HB 5

HB5 INTRODUCED
1 HB5
2 84UXGFF-1
3 By Representative McCampbell
4 RFD: Commerce and Small Business
5 First Read: 13-Jan-26
6 PFD: 25-Jun-25
  Page 0
84UXGFF-1 05/12/2025 ZAK (L)ZAK 2025-1898
1
2
3
4 SYNOPSIS:
5Generally, pursuant to the terms of a service
6contract, a provider agrees to repair, replace, or
7provide a refund for covered property that is
8operationally or functionally failing.
9This bill would require that when advertising a
10service contract, the advertisement must disclose any
11right of the provider to refund a contract holder in an
12amount less than the provider's cost to repair or
13replace covered property.
14This bill would further provide for the
15limitations, exceptions, and exclusions of service
16contracts that must be disclosed.
17This bill would further provide for entities
18that are exempt from certain service contract
19regulations.
20This bill would also make nonsubstantive,
21technical revisions to update the existing code
22language to current style.
23
24
25A BILL
26TO BE ENTITLED
27AN ACT
28
  Page 1
  HB5 INTRODUCED
29Relating to service contracts; to amend Sections
30 8-32-1, 8-32-2, 8-32-3, and 8-32-5, Code of Alabama 1975, to
31 further provide for entities exempt from certain service
32 contract regulations; to require certain disclosure when
33 advertising contracts; to further provide for the limitations,
34 exceptions, and exclusions of contracts that must be
35 disclosed; and to make nonsubstantive, technical revisions to
36 update the existing code language to current style.
37 BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
38Section 1. Sections 8-32-1, 8-32-2, 8-32-3, and 8-32-5,
39 Code of Alabama 1975, are amended to read as follows:
40"§8-32-1
41(a) The purpose of this chapter is to create a
42 framework to regulate service contracts sold to consumers in
43 this state.
44(b) The following are exempt from Sections 8-32-2 to
45 8-32-12, inclusive, of this chapter:
46(1) Warranties.
47(2) Maintenance agreements.
48(3) Warranties, service contracts, or maintenance
49 agreements offered by electric, gas, water, or telephone
50 utilities or mobile telecommunications service providers on
51 their transmission devices.
52(4) Service contracts sold or offered for sale in
53 commercial transactions.
54(5) Service contracts sold or offered for sale to
55 persons other than consumers.
56(6) Service contracts sold at the point of sale, or
  Page 2
  HB5 INTRODUCED
57 within 60 days of after the original purchase date of the
58 property, which cover tangible property where the tangible
59 property for which the service contract is sold, has a
60 purchase price of two hundred and fifty dollars ($250) or
61 less, exclusive of sales tax.
62(c) Manufacturer's service contracts on the
63 manufacturer's products and service contracts sold or offered
64 for sale by Alabama electric cooperatives, and their
65 subsidiaries and affiliates, including, without limitation,
66 affiliates managed or controlled by electric cooperatives, are
67 required to comply only with Section 8-32-3(a), Section
68 8-32-3(g), Section 8-32-5(a), Section 8-32-5(d) to (n),
69 inclusive, Section 8-32-6, Section 8-32-10(a), and Section
70 8-32-10(c) to (f), inclusive, as applicable, of this chapter.
71(d) The types of agreements referred to in subsections
72 (b) and (c) are not insurance for any purpose including,
73 without limitation, compliance with the Alabama Insurance
74 Code."
75"§8-32-2
76As used in this chapter, the following terms shall have
77 the following meanings:
78(1) ADMINISTRATOR. The person designated by a provider
79 to be responsible for the administration of service contracts
80 or the service contracts plan or to make the filings required
81 by this chapter.
82(2) COMMISSIONER. The Commissioner of Insurance of this
83 state.
84(3) CONSUMER. A natural person An individual who buys,
  Page 3
  HB5 INTRODUCED
85 primarily for personal, family, or household purposes, and not
86 for resale, any tangible personal property normally used for
87 personal, family, or household purposes and not for commercial
88 or research purposes.
89(4) MAINTENANCE AGREEMENT. A contract of limited
90 duration that provides for scheduled maintenance only.
91(5) MANUFACTURER. A person that is one of the
92 following:
93a. A manufacturer or producer of property that sells
94 the property under its own name or label.
95b. A subsidiary of the person who manufactures or
96 produces the property.
