person making the contract submits to the jurisdiction of the commissioner and
to the provisions of this section.
(2) SCOPE.
(a) Subject to sub. (3), this section applies
to all warrantors operating or offering to operate a warranty plan in this
state.
(b) This section does not
apply to licensed insurers who operate or offer to operate a warranty plan
pursuant to an authorization to transact insurance in this state or who issue
mechanical breakdown coverage insurance policies in this state.
(3) EXEMPTION. This section and
chs. 600 to 646, Stats., do not apply to:
(a)
The provision of services under a maintenance services contract which may
include some repairs and replacements as a part of the maintenance program if
the services are provided by the entity issuing the contract and claiming the
exemption and are not, except on limited occasions, performed by outside
organizations and do not involve the creation of obligations including acting
as a warranty plan administrator by a third party; or
(b) Warranties by manufacturers of products
which relate to the quality, merchantability or characteristics of the products
manufactured by the entity claiming exemption; or
(c) Warranties by a seller of services which
relate to the quality or characteristics of such services performed by the
entity claiming exemption.
(d) Any
vehicle protection product warranty properly registered under Chapter
Ins 14.
(4) DEFINITIONS. In this section:
(a) "Certificate of authority" means a
limited certificate of insurance authority issued by the commissioner to
operate a warranty business in this state.
(b) "Consumer" means any person who has
purchased a warranty contract to whom or for whose benefit the warranty is
given.
(c) "Warrantor" means a
person, other than an insurer authorized to do business in this state under
chs. 611 and 618, Stats., who operates a warranty business as principal.
"Warrantor" includes a warranty plan administrator who operates a warranty
business as a principal.
(d)
"Warranty contract" means the written agreement setting forth the obligations
of the warranty plan.
(e) "Warranty
plan" means a program or business, however denominated, involving the sale and
issuance of a warranty contract wherein a warrantor assumes responsibility to
repair, replace or restore to a prescribed condition a good, product or object
purchased or owned by a consumer.
(f) "Warranty plan administrator" means a
person, other than an insurer authorized to do business in this state under
chs. 611 and 618, Stats., who operates a warranty business as a principal or
who functions in a fiduciary capacity by:
1.
Receiving, holding, channelling or otherwise controlling monies connected with
the warranty plan, including premium dollars collected from providers of
services or sellers of products; or
2. Approving or disapproving claims, paying
claims or controlling the claim adjustment process; or
3. Arranging for or the controlling of the
purchase of insurance associated with warranty plan coverages.
(5) AUTHORIZATION FOR
TRANSACTION OF WARRANTY BUSINESS.
(a) No
warrantor or warranty plan administrator may transact a warranty business or
function in a fiduciary capacity as defined in sub. (4) (f) without having been
issued a valid limited certificate of insurance authority from the commissioner
pursuant to sub. (10).
(b) In the
event that identical warranty plans are offered or sold by warrantors, which
plans are prepared and administered by a common warranty plan administrator,
the commissioner may authorize the warranty plan administrator to apply for and
may issue a group limited certificate of insurance authority covering the
warranty plan administrator and each warrantor named as offering or selling
such warranty plan. The application for such authorization and the acceptance
of the authorization by the warranty plan administrator constitutes an
agreement by the administrator to assume the obligations of the warrantor under
subs. (6), (7), (8), (9), and (11).
(6) APPLICATION.
(a) An applicant for a limited certificate of
insurance authority shall submit a warranty plan or warranty plan administrator
application form prescribed by the commissioner. The warrantor, another person
on the warrantor's behalf, or warranty plan administrator shall sign and
acknowledge the application. The commissioner may request any additional
relevant information in order to make a determination of the applicant's
eligibility for a certificate of authority. An applicant shall pay the fee
required by s.
601.31(1) (a) 1, Stats.
(b) The application shall include a statement
that the warrantor or warranty plan administrator is subject to the terms and
conditions of this section and a statement naming the commissioner as agent for
service of process on the warrantor or warranty plan administrator in actions
related to the warrantor's or warranty plan administrator's transaction of a
warranty business in this state.
(7) FINANCIAL SECURITY REQUIREMENTS.
(a) The commissioner shall condition the
issuance of a limited certificate of insurance authority and its continuation
upon the warrantor or warranty plan administrator providing security to
compensate any consumer in this state who sustains loss due to the failure of
such warrantor or warranty plan administrator to perform its obligations under
a warranty contract as a result of insolvency or other financial impairment.
The commissioner shall approve the amount and form of the security. The
security shall be in one or a combination of the following:
1. Deposit of securities under s.
601.13,
Stats. The deposit of securities shall be for the benefit of Wisconsin
consumers.