97c. A corporation which that owns at least 80 percent of
98 the person who that manufactures or produces the property.
99d. A person who that manufactures or produces the
100 property even though the property is sold under the trade name
101 or label of another person.
102(6) MECHANICAL BREAKDOWN INSURANCE. For purposes of
103 this chapter, a policy, contract, or agreement issued by an
104 authorized insurance company directly to a consumer or other
105 owner of property that provides for, among other coverages,
106 the repair, replacement, or maintenance of property or
107 indemnification for repair, replacement, or maintenance, for
108 the operational or structural failure of the property due to a
109 defect in materials or workmanship or due to normal wear and
110 tear.
111(7) NON-ORIGINAL MANUFACTURER'S PARTS. Replacement
112 parts not made for or by the original manufacturer of the
  Page 4
  HB5 INTRODUCED
113 property, commonly referred to as "after market parts."
114(8) PERSON. An individual, partnership, corporation,
115 incorporated or unincorporated association, joint stock
116 company, reciprocal, syndicate, or any other entity, or
117 combination of persons acting in concert.
118(9) PREMIUM. The consideration paid to an insurer for a
119 reimbursement insurance policy.
120(10) PROVIDER. A person who administers, makes,
121 provides, sells, or offers to sell a service contract, who is
122 contractually obligated to provide service under a service
123 contract.
124(11) PROVIDER FEE. The total purchase price paid for a
125 service contract. In cases where a reimbursement insurance
126 policy is issued to a provider, the "provider fee" is the
127 total purchase price paid for a service contract net of the
128 premium.
129(12) REFUND. To refund the price of covered property or
130 a component thereof, less reasonable depreciation, if:
131a. The replacement or repair of the property is not
132 commercially practicable; or
133b. The contract holder agrees to accept a refund in
134 place of the replacement or repair of the covered property or
135 component thereof.
136(12)(13) REIMBURSEMENT INSURANCE POLICY. A policy of
137 insurance issued to a provider pursuant to which the insurer
138 agrees, for the benefit of the service contract holders, to
139 discharge the obligations of the provider under the terms of
140 the service contracts in the event of non-performance
  Page 5
  HB5 INTRODUCED
141 nonperformance by the provider.
142(14) REPAIR. The restoration of operationally or
143 functionally failing covered property to sound or good
144 condition.
145(15) REPLACE. The replacement of property or a
146 component thereof with a new and identical or equivalent
147 product or component.
148(13)(16) ROAD HAZARD. A hazard that is encountered
149 while driving a motor vehicle, including, but not limited to,
150 potholes, rocks, wood debris, metal parts, glass, plastic,
151 curbs, or composite scraps.
152(14)(17) SERVICE CONTRACT. A contract or agreement for
153 a separately stated consideration for a specific duration to
154 perform the repair, replacement, or maintenance of property or
155 indemnification for repair, replacement, or maintenance, for
156 the operational or structural failure due to a defect in
157 materials or workmanship, or normal wear and tear, with or
158 without additional provision for incidental payment or
159 indemnity under limited circumstances, for related expenses,
160 including, but not limited to, towing, rental, and emergency
161 road service. Service contracts may provide for the repair,
162 replacement, or maintenance of property for damage resulting
163 from power surges and accidental damage from handling.
164 "Service contract" The term does not include warranties,
165 mechanical breakdown insurance, or maintenance agreements. A
166 service contract is not insurance for any purpose, including,
167 but not limited to, compliance with the Alabama Insurance
168 Code, other than for the purpose of a service contract
  Page 6
  HB5 INTRODUCED
169 holder's claim against a service contract provider for failure
170 to comply with the provisions of the service contract if so
171 provided by other law. Service contract services include, but
172 are not limited to, the following:
173a. The repair or replacement of tires or wheels, or
174 both, on a motor vehicle damaged as a result of coming into
175 contact with a road hazard.
176b. The removal of dents, dings, or creases on a motor
177 vehicle that may be repaired using the process of paintless
178 dent removal without affecting the existing paint finish and
179 without replacing vehicle body panels, sanding, bonding, or
180 painting.
181c. The repair of chips or cracks in or the replacement
182 of a motor vehicle windshield as a result of damage caused by
183 a road hazard that is primary to the coverage offered by the
184 motor vehicle owner's motor vehicle insurance policy.
185d. The replacement of a motor vehicle key or key-fob if
186 the key or key-fob becomes inoperable, lost, or stolen.
187e. Other services which that may be approved by the
188 commissioner, if not inconsistent with this chapter.
189(15)(18) SERVICE CONTRACT HOLDER or CONTRACT HOLDER. A
190 person who is the purchaser or holder of a service contract.
191(16)(19) WARRANTY. A warranty made by the manufacturer,
192 importer, distributor, or seller of property or services
193 without consideration stated separately from the price of the
194 property or services sold, that is not negotiated separate
195 from the sale of the product and is incidental to the sale of
196 the product, that guarantees repair or replacement, or
  Page 7
  HB5 INTRODUCED
197 indemnity for repair or replacement, for defective parts,
198 mechanical or electrical breakdown, labor or other remedial
199 measures, such as repair or replacement of the property or
200 repetition of services."
201"§8-32-3
202(a) Either the provider or its designee shall provide
203 both of the following to a contract holder:
204(1) Provide a A receipt for, or other written evidence
205 of, the purchase of the service contract to the contract
206 holder.
207(2) Provide a A copy of the service contract to the
208 service contract holder within a reasonable period of time
209 from the date of purchase.
210(b) A provider may, but is not required to, appoint an
211 administrator or other designee to be responsible for any or
212 all of the administration of service contracts and compliance
213 with this chapter.
214(c) Each provider of service contracts sold in this
215 state shall file a registration with the commissioner on a
216 form prescribed by the commissioner. Each provider shall pay
217 to the commissioner a fee in the amount of two hundred dollars
218 ($200) annually. All fees collected shall be paid into a
219 special revolving fund to be set up by the State Treasurer
220 referred to as the "Service Contract Revolving Fund." The
221 Service Contract Revolving Fund shall be used in the
222 supervision and examination of providers and otherwise in the
223 administration of this chapter; provided, however, that
224 nothing in this section shall be construed to mean that all of
  Page 8
  HB5 INTRODUCED
225 the expenses of supervision and examination of providers and
226 in the administration of this chapter incurred by the State
227 Insurance Department shall come from the Service Contract
228 Revolving Fund.
229(d) All funds now or hereafter deposited in the State
230 Treasury to the credit of the Service Contract Revolving Fund
231 shall may not be expended for any purpose whatsoever unless
232 the same shall have been allotted and budgeted in accordance
233 with the provisions of Sections 41-4-80 to 41-4-96, inclusive,
234 and 41-19-1 to 41-19-12, inclusive, and only in the amounts
235 and for the purposes provided by the Legislature in the
236 general appropriation bill, other appropriations bills, or
237 this chapter.
238(e) There is hereby appropriated for the fiscal year
239 ending September 30, 1998, from the Service Contract Revolving
240 Fund to the State Department of Insurance those amounts as
241 deemed necessary to carry out the provisions of this chapter
242 as determined by the Commissioner of Insurance.
243(f) In order to assure the faithful performance of a
244 provider's obligations to its service contract holders, each
245 provider shall be responsible for complying with the
246 requirements of one of the following subdivisions:
247(1) Insure all service contracts under a reimbursement
248 insurance policy issued by an insurer authorized to transact
249 insurance in this state or issued pursuant to Chapter 10,
250 Title 27.
251(2) Do both of the following:
252a. Maintain a funded reserve account for its
  Page 9
  HB5 INTRODUCED
253 obligations under its service contracts sold and outstanding
254 in this state. The reserves shall be based on the loss
255 experience of the provider as certified by an actuary or, at
256 the election of the provider, the reserves shall be 30 percent
257 of the aggregate provider fees for all service contracts sold
258 and then in force. The reserve account shall be subject to
259 examination and review by the commissioner.
260b. Place in trust with the commissioner a financial
261 security deposit, having a value of not less than five percent
262 of the aggregate provider fees, less claims paid, for all
263 service contracts sold and then in force, but not less than
264 twenty-five thousand dollars ($25,000) consisting of one of
265 the following:
266(i)1. A surety bond issued by an authorized surety.
267(ii)2. Securities of the type eligible for deposit by
268 authorized insurers in this state.
269(iii)3. Cash.
270(iv)4. A letter of credit issued by a qualified
271 financial institution.