2. An irrevocable letter
of credit from a bank properly chartered by the federal government or any state
and that is acceptable to the commissioner and issued for a term of at least 5
years with provision for renewal 2 years before termination. The letter of
credit shall be payable to the commissioner or the commissioner's designee for
the benefit of Wisconsin consumers upon a finding by the commissioner that a
warrantor or warranty plan administrator is insolvent or financially impaired
and unable to meet its obligations under warranty contracts issued in
Wisconsin. The warrantor or warranty plan administrator shall notify the
commissioner in writing of the nonrenewal of a letter of credit within 30 days
after receiving a notice of nonrenewal. No warrantor or warranty plan
administrator whose letter of credit has been nonrenewed may offer or sell or
renew any warranty contract under the warranty plan on or after the date of
nonrenewal until the warrantor obtains security satisfying the requirements of
this subsection or alternative security satisfying the requirements of sub. (8)
and the warrantor or warranty plan administrator receives written approval from
the commissioner that the security or alternative security satisfies the
requirements of this section.
(b) The security prescribed in par. (a) shall
be not less than $50,000 plus 15% of the warranty fees and charges collected
from consumers for all unexpired warranty contracts in force in Wisconsin on
January 1 of the current year.
(c)
The security shall continue until released by the commissioner pursuant to a
finding that it is not necessary for the reasonable protection of Wisconsin
consumers.
(8) ALTERNATE
SECURITY REQUIREMENTS.
(a) In lieu of the
financial security requirements in sub. (7), the warrantor may file an
insurance contract procured from an insurer authorized to transact business in
Wisconsin under which the insurer assumes the obligations of the warrantor
arising out of warranty contracts issued in Wisconsin to the extent that the
obligations are not fulfilled by the warrantor due to insolvency or other
financial impairment of the warrantor.
(b) In lieu of the financial security
requirements in sub. (7), the warranty plan administrator may file an insurance
contract procured from an insurer authorized to transact business in Wisconsin
under which the insurer assumes the obligations of the warranty plan
administrator arising out of warranty contracts issued in Wisconsin to the
extent that the obligations are not fulfilled by the warranty plan
administrator due to insolvency or other financial impairment of the warranty
plan administrator.
(c) The
warranty contract shall contain a statement providing the name and address of
the insurer assuming the obligation of the warrantor in the event of insolvency
or other financial impairment, and instructions on how the consumer may file a
claim with such insurer.
(d) The
insurance contract furnished under this section shall contain a provision under
which the insurer shall notify the commissioner in writing of the termination
or nonrenewal of the insurance contract at least 60 days prior to the
termination or nonrenewal.
(e) The
insurance contract shall cover the obligations under the warranty contracts
issued during the period of time that the insurance contract is in
force.
(9) CONTRACTS:
FILING, REVIEW AND REQUIRED LANGUAGE.
(a)
1. As a condition for obtaining a limited
certificate of insurance authority to transact a warranty business in
Wisconsin, an applicant shall file a copy of all contracts which are an
essential or integral part of the conduct of the applicant's business.
Contracts which an applicant shall file with the commissioner include, but are
not limited to:
a. Warranty
contracts.
b. Insurance contracts
procured and furnished pursuant to sub. (8).
c. Contracts with any administrator,
marketing agent or other entity.
d.
Contracts with providers of any service to be performed pursuant to the
obligations assumed under the warranty contract.
e. Any other contract as may be requested by
the commissioner.
2. As
a condition of maintaining a limited certificate of insurance authority to
transact a warranty business in this state, the warrantor or warranty plan
administrator shall file a copy of any modification to a contract filed under
subd. 1. prior to using the contract as modified.
(b) The contract shall satisfy the conditions
set forth in s.
631.20,
Stats., and shall clearly present the obligations being assumed by the
warrantor and the obligations being transferred by the warrantor to other
parties.
(c)
1. All warranty contracts issued under a
warranty plan subject to this section shall contain the following statement,
printed in bold type: "THIS WARRANTY IS SUBJECT TO LIMITED REGULATION BY THE
OFFICE OF THE COMMISSIONER OF INSURANCE."
2. All warranty contracts issued under a
warranty plan subject to this section shall contain a provision under which the
purchaser may, within 15 calendar days of the delivery of the warranty
contract, reject and return the warranty contract for a full refund less actual
costs or charges needed to issue and service the warranty contract.
(10) CERTIFICATE OF
AUTHORITY; ISSUANCE AND SUSPENSION OR REVOCATION.
(a) Within 90 days of receipt of the
completed application, the commissioner shall issue a certificate of authority
to transact a warranty business in this state upon finding that all of the
requirements of this section have been met and that the applicant is sound,
reliable and entitled to public confidence and that the commissioner may
reasonably expect the applicant to perform its obligations continuously in the
future. Upon issuance of the certificate of authority, the warrantor or
warranty plan administrator shall pay the fee required by s.