272(v)5. Another form of security prescribed by
273 regulations issued by the commissioner.
274(3) Do both of the following:
275a. Maintain a net worth or stockholders' equity of one
276 hundred million dollars ($100,000,000).
277b. Upon request, provide the commissioner with a copy
278 of the financial statement of the provider included in its
279 most recent annual report on Form 10-K or Form 20-F filed with
  Page 10
  HB5 INTRODUCED
280 the Securities and Exchange Commission (SEC) within the last
281 calendar year, or if the provider does not file with the SEC,
282 a copy of the audited financial statements of the provider,
283 which shows a net worth of the provider of at least one
284 hundred million dollars ($100,000,000). A consolidated Form
285 10-K, Form 20-F, or audited financial statements shall meet
286 the requirements of this chapter for the provider if it shows
287 a net worth or stockholders' equity of the provider of at
288 least one hundred million dollars ($100,000,000) and there
289 shall be no requirement of a parent company guarantee,
290 reimbursement insurance, or other form of financial stability
291 requirement. However, if the Form 10-K, Form 20-F, or audited
292 financial statements of the parent company of the provider are
293 filed to meet the provider's financial stability requirement
294 because the provider's net worth or stockholders' equity of
295 the provider is not at least one hundred million dollars
296 ($100,000,000), or because the net worth or stockholders'
297 equity is not determinable from the consolidated Form 10-K,
298 Form 20-F, or audited financial statements of the parent
299 company, then the parent company shall agree to guarantee the
300 obligations of the provider relating to service contracts sold
301 by the provider in this state.
302(g) Service contracts shall require the provider to
303 permit the service contract holder to return the service
304 contract within no less than 20 days of the date the service
305 contract was mailed to the service contract holder or within
306 no less than 10 days of delivery if the service contract is
307 delivered to the service contract holder at the time of sale.
  Page 11
  HB5 INTRODUCED
308 Upon return of the service contract to the provider within the
309 applicable time period, if no claim has been made under the
310 service contract prior to its return to the provider, the
311 service contract is void and the provider shall refund to the
312 service contract holder the full purchase price of the service
313 contract including any premium paid for any applicable
314 reimbursement insurance policy. Any refund due a service
315 contract holder may be credited to any outstanding balance of
316 the account of the service contract holder, and the excess, if
317 any, shall be refunded to the service contract holder. The
318 right to void the service contract provided in this subsection
319 (g) is not transferable and shall apply only to the original
320 service contract purchaser, and only if no claim has been made
321 prior to its return to the provider. A 10 percent penalty per
322 month shall be added to a refund that is not paid or credited
323 within 45 days after return of the service contract to the
324 provider.
325(h) In the event the original service contract holder
326 makes a written demand for cancellation of a service contract
327 pursuant to the terms of the service contract, the provider
328 shall refund to the service contract holder the unearned
329 portion of the full purchase price of the service contract
330 including the unearned portion of any premium paid for any
331 applicable reimbursement insurance policy. Any refund due a
332 service contract holder may be credited to any outstanding
333 balance of the account of the service contract holder, and the
334 excess, if any, shall be refunded to the service contract
335 holder. If the original contract purchaser or a contract
  Page 12
  HB5 INTRODUCED
336 holder elects cancellation, the provider may retain an
337 administrative fee of up to twenty-five dollars ($25) for
338 issuance of the service contract if such the fee is provided
339 for in the service contract; however, this amount may not be
340 deducted in the event the service contract is terminated
341 pursuant to the provisions of subsection (g).
342(i)(1) Provider fees are not subject to premium taxes.
343(2) Premiums for reimbursement insurance policies are
344 subject to applicable taxes.
345(j) Except for the registration requirement in
346 subsection (c), providers, administrators, and other persons
347 marketing, selling, or offering to sell service contracts for
348 providers are exempt from any licensing requirements of this
349 state.
350(k) Providers are not required to comply with any
351 provision of Title 27.
352(l) A provider shall disclose in an advertisement for a
353 service contract, in boldface print larger than the body of
354 the advertisement, any right of the provider to refund a
355 contract holder in an amount less than the provider's cost for
356 repair or replacement of covered property."
357"§8-32-5
358(a) Service contracts sold or offered for sale in this
359 state, in their entirety, shall be written, printed, or typed
360 in eight point type size, or larger, and shall comply with the
361 requirements set forth in this section, as applicable.
362(b)(1) Service contracts insured under a reimbursement
363 insurance policy pursuant to subdivision (1) of subsection (f)
  Page 13
  HB5 INTRODUCED
364 of Section 8-32-3 8-32-3(f)(1) shall contain a statement in
365 substantially the following form:
366"Obligations of the provider under this service
367 contract are guaranteed under a service contract reimbursement
368 insurance policy."
369(2) If the provider fails to pay or to provide service
370 on a claim within 60 days after proof of loss has been filed,
371 the service contract holder is entitled to may make a claim
372 directly against the reimbursement insurance company. The
373 service contract shall state the name and address of the
374 reimbursement insurance company.
375(c) Service contracts not insured under a reimbursement
376 insurance policy pursuant to subdivision (1) of subsection (f)
377 of Section 8-32-3 8-32-3(f)(1) shall contain a statement in
378 substantially the following form:
379"Obligations of the provider under this service
380 contract are backed by the full faith and credit of the
381 provider."
382(d) Service contracts shall state the name and address
383 of the provider, and shall identify any administrator, the
384 service contract seller, and the service contract holder to
385 the extent that the name and address of the service contract
386 holder has been furnished by the service contract holder.
387 Neither the name of the service contract seller nor other
388 provisions are The information described in this subsection is
389 not required to be preprinted on the service contract and may
390 be added to the service contract at the time of sale.
391(e) Service contracts shall state the purchase price of
  Page 14
  HB5 INTRODUCED
392 the service contract, the term of the service contract, and
393 any applicable renewal provisions. Neither the purchase price
394 nor any other provisions are The information described in this
395 subsection is not required to be pre-printed preprinted on the
396 service contract and may be negotiated at the time of sale
397 with the service contract holder.
398(f) If the provider will reimburse the contract holder
399 for repair work performed by third parties and if prior
400 approval of repair work is required,: (i) the service contract
401 shall state the procedure for obtaining prior approval and for
402 making a claim, including a toll-free telephone number for
403 claim service; and (ii) if the service contract provides
404 services essential to public health, safety, or welfare, the
405 service contract shall either provide for 24-hour telephone
406 assistance, or state the procedure for obtaining emergency
407 repairs performed outside of normal business hours.
408(g) Service contracts shall state the existence of any
409 deductible amount.
410(h) Service contracts shall describe the property upon
411 which the services are to be provided, the services to be
412 provided, and, in boldface print larger than the body of the
413 contract, any limitations, exceptions, or exclusions to the
414 services to be provided, including both of the following:
415(1) Any limit on the repair, replacement, or refund of
416 covered property.
417(2) Any right of the provider to refund a contract
418 holder in an amount less than the provider's cost for repair
419 or replacement of the property.
  Page 15
  HB5 INTRODUCED
420(i) Service contracts shall state whether the use of
421 non-original manufacturer's parts is allowed.
422(j) Service contracts shall state any restrictions
423 governing the transferability of the service contract.
424(k) Service contracts shall state the terms,
425 restrictions, or conditions governing cancellation of the
426 service contract prior to the termination or expiration date
427 of the service contract by either the provider or by the
428 service contract holder. The provider of the service contract
429 shall mail a written notice to the service contract holder at
430 the last known address of the service contract holder
431 contained in the records of the provider at least five days
432 prior to cancellation by the provider. Prior notice is not
433 required if the reason for cancellation is nonpayment of the
434 provider fee or a material misrepresentation by the service
435 contract holder to the provider relating to the covered
436 property or its use. The notice shall state the effective date
437 of the cancellation and the reason for the cancellation.
438(l) Service contracts shall set forth the obligations
439 and duties of the service contract holder relating to the
440 property covered by the service contract.
441(m) Service contracts shall state whether or not the
442 service contract provides for or excludes consequential
443 damages or preexisting conditions, to the extent applicable.
444(n) Service contracts may contain other provisions as
445 determined by the provider.
446(o) Service contracts shall provide, in boldface print
447 larger than the body of the contract, the procedures that a
  Page 16
  HB5 INTRODUCED
448 contract holder shall take to receive the repair, replacement,
449 or refund of operationally or structurally failing covered
450 property."
451Section 2. This act shall become effective on January
452 1, 2027.
453
  Page 17