601.31(1) (b) 1, Stats.
(b) The commissioner may revoke or suspend a
certificate of authority previously granted under this section if:
1. There is any violation of any applicable
statute, rule or order.
2. The
commissioner finds that the warrantor or warranty plan administrator is unable
to conduct a warranty plan in a manner consistent with the protection of
Wisconsin citizens and consumers.
3. The financial condition of the warranty
plan is such that the interests of Wisconsin citizens and consumers are
threatened with imminent and substantial injury.
4. The warrantor or warranty plan
administrator makes a material misstatement of fact in the application, annual
reports or in connection with any examination conducted by the
commissioner.
(11) REPORTS AND EXAMINATION.
(a) As a condition prerequisite to the
continuation of a limited certificate of insurance authority to transact a
warranty business in Wisconsin, every warrantor and warranty plan administrator
shall, by March 31 of each year, submit financial statements prepared on an
accrual basis in accordance with generally accepted accounting principles and
audited by an independent certified public accountant on the financial
condition of such warrantor or warranty plan administrator for the preceding
calendar year ending December 31 and which shall also include such additional
information as the commissioner may require. An annual continuation fee
required under s.
601.31(1) (c) 1, Stats., shall accompany the annual
report.
(b) The commissioner may
examine the applicant for a certificate of authority and may examine any
warrantor or warranty plan administrator who holds a certificate of authority
under this section under the procedures of ss.
601.43 to
601.45,
Stats.
(12) APPLICABLE
STATUTES. In addition to statutes previously set forth in this section, ss.
601.41 to
601.45,
601.61 to
601.73,
628.34,
628.46 and ch. 645, Stats., apply to a warrantor, a warranty plan administrator and
the transaction of a warranty business in this state.
(13) TRANSITION REQUIREMENTS. Plans which
hold a limited certificate of insurance authority under the current rule on
June 1, 1991 need not reapply for a license but shall comply with subs. (7) and
(8) effective June 1, 1991, and shall file all contracts under sub. (9) within
60 days of June 1, 1991.
This rule requires use of an application form for warranty
plans which may be obtained from the Office of the Commissioner of Insurance,
Financial Examinations Bureau, P.O. Box 7873, Madison, Wisconsin 53707-7873.
This rule was first promulgated in 1978 and it was revised
in December 1984. This revision is an attempt to update the rule such as to
provide more effective regulation and also to more effectively recognize the
complexities that currently exist in the warranty plan marketplace. In general,
the sale of warranty contracts is clearly the transaction of an insurance
business under the provisions of Wisconsin Statutes. The rule as adopted in
1978 exempts warranty plans and contracts from a major portion of the Wisconsin
insurance regulatory statutes and administrative rules. Warranty plan
corporations have been established in Wisconsin and foreign corporations have
been authorized to do business in this state under the limited regulation
provided by the administrative rule in existence up until this current
revision. It would be unrealistic to significantly change the 1978 plan of
exemption from the insurance statutes.
The rule now being promulgated regulates the content of
Wisconsin contracts and the rule imposes basic requirements for solvency
protection of Wisconsin consumers. The rule makes no attempt to regulate the
countrywide operations of entities issuing warranty contracts but it does
require periodic financial reports from any such entity and the commissioner
has the authority and the responsibility to remove from the marketplace those
companies that are unable to demonstrate reasonable financial and operational
solidity.
The regulation of warranty plans and warranty contracts even
to the limited extent provided in the revised administrative rule, is complex
and difficult because of a number of factors which are unique to warranty
contracts and which present the insurance commissioner with a kind of business
that has little or no similarity to the traditional insurance mechanism. For
example, there is no countrywide system of regulation of warranty plans and
warranty contracts. In many states there is no regulation whatsoever and in
other states there is partial regulation somewhat comparable to that imposed by
the Wisconsin administrative rule. In addition, there is no uniform accounting
standard or system applicable to the financial reports submitted to the
regulatory authorities. The financial reports that OCI receives are of limited
value because of the difficulty in determining or measuring the liabilities
assumed under contracts issued in Wisconsin and in the other states in which
the company does business. Similarly, the value of the assets held by the
warranty company in various locations throughout the country is often difficult
to determine. Warranty plan companies are quite often an integral part of a
holding company system with intricate contractual relationships between various
corporate entities involved with the marketing, the sale of the product that is
the subject of the warranty, claims adjustment, and the processing of warranty
payments. This revised administrative rule attempts to accomplish reasonable
regulatory objectives while at the same time recognizing the difficulties of
asserting the entire scheme of insurance regulation.